Daily Market Reports | Jun 11 2021
This story features IRESS LIMITED, and other companies. For more info SHARE ANALYSIS: IRE
|SPI Overnight (Jun)||7307.00||+ 1.00||0.01%|
|S&P ASX 200||7302.50||+ 32.30||0.44%|
|Nasdaq Comp||14020.33||+ 108.58||0.78%|
|S&P500 VIX||16.10||– 1.79||– 10.01%|
|US 10-year yield||1.46||– 0.03||– 2.01%|
|USD Index||90.05||– 0.08||– 0.09%|
|DAX30||15571.22||– 9.92||– 0.06%|
And We’re Back
Apologies for yesterday’s lack of Overnight Report. It seems satellite dishes don’t work so well when they’re full of snow. Who knew?
Wednesday on the ASX saw a repeat performance of Tuesday, featuring the ASX200 shooting out of the blocks to decisively rally beyond 7300 before giving it all back by the close – in Wednesday’s case more than all of it.
Yesterday the index opened higher again but was a little more measured this time. Around midday it looked like déjà vu all over again as the index resisted the 7300 level but this time it doggedly pushed forward in the afternoon to just close above.
The latest mini-trend in the market is to buy technology once again, after a brief period of loneliness, and to buy REITs for the inflation protection tech doesn’t offer. Tech rose 2.0% yesterday and property 2.4%.
When it comes to tech, Iress ((IRE)) is a bit of a grandfather but apparently attractive to private equity, if yesterday’s media speculation of a takeover bid being nigh is accurate. Iress topped the index with a 16.8% surge.
Materials was otherwise flat on the day on a balance of commodity price moves while energy (-1.1%) was the only sector to close notably lower, probably on profit-taking after a good run, in contrast to utilities (+1.0%).
The banks held up well (+0.4%) considering the Australian ten-year yield suddenly fell -9 basis points to 1.47% ahead of last night’s US inflation read.
Telcos posted the only other move of note (+0.8%). There was no real evidence of any shift into defensive mode nonetheless, given all bar one sector closed positively.
There was nothing on the economic calendar yesterday so it was all eyes to New York last night. The ASX200 closing at the pivot point of 7300 seemed appropriate.
The futures are up one point this morning, so there is a clue that perhaps the US CPI was a benign event.
Go Back, You’re Going the Wrong Way
Last month Wall Street was shocked by an April headline inflation number of 4.2%. Bond yields spiked and stocks tumbled, led by the Nasdaq. Last night the May number came in at 5.0%. Bond yields fell and stocks rallied, led by the Nasdaq.
Suffice to say there were a lot of perplexed looks around the market. It was a bit of a no brainer, it had been assumed, that another hot number would spark the same reaction as a month ago.
One month of spiking inflation may be transitory, but two?
In the battle between the transitories and the structurals, last night was a clear victory for the transitories, led by flag bearer the Fed. The Fed had foreseen inflation spikes and has long suggested it might be as far away as next year before inflation settles back to the 2% target.
We recall that April last year saw inflation collapsing, as covid ran amok and lockdowns were implemented. While the Wall Street rebound began in April and continued strongly through May, the US economy was still well into recession mode. Cycle these two months and it’s not hard to see why this year’s CPI numbers (annualised) are so hot.
And while it didn’t take too long for Wall Street to return to the prior highs from which the market had fallen, the economic comeback was very much a lagging affair. Hence as last year’s second half saw inflation starting to revive, this year’s numbers should begin to ease back.
That’s the transitory story. If we break down the headline CPI segments, one third of the 5.0% gain is attributable to used car prices. New cars are hard to get at present, due to the chip shortage. The chip shortage is due to covid-led supply chain problems. These, one assumes, will eventually be resolved.
Next up are energy prices. But if we look at the core CPI (ex food & energy) an increase in May to 3.8% from 3.0% in April is still rather significant. Indeed, it’s a 29-year high.
The structural argument? Copper, nickel, lumber…the list goes on… have all rallied strongly this year and should continue to do so if the developed world (and in this I include China) makes good on its infrastructure plans, notwithstanding the rise of EVs and batteries.
Last night suggested the Fed has got it right, so far. The structurals are yet to be convinced, but they were seen slinking into the night with their tails between their legs.
In other news, the ECB remains in step with the Fed, last night making no change to its bond purchase program.
|Spot Metals,Minerals & Energy Futures|
|Gold (oz)||1898.20||+ 10.20||0.54%|
|Silver (oz)||27.96||+ 0.23||0.83%|
|Copper (lb)||4.43||– 0.03||– 0.59%|
|Aluminium (lb)||1.12||+ 0.01||1.12%|
|Lead (lb)||0.98||– 0.00||– 0.05%|
|Nickel (lb)||8.01||– 0.08||– 0.93%|
|Zinc (lb)||1.35||– 0.01||– 0.42%|
|West Texas Crude||70.29||+ 0.54||0.77%|
|Brent Crude||72.32||+ 0.29||0.40%|
|Iron Ore (t)||217.00||+ 3.50||1.64%|
It wasn’t an inflationary session for base metals but iron ore is now almost back at the prior all-time high.
The oils tick merrily ever upwards and, barring a production quota increase from OPEC, will do so based on global demand levels.
OPEC used to target US$85/bbl as their sweet spot for pricing but were Brent to get there, it would not last long if OPEC pumps up production.
The Aussie’s back at around 77.5c US. If there’s any change I’ll let you know.
The SPI Overnight closed up one point.
S&P/ASX will today announce its quarterly reshuffling of stocks in the main indices, to become effective next Friday.
Happy Birthday Liz, it’s a long weekend and the ASX is closed on Monday.
FNArena will remain ever accessible but full service will return on Tuesday.
The Australian share market over the past thirty days…
|BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS|
|ASX||ASX Ltd||Downgrade to Reduce from Hold||Morgans|
|BKW||Brickworks||Downgrade to Hold from Add||Morgans|
|DCN||Dacian Gold||Upgrade to Outperform from Neutral||Macquarie|
|NSR||National Storage||Upgrade to Accumulate from Hold||Ord Minnett|
|RHC||Ramsay Health Care||Upgrade to Buy from Neutral||Citi|
|WAF||West African Resources||Downgrade to Neutral from Outperform||Macquarie|
|WHC||Whitehaven Coal||Upgrade to Buy from Accumulate||Ord Minnett|
|WOW||Woolworths||Downgrade to Underperform from Neutral||Credit Suisse|
For more detail go to FNArena's Australian Broker Call Report, which is updated each morning, Mon-Fri.
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