Daily Market Reports | Apr 29 2021
This story features RAMELIUS RESOURCES LIMITED, and other companies. For more info SHARE ANALYSIS: RMS
The company is included in ASX100, ASX200, ASX300 and ALL-ORDS
| World Overnight | |||
| SPI Overnight (Jun) | 7059.00 | + 18.00 | 0.26% |
| S&P ASX 200 | 7064.70 | + 30.90 | 0.44% |
| S&P500 | 4183.18 | – 3.54 | – 0.08% |
| Nasdaq Comp | 14051.03 | – 39.19 | – 0.28% |
| DJIA | 33820.38 | – 164.55 | – 0.48% |
| S&P500 VIX | 17.28 | – 0.28 | – 1.59% |
| US 10-year yield | 1.62 | – 0.00 | – 0.12% |
| USD Index | 90.61 | – 0.28 | – 0.31% |
| FTSE100 | 6963.67 | + 18.70 | 0.27% |
| DAX30 | 15292.18 | + 42.91 | 0.28% |
By Greg Peel
Zero Rates Forever!
Anyone in the Australian market who’d been having sleepless nights worrying about inflation slept like a baby last night. Annual core inflation, which informs the RBA’s cash rate policy, fell to a record low in the March quarter.
What was all the fuss about?
Headline inflation rose by 0.6% quarter on quarter having risen 0.9% in the December quarter. The market had forecast another 0.9%. The annual headline rate rose to 1.1% from 0.9%, when forecasts were for 1.4%. Higher fuel costs were offset by a big fall in electricity prices, which seemed to catch economists out.
Core inflation, which excludes food and energy, rose by 0.3% having risen by 0.4% in December. Forecasts were for 0.5%. The annual rate fell to 1.1% from 1.2%.
Given the RBA wants to see core inflation over 2%, in line with unemployment falling to 4.5%, it would appear the current policy stance is set in stone for some time.
Which is great news, overall, for the stock market. When the market opened yesterday it did nothing ahead of the 11am CPI release, and on its release immediately jumped 40 points. It settled back a bit by the close.
The only sector to close in the red yesterday was materials, which is interesting as it was as basically the only winner on Tuesday. Profits were taken in the big miners on a pullback from record highs for the iron ore price, but it was gold miners which were particularly slammed. Four of the top five index losers on the day were gold miners.
The gold price did slip a bit overnight but the real issue was that of a run of weak production reports. Ramelius Resources ((RMS)) was the worst performer (-9.2), but St Barbara ((SBM)), Perseus Mining ((PRU)) and Gold Road Resources ((GOR)) were also among the big losers.
The winning sector on the day was property (+1.5%), which doesn’t happen very often. Low rates make REIT yields look that much rosier.
The most interesting, and most influential move in index terms, sector gain was that of financials (+1.1%). Low interest rates are the enemy of net interest margins. They do nonetheless protect against potential loan defaults, but recent bank data suggest bad loans are well under control.
Perhaps we can explain bank buying by the fact the Australian ten-year yield fell a mere one basis point on the CPI news to 1.72%, when no one would have been surprised by a bigger fall. As long as the yield curve remains steep, banks can actually make some money.
Energy did well (+1.0%) on higher oil prices, healthcare bounced back on a lower Aussie (+0.9%) and industrials also enjoyed low rates (+0.7%) thanks to the yield-paying toll roads and airports within, and thanks to an index-winning 7.1% jump for Downer EDI ((DOW)) following an update which included an increased buyback.
After several sessions of falls, Kogan ((KGN)) rebounded 7.1% having received a speeding ticket from the ASX (a please-explain) which drew more information from management that was not as bad as first thought.
The S&P500 has had another basically flat session overnight yet our futures are up 18 points this morning.
The Aussie however, which fell to as low as US$0.7728 on the CPI numbers, is back up again to be 0.2% higher over 24 hours at US$0.7790.
We don’t believe in zero rates forever
We recall that the theme of this quarter’s US earnings season (and the prior two quarters) has been one of a beat in itself being not enough to draw any buyers, such that the S&P500 has been as good as flat for the period. The only way to spark some buying is to really smash it out of the park, particularly if the share price had been previously lagging the wider market.
That’s why last night Microsoft (Dow) fell -2.8% when Google rose 3.2%, both having reported after the bell on Tuesday night.
This morning’s aftermarket results continued the theme. Ebay beat but is down -5.6%, suggesting its March quarter was a bit of an outlier in year-on-year terms. But Facebook and Apple, both of which have lagged somewhat, each posted stellar beats to drive gains of 6.4% and 2.4% respectively.
These percentage moves don’t seem that spectacular, but put it in the context of the sheer size of these companies and they are very index-influential. So tonight’s session should be interesting.
While earnings remained in focus, so too was the Fed last night. No shock that Jay Powell’s statement and press conference reiterated, yet again, we’re not even thinking about thinking about etc tapering or raising rates but when we do start thinking about it, we’ll let you know long in advance.
