Daily Market Reports | Mar 31 2021
This story features TELSTRA GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: TLS
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS
| World Overnight | |||
| SPI Overnight (Jun) | 6766.00 | + 56.00 | 0.83% |
| S&P ASX 200 | 6738.40 | – 61.10 | – 0.90% |
| S&P500 | 3958.55 | – 12.54 | – 0.32% |
| Nasdaq Comp | 13045.40 | – 14.25 | – 0.11% |
| DJIA | 33066.96 | – 104.41 | – 0.31% |
| S&P500 VIX | 19.61 | – 1.13 | – 5.45% |
| US 10-year yield | 1.73 | + 0.01 | 0.29% |
| USD Index | 93.30 | + 0.37 | 0.40% |
| FTSE100 | 6772.12 | + 35.95 | 0.53% |
| DAX30 | 15008.61 | + 190.89 | 1.29% |
By Greg Peel
Groundhog Day
There’s an interesting battle going on currently between futures traders and the physical stock market. On Saturday morning, the futures closed up 49 points and on Monday the ASX200 closed down -25. On Tuesday morning, the futures closed up 44 and the index fell -61. This morning, the futures are up 56.
In each case the overnight lead from Wall Street has been largely irrelevant. While US health officials are now fretting over a possible fourth wave, with the CDC director warning of “impending doom”, we’re now running scared as well over the Brisbane outbreak.
Palaszczuk has now exported the virus to Byron Bay.
All sectors were sold down yesterday bar one. The index opened up 37 points but immediately turned tail, as it has done on Monday. Most of the damage was done before lunch but an attempt at an afternoon rally failed, resulting in a -98 point drop from peak to close.
Telcos was the only positive sector (+0.6%) after Morgan Stanley double-upgraded Telstra ((TLS)) to Overweight from Underweight, suggesting greater value lays in the sum of its soon to be split parts.
Otherwise, technology had a rare day off (flat) and the banks held up the financials sector (-0.3%) against more falls in insurance names. On strong weekly payroll data, the local ten-year yield jumped up 12 points to 1.76%, which is almost bang on the US equivalent. Higher rates are good for banks.
Elsewhere it was more of a “sell everything” session. The difference between two very similar sessions on Monday (-25) and yesterday (-61) was no counter from the resource sectors.
Despite a big jump in the iron ore price, materials fell -1.9% as the gold price took a tumble (and took a bigger tumble last night). It is becoming clear nonetheless that daily trade in the big iron ore names is now less directly linked to iron ore price movements. Brokers agree iron ore could fall back towards US$100/t and still the miners would be rolling in it.
Energy fell -1.6%. While oil prices didn’t move much on Monday night it’s likely falls are anticipated now that ship has sailed. Suez operators reckon they can clear the 400 boat backlog in four days.
Santos ((STO)) announced yesterday it had received the go-ahead for its Barossa gas project. No, it’s not where you think it might be – it’s off the coast of Darwin. The market failed to be impressed however.
Nor was it impressed in AGL Energy ((AGL)) flagging a split into two companies, one to be called Dinosaur and the other Better Late Than Never, or something like that. The former will hold AGL’s coal-fired power assets and the latter will concentrate on renewables. AGL fell -3.5% and the utilities sector -1.8%.
So we have the S&P500 down -0.3% overnight and our futures up 56 points. Who will win today?
This morning Palaszczuk will announce whether Easter is cancelled in Queensland, and it looks very much like it will be. I asked the question yesterday how will prospective holiday-makers get to Queensland’s north if they have to pass through Brisbane? Yesterday the airlines were cancelling flights left, right and centre.
Arthur or Martha?
There’s no new news on the Archegos front other than to note two more names added to the list of banks exposed, being Wells Fargo and UBS, and an estimation of the losses set at –US$5-10bn.
The range of that estimate underscores the lack of clarity at this point, and still no bank is prepared to confirm or deny whether each knew about positions held by the others. But like Goldman Sachs, Morgan Stanley and Deutsche Bank, Wells and UBS have declared minimal losses. Nomura and Credit Suisse are carrying the can.
We also know Archegos ran highly leveraged positions in the form of contracts for difference (CFD), which are banned in the US. This explains the global spread of banks. CFDs basically allow you to borrow to buy options on stocks (or other instruments).
Gold has again taken a sharp leg down.
News the 400 backed-up ships will be through the Canal within four days did have an impact on oil prices overnight, but only to the tune of -2%.
Biden is set to discuss his planned infrastructure package publically tonight. Talk is of US$3-4trn. Talk is also of a hike in the corporate tax rate to 28% from the 21% Trump had cut it down to. This has Wall Street a little nervous, but one has to assume Biden would spend first and set about collecting later, rather than shoot down the recovery out of covid.
