Daily Market Reports | Jun 07 2021
This story features ARB CORPORATION LIMITED, and other companies. For more info SHARE ANALYSIS: ARB
The company is included in ASX200, ASX300 and ALL-ORDS
| World Overnight | |||
| SPI Overnight (Jun) | 7300.00 | + 7.00 | 0.10% |
| S&P ASX 200 | 7295.40 | + 35.30 | 0.49% |
| S&P500 | 4229.89 | + 37.04 | 0.88% |
| Nasdaq Comp | 13814.49 | + 199.98 | 1.47% |
| DJIA | 34756.39 | + 179.35 | 0.52% |
| S&P500 VIX | 16.42 | – 1.62 | – 8.98% |
| US 10-year yield | 1.56 | – 0.07 | – 4.00% |
| USD Index | 90.14 | – 0.36 | – 0.40% |
| FTSE100 | 7069.04 | + 4.69 | 0.07% |
| DAX30 | 15692.90 | + 60.23 | 0.39% |
By Greg Peel
Onward Ever Upward
After bottoming out on Tuesday, the ASX200 spent the rest of the week trending higher into blue sky territory. It would not have been unreasonable to have expected some profit-taking on a Friday, and a choppy start from the open suggested this may well be the case.
But no, we saw instead what used to be called a “claret run” from lunchtime to ensure yet another record. For the week, the index gained 1.6%.
It was almost, but not quite, an across-the-board rally on Friday. I had suggested healthcare was the sector to watch on a fall in the Aussie and indeed, it gained 1.4%, but all of financials, staples, energy, industrials and utilities posted similar moves.
Telcos weren’t far behind (+0.8%) while discretionary lagged (+0.6%), but the offsets were materials (-1.5%) and technology (-0.5%).
Big falls in gold and base metals prices on Thursday night drove materials lower, with the lower Aussie unable to save the day. Meanwhile, tech appears to have become an exhausted trade for now, despite the Nasdaq finding renewed vitality over the week.
It is unusual for the two to become disconnected.
ARB Corp ((ARB)) won the day on the index with a 6.3% gain on broker upgrades. Origin Energy ((ORG)) enjoyed stronger oil prices (+5.4%) but like its downstream peer, is bouncing back from a year to date de-rating. Electricity wholesale prices are no longer falling.
The banks were boosted by a sizeable 5.1% lift for Bendigo & Adelaide Bank ((BEN)).
Four of the top five losers were gold miners.
In economic news, lending to housing rose 3.7% in April compared to 4.5% which was a bit shy of expectation given 5.4% was forecast. A sign that housing is reaching peak unaffordability? Having spent a long time shut out of the market, owner-occupiers have pushed loan growth to 55% above the average of the five years up to covid.
Investors, who went a bit quiet after a knuckle-rapping from APRA, have pushed loans to their highest level since 2017.
There is as yet no sign of the rally abating, with the futures closing up 7 points on Saturday morning. We must note, however, that the Aussie has bounced right back to where it was.
Gold has thus reversed its loss but not so base metals in general, while the oils push ever higher.
Just the Job
A weak number, following on from April’s surprisingly weak number, would have had Wall Street worried the US economic recovery was not as robust as assumed. A strong number would have had Wall Street worried the Fed might start more seriously talking about tapering. What Wall Street really wanted was something in the middle.
And so it came to pass.
The US added 559.000 jobs in May when 671,000 were forecast. A miss, but only a small one by comparison to April. Not enough to raise doubts over the recovery and more fodder for the Fed to stay its course.
After taking a break following all her hard work in the post-GFC period, Goldilocks is back in the building.
The unemployment rate fell all the way to 5.8% from 6.1% when 5.9% was expected, albeit in real terms there are still around 7.5 million Americans unemployed.
Markets responded as one might expect.
The Nasdaq outperformed in rising 1.5% to the Dow’s 0.5%. The US ten-year bond rate fell -7 basis points to 1.56%. The US dollar index fell -0.4% and gold bounced back twenty bucks.
The Dow and S&P closed just shy of new all-time highs, while the Nasdaq closed out three straight weeks of gains. It has been noted, somewhat ironically, that some of the big “growth” names that are now bouncing back had actually become “value” when the Nasdaq was out of favour.