But Wall Street doesn’t believe it. Wall Street is looking at strong jobs growth numbers, record PMIs, a surging housing market, above average consumer confidence and other economic data to boot to suggest inflation must soon begin to rear its ugly head and become a problem.
Jay agrees inflation will spike, but not for that long, suggesting the reopening economic boom will fade off in subsequent quarters, as will supply constraints driven by a stubborn pandemic, once more vaccines are rolled out.
Wall Street anticipates the Fed will likely start changing its tune come early next year, or maybe late this year, or maybe even at Jackson Hole in August.
The bond market is unperturbed, not moving last night.
On the matter of supply constraints, Ford (Dow), too, reported after the bell this morning and also smashed earnings forecasts. It’s down -3.1% in the aftermarket. The issue is one of a near -50% cut in production guidance in the June quarter due to the chip shortage.
All up, no one expected the Fed to say anything new and as noted, most positive results aren’t prompting much excitement so yet again the S&P closed largely flat.
It is not a market in which to report an earnings miss, for heaven’s sake, but Amgen (Dow) did just that and fell -7.2%. Add the falls in Amgen and Microsoft together and you almost get to the entire -164 point drop in the Dow last night.
Commodities
| Spot Metals,Minerals & Energy Futures | |||
| Gold (oz) | 1781.50 | + 5.70 | 0.32% |
| Silver (oz) | 26.18 | – 0.07 | – 0.27% |
| Copper (lb) | 4.48 | + 0.00 | 0.05% |
| Aluminium (lb) | 1.08 | – 0.00 | – 0.07% |
| Lead (lb) | 0.93 | + 0.00 | 0.51% |
| Nickel (lb) | 7.66 | + 0.07 | 0.96% |
| Zinc (lb) | 1.29 | + 0.01 | 0.50% |
| West Texas Crude | 63.86 | + 0.92 | 1.46% |
| Brent Crude | 67.02 | + 0.47 | 0.71% |
| Iron Ore (t) | 190.45 | – 3.40 | – 1.75% |
It was inevitable iron ore would have to take a breather at some point.
Oil prices continued to rise following the OPEC-Plus meeting which left production quotas unchanged, but also due to a report noting a significant rise in US gasoline demand from a year ago.
It’s all well and good, but India is the world’s third largest consumer of oil (US, China) and one would think a bit of a demand issue might now be arising.
A -0.3% fall in the greenback contributed to the Aussie’s 0.2% gain to US$0.7790.
Today
The SPI Overnight closed up 18 points or 0.3%.
Australian March quarter import/export prices are out today.
Japan is closed.
It’s GDP night in the US, with forecasts for the March quarter set anywhere between 5% and 10% growth.
Fortescue Metals ((FMG)) and Newcrest Mining ((NCM)) report production numbers tonight, Woolworths ((WOW)) reports sales, and IOOF Holdings ((IFL)) and Janus Henderson ((JHG)) provide updates.
Iluka Resources ((ILU)) holds its AGM.
The Australian share market over the past thirty days…
| BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS | |||
| ANZ | ANZ Banking Group | Downgrade to Neutral from Buy | Citi |
| APX | Appen | Upgrade to Neutral from Underperform | Macquarie |
| AX1 | Accent Group | Downgrade to Neutral from Buy | Citi |
| BSL | Bluescope Steel | Downgrade to Neutral from Outperform | Credit Suisse |
| Downgrade to Neutral from Outperform | Macquarie | ||
| CNU | CHORUS | Upgrade to Neutral from Sell | UBS |
| ORG | Origin Energy | Upgrade to Outperform from Neutral | Macquarie |
| OSH | Oil Search | Upgrade to Buy from Neutral | UBS |
| RWC | Reliance Worldwide | Upgrade to Add from Hold | Morgans |
| SLK | Sealink Travel | Downgrade to Neutral from Outperform | Macquarie |
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: DOW - DOWNER EDI LIMITED
For more info SHARE ANALYSIS: FMG - FORTESCUE LIMITED
For more info SHARE ANALYSIS: GOR - GOLD ROAD RESOURCES LIMITED
For more info SHARE ANALYSIS: IFL - INSIGNIA FINANCIAL LIMITED
For more info SHARE ANALYSIS: ILU - ILUKA RESOURCES LIMITED
For more info SHARE ANALYSIS: JHG - JANUS HENDERSON GROUP PLC
For more info SHARE ANALYSIS: KGN - KOGAN.COM LIMITED
For more info SHARE ANALYSIS: NCM - NEWCREST MINING LIMITED
For more info SHARE ANALYSIS: PRU - PERSEUS MINING LIMITED
For more info SHARE ANALYSIS: RMS - RAMELIUS RESOURCES LIMITED
For more info SHARE ANALYSIS: SBM - ST. BARBARA LIMITED
For more info SHARE ANALYSIS: WOW - WOOLWORTHS GROUP LIMITED