Daily Market Reports | Feb 15 2021
This story features QANTAS AIRWAYS LIMITED, and other companies. For more info SHARE ANALYSIS: QAN
The company is included in ASX50, ASX100, ASX200, ASX300 and ALL-ORDS
| World Overnight | |||
| SPI Overnight (Mar) | 6780.00 | + 37.00 | 0.55% |
| S&P ASX 200 | 6806.70 | – 43.40 | – 0.63% |
| S&P500 | 3934.83 | + 18.45 | 0.47% |
| Nasdaq Comp | 14095.47 | + 69.70 | 0.50% |
| DJIA | 31458.40 | + 27.70 | 0.09% |
| S&P500 VIX | 19.97 | – 1.28 | – 6.02% |
| US 10-year yield | 1.20 | + 0.04 | 3.63% |
| USD Index | 90.48 | + 0.09 | 0.10% |
| FTSE100 | 6589.79 | + 61.07 | 0.94% |
| DAX30 | 14049.89 | + 8.98 | 0.06% |
By Greg Peel
Groundhog Day
Victoria back in lockdown, the ASX200 tumbles to a -0.6% close. We’ve been here before.
As of Friday Captain Dan was calling only a five-day circuit breaker, akin to South Australia’s recent three-day jaunt which only lasted those three days. Mind you that was only one case, not 13 as was the situation in Melbourne on Friday.
On Saturday morning, the futures closed up 37 points. This smacks of traders believing such snap lockdowns have shown to be a storm in a tea cup. Wall Street did nothing on Friday night, so futures strength can only be domestically oriented (outside of oil – more on that in a minute).
As of this morning there are 16 cases in Melbourne, and authorities are chasing down contacts outside of hotel quarantine. We recall that Melbourne’s last lockdown lasted 111 days and put a big dent in what had been a recovering Australian economy.
All sectors closed in the red on Friday bar telcos (+0.4%), which could be seen as a lockdown beneficiary. Energy was the hardest hit (-1.3%) on the transport theme, although oil prices did slip on Thursday night.
Industrials was next worse (-1.2%), again on the transport theme, with Qantas ((QAN)) falling -4.8%, Sydney Airport ((SYD)) down -2.2% and Transurban ((TCL)) down -1.7%.
Reverberations continued through to consumer discretionary (-0.7%), with Webjet ((WEB)) a flag bearer on -3.9%.
Banks felt the pain (-0.5%), but other than telcos the two comparatively outperforming sectors in the general sell-off were consumer staples (-0.2%) and healthcare (-0.05%) which again makes sense in the lockdown scenario.
Oil prices jumped 2.7% on Friday night, which would go some way to explaining the bounce in the futures on Saturday morning, but not all the way. So we’ll have to see how the market responds this morning, with Captain Dan talking potential lockdown extension.
Lockdowns or not, we are now entering the busiest two weeks of the local reporting season, so suffice to say, anything can happen.
Valuation Conundrum
A slew of late buy orders flattered Wall Street on Friday night, which had otherwise put in another stumbling, lacklustre session until right at the death. All three major indices again hit record highs.
By pretty much all metrics, Wall Street is in overvaluation territory. And on Friday night it was reported the prior week had seen record inflows into equities. Charles Schwab, for one, broke its own record, and it is a retail broker. It’s looking a lot like the late 1990s.
Which should be scary, but try and find someone who believes a crash is coming. A pullback maybe, but there is just too much support for the market in the form of fiscal stimulus, monetary stimulus and the vaccine rollout, which has substantially picked up pace under Biden.
Valuations may be stretched but Wall Street typically comes out of a recession into a multi-year bull market. Wall Street had been in a longer-than-average multi-year bull market before covid, coming out of the GFC, but can we call the -33% Wall Street fall last March-April a “bear” market, other than by text book definition?
If not, we’re still in that multi-year bull market, brief correction or not.
Since Friday night, Trump has been acquitted. No shock – it was expected all along, and for Wall Street the good news will likely be more so that the charade is over, allowing Congress to return focus to fiscal stimulus.
On the monetary side, freshly minted Treasury Secretary Janet Yellen told G7 finance ministers and central bankers on Friday night that “the time to go big is now”. Both the former Fed chair, and the current Fed chair, learned the lesson of being too slow and hesitant in heading off the GFC recession.
Recall we had several rounds of QE, and other measures to boot, for years afterwards.
The US ten-year yield rose 4 basis points to 1.20% on Friday night, which means it’s back where it was last January. The thirty-year yield passed 2.0%, so the yield curve is steepening.
This is one factor that could derail the stock market, if the trend persists. But then the Fed can always step in.
Higher yields and a steepening yield curve are manna for US banks. Ongoing rises in oil prices are driving a recovery for the US energy sector. Both are climbing back from very deep covid holes, in contrast to the stay-at-home brigade that just keep going up.
Meanwhile, US consumer sentiment, as measured by the University of Michigan, fell to 76.2 in early February to mark a six-month low. Recall that 100 is the neutral line between optimism and pessimism, and a similar Australian index is running comfortably above 100.