Speaking of recoveries, the Conference Board’s monthly index of consumer confidence has jumped to a one-year high 109.7 this month from 90.4 in February, driven by faster than expected vaccinations and US$1400 stimulus cheques in pockets. Never mind the rising case-count.
Wall Street had opened lower in the morning – the Nasdaq was down -1% — after the ten-year bond yield popped up to a one-year high 1.74%. The yield closed the session under 1.73%, allowing the stock indices to rebound. They were all back to flat when late selling once again emerged.
Late selling, late buying, scared by bond yields, not worried about bond yields – every day is different on Wall Street at present, suggesting a clear lack of consensus view. Interestingly, with Big Tech having fallen substantially this year, brokers are now moving in to upgrade the likes of Google and Amazon, declaring they are no longer expensive.
Meanwhile, Amazon workers are currently voting whether to form a union, to fight back at oppressive working conditions.
They’re only going to get busier, as the consumer confidence result suggests Americans are poised to spend.
So we have a rotation phase possibly having run its course, massive stimulus offset by tax hikes, a fast-paced vaccine rollout countered by rising cases of more virulent covid variants (bringing vaccine effectiveness into question), pumped up consumers and increasing inflation fears.
Whereto from here?
Commodities
| Spot Metals,Minerals & Energy Futures | |||
| Gold (oz) | 1683.60 | – 27.10 | – 1.58% |
| Silver (oz) | 23.94 | – 0.69 | – 2.80% |
| Copper (lb) | 3.98 | – 0.06 | – 1.60% |
| Aluminium (lb) | 1.00 | – 0.01 | – 1.36% |
| Lead (lb) | 0.88 | + 0.00 | 0.34% |
| Nickel (lb) | 7.27 | – 0.03 | – 0.47% |
| Zinc (lb) | 1.26 | – 0.01 | – 0.68% |
| West Texas Crude | 60.46 | – 1.19 | – 1.93% |
| Brent Crude | 64.02 | – 1.11 | – 1.70% |
| Iron Ore (t) | 166.55 | – 1.15 | – 0.69% |
Typically a rush into the US dollar is a reflection of money moving into a perceived safe haven. Last night’s 0.4% jump in the index has had its effect on metals, and notably gold, which is also under pressure from Archegos fears.
The oils are down, but given how much they rallied when the boat got stuck, and stayed stuck for a week, they are still holding up for now.
Thankfully the jump in the greenback and commodity price falls are worth -0.5% for the Aussie, down to US$0.7595.
Today
The SPI Overnight closed up 56 points or 0.8%. Is today the day to be right?
Locally we’ll see numbers for building approvals and private sector credit today.
China will release its March PMIs.
The US will see private sector jobs numbers for March.
Eagers Automotive ((APE)) and Harvey Norman ((HVN)) go ex today.
The Australian share market over the past thirty days…
| BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS | |||
| AWC | Alumina | Upgrade to Neutral from Underperform | Macquarie |
| CMM | Capricorn Metals | Upgrade to Neutral from Underperform | Macquarie |
| COE | Cooper Energy | Downgrade to Hold from Add | Morgans |
| GXY | Galaxy Resources | Upgrade to Buy from Hold | Ord Minnett |
| IAG | Insurance Australia | Upgrade to Add from Hold | Morgans |
| ILU | Iluka Resources | Upgrade to Buy from Hold | Ord Minnett |
| JBH | JB Hi-Fi | Downgrade to Underweight from Equal-weight | Morgan Stanley |
| JMS | JUPITER MINES | Upgrade to Outperform from Neutral | Macquarie |
| MCP | Mcpherson'S | Downgrade to Hold from Buy | Ord Minnett |
| MGX | Mount Gibson Iron | Upgrade to Outperform from Neutral | Macquarie |
| NWL | Netwealth Group | Upgrade to Buy from Neutral | Citi |
| ORE | Orocobre | Upgrade to Buy from Hold | Ord Minnett |
| OSH | Oil Search | Upgrade to Neutral from Underperform | Macquarie |
| REA | REA Group | Upgrade to Neutral from Underperform | Credit Suisse |
| S32 | South32 | Upgrade to Outperform from Neutral | Macquarie |
| TLS | Telstra Corp | Upgrade to Overweight from Underweight | Morgan Stanley |
For more detail go to FNArena's Australian Broker Call Report, which is updated each morning, Mon-Fri.
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CHARTS
For more info SHARE ANALYSIS: AGL - AGL ENERGY LIMITED
For more info SHARE ANALYSIS: APE - EAGERS AUTOMOTIVE LIMITED
For more info SHARE ANALYSIS: HVN - HARVEY NORMAN HOLDINGS LIMITED
For more info SHARE ANALYSIS: STO - SANTOS LIMITED
For more info SHARE ANALYSIS: TLS - TELSTRA GROUP LIMITED