The meme stocks quietened down on Friday night, with AMC Entertainment’s -5% hardly worth a mention. But it is worth mentioning that AMC plans to issue even more new stock, and to that end the CEO went on YouTube to appeal to his newfound friends (meme stock buyers) to take up the stock so AMC could invest in buying up assets (meaning other distressed cinema chains).
Sensible investors would run a mile. Wall Street is waiting for the bubble to pop, while at the same time quietly applauding AMC’s brazen opportunism. Wall Street is not known for its compassion.
Meme stock buyers typically do so through short term call options, and the expiry of weekly options on Friday helped to settle things down. The VIX fell back below 17, but at all-time highs would typically be trading at 12 or lower.
Coming back to the jobs numbers, we note the big fall in the unemployment rate was aided by a slight drop in participation. With 7.5m Americans still out of work, and companies still struggling to find employees, one would expect participation to rise. It is thus notable that the average wage rose 0.5% in May (US15c to US$30.33ph).
The fear is companies will need to continue to raise wages to lure new workers, such that it won’t be CPI or PCE inflation that will be the issue, it will be wage inflation.
Commodities
| Spot Metals,Minerals & Energy Futures | |||
| Gold (oz) | 1892.00 | + 21.20 | 1.13% |
| Silver (oz) | 27.81 | + 0.37 | 1.35% |
| Copper (lb) | 4.49 | + 0.01 | 0.23% |
| Aluminium (lb) | 1.10 | + 0.02 | 1.79% |
| Lead (lb) | 0.98 | – 0.00 | – 0.12% |
| Nickel (lb) | 8.13 | + 0.05 | 0.60% |
| Zinc (lb) | 1.35 | + 0.00 | 0.25% |
| West Texas Crude | 69.62 | + 0.81 | 1.18% |
| Brent Crude | 71.89 | + 0.54 | 0.76% |
| Iron Ore (t) | 208.35 | – 2.85 | – 1.35% |
Aluminium stood out as the only base metal to meaningfully bounce back from Thursday night’s falls.
Iron ore dipped, but all was forgiven for gold.
And the oils keep on keeping on.
The Aussie is back up at a familiar US$0.7744, having fully bounced back from Thursday night’s loss. I’ll go back to sleep.
The SPI Overnight closed up 7 points on Saturday morning.
The Week Ahead
Speaking of US CPI, the May number is out on Thursday night.
China will release May trade numbers today, while the tardy US will release April numbers tomorrow.
China’s inflation numbers are out on Wednesday.
The ECB will meet on Thursday.
New Zealand is closed today.
Locally we’ll see ANZ Bank job ads today, NAB business confidence tomorrow and Westpac consumer confidence on Wednesday.
On Friday S&P/ASX will announce this quarter’s index changes, which become effective the following Friday.
Aurizon Holdings ((AZJ)) holds an investor day tomorrow and Marley Spoon ((MMM)) holds its AGM on Friday.
We then go into a long weekend.
The Australian share market over the past thirty days…
| BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS | |||
| ADI | APN Industria Reit | Downgrade to Hold from Add | Morgans |
| BSL | Bluescope Steel | Upgrade to Buy from Neutral | Citi |
| CIP | Centuria Industrial Reit | Downgrade to Neutral from Buy | UBS |
| DXS | Dexus | Downgrade to Neutral from Outperform | Macquarie |
| EOS | ELECTRO OPTIC SYSTEMS | Upgrade to Buy from Neutral | Citi |
| GXY | Galaxy Resources | Downgrade to Accumulate from Buy | Ord Minnett |
| HPI | Hotel Property Investments | Upgrade to Add from Hold | Morgans |
| PLS | Pilbara Minerals | Upgrade to Neutral from Sell | Citi |
| Upgrade to Lighten from Sell | Ord Minnett | ||
| SCG | Scentre Group | Upgrade to Neutral from Sell | UBS |
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: ARB - ARB CORPORATION LIMITED
For more info SHARE ANALYSIS: AZJ - AURIZON HOLDINGS LIMITED
For more info SHARE ANALYSIS: BEN - BENDIGO & ADELAIDE BANK LIMITED
For more info SHARE ANALYSIS: MMM - MARLEY SPOON SE REGISTERED
For more info SHARE ANALYSIS: ORG - ORIGIN ENERGY LIMITED