Unless Melbourne’s lockdown is extended.
Wall Street spent last week doing very little, but did close higher, albeit by less than 1%. Not really going up much, can’t really go down.
Commodities
| Spot Metals,Minerals & Energy Futures | |||
| Gold (oz) | 1824.30 | + 0.70 | 0.04% |
| Silver (oz) | 27.35 | + 0.39 | 1.45% |
| Copper (lb) | 3.76 | + 0.01 | 0.39% |
| Aluminium (lb) | 0.94 | + 0.01 | 1.01% |
| Lead (lb) | 0.96 | + 0.00 | 0.40% |
| Nickel (lb) | 8.35 | – 0.05 | – 0.63% |
| Zinc (lb) | 1.26 | + 0.01 | 0.58% |
| West Texas Crude | 59.47 | + 1.57 | 2.71% |
| Brent Crude | 62.43 | + 1.62 | 2.66% |
| Iron Ore (t) | 165.95 | 0.00 | 0.00% |
Last week had shown a big drawdown of US crude inventories but Friday night’s jump in oil prices is being attributed to rising tensions between the Saudis and Iran-backed Houthis in Yemen.
But Biden’s move to reverse Trump’s labelling of the Iran-backed Houthis in Yemen a terrorist organisation has upset Saudi Arabia.
Saudi Arabia has been instrumental in driving higher oil prices by stoically maintaining production curtailments and pushing OPEC-Plus partners to do the same. The number of US oil rigs in production rose by 7 to 306 last week, marking twelve consecutive months of growth. The Saudis are doing the heavy lifting, and US oil companies are benefiting. The Saudis have hinted they may now not wish to be so stoic, which would suggest oil prices heading the other way in a hurry.
Note that the iron ore price will likely remain unchanged for another few days until the Chinese are back on line.
The Aussie is relatively stable at US$0.7760.
The SPI Overnight closed up 37 points or 0.6%.
The Week Ahead
Aside from China being closed, the US is closed tonight for Presidents’ Day.
JB Hi-Fi ((JBH)) is among those companies reporting today, along with Aurizon Holdings ((AZJ)), Bendigo & Adelaide Bank ((BEN)) and others, and thereafter the floodgates begin to open.
Economically we’ll see January jobs numbers on Thursday and a preliminary look at retail sales on Friday.
The US will see numbers for retail sales and industrial production on Wednesday, and the minutes of the last Fed meeting will be released.
Friday brings flash estimates of February PMIs from across the globe.
FNArena's Corporate Results Monitor is updated daily throughout the month: https://www.fnarena.com/index.php/reporting_season/
The Australian share market over the past thirty days…
| BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS | |||
| AMP | AMP Ltd | Upgrade to Neutral from Underperform | Macquarie |
| ASX | ASX Ltd | Upgrade to Neutral from Sell | Citi |
| Upgrade to Neutral from Underperform | Credit Suisse | ||
| CGF | Challenger | Upgrade to Add from Hold | Morgans |
| Downgrade to Neutral from Outperform | Macquarie | ||
| CIM | Cimic Group | Downgrade to Neutral from Outperform | Credit Suisse |
| CWN | Crown Resorts | Downgrade to Neutral from Outperform | Macquarie |
| DRR | DETERRA ROYALTIES | Upgrade to Neutral from Sell | Citi |
| EOF | Ecofibre | Downgrade to Hold from Buy | Ord Minnett |
| GEM | G8 Education | Upgrade to Neutral from Underperform | Macquarie |
| GNC | Graincorp | Downgrade to Neutral from Outperform | Credit Suisse |
| GXY | Galaxy Resources | Downgrade to Underperform from Neutral | Credit Suisse |
| IAG | Insurance Australia | Upgrade to Buy from Neutral | Citi |
| NCM | Newcrest Mining | Upgrade to Add from Hold | Morgans |
| NST | Northern Star | Upgrade to Buy from Hold | Ord Minnett |
| SUN | Suncorp | Downgrade to Hold from Accumulate | Ord Minnett |
| TCL | Transurban Group | Upgrade to Neutral from Sell | Citi |
| Upgrade to Neutral from Underperform | Credit Suisse | ||
For more detail go to FNArena's Australian Broker Call Report, which is updated each morning, Mon-Fri.
All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available on the FNArena website. Click here. (Subscribers can access prices on the website.)
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CHARTS
For more info SHARE ANALYSIS: AZJ - AURIZON HOLDINGS LIMITED
For more info SHARE ANALYSIS: BEN - BENDIGO & ADELAIDE BANK LIMITED
For more info SHARE ANALYSIS: JBH - JB HI-FI LIMITED
For more info SHARE ANALYSIS: QAN - QANTAS AIRWAYS LIMITED
For more info SHARE ANALYSIS: TCL - TRANSURBAN GROUP LIMITED
For more info SHARE ANALYSIS: WEB - WEB TRAVEL GROUP LIMITED