Daily Market Reports | Feb 08 2021
This story features TRANSURBAN GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: TCL
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS
| World Overnight | |||
| SPI Overnight (Mar) | 6778.00 | + 5.00 | 0.07% |
| S&P ASX 200 | 6840.50 | + 75.00 | 1.11% |
| S&P500 | 3886.83 | + 15.09 | 0.39% |
| Nasdaq Comp | 13856.30 | + 78.55 | 0.57% |
| DJIA | 31148.24 | + 92.38 | 0.30% |
| S&P500 VIX | 20.87 | – 0.90 | – 4.13% |
| US 10-year yield | 1.17 | + 0.03 | 2.72% |
| USD Index | 91.04 | – 0.49 | – 0.54% |
| FTSE100 | 6489.33 | – 14.39 | – 0.22% |
| DAX30 | 14056.72 | – 3.57 | – 0.03% |
By Greg Peel
Change of Heart
What a difference a day makes.
On Thursday the local market went into a panic over a 7 basis point increase in the ten-year government bond yield to 1.22%. Suddenly investors rushed to sell bond proxies and other high dividend paying stocks.
The implication is that bond investors are fearing a spike in inflation ahead on massive monetary and fiscal stimulus after vaccine rollouts begin to make their mark. This despite the RBA having no fear whatsoever.
Wall Street had closed flat on Wednesday night so the way was clear for a bit of a sell-off locally, which gained momentum as the day went on. But then on Thursday night, Wall Street rose strongly.
On Friday, the Australian ten-year bond yield fell -3 basis points to 1.19%. But the ASX200 opened on its high, and despite a slight dip mid-session almost closed at the same level. In other words, bond rates had nothing to do with it from the outset.
The give-away is that Thursday’s worst performing sector – industrials, which contains the big bond proxies Transurban ((TCL)) and Sydney Airport ((SYD)) – completely reversed on Friday to be equal best performer with a 2.3% gain.
So what happened? Couldn’t say. Other than perhaps a lot of talk in the US about a necessary correction might have fuelled Thursday’s panic, while those who weren’t panicking stood aside waiting to pick up some bargains. They never got the chance, given the ASX200 opened on its high on Friday.
So, as you were. The ASX200 gained a net 3.5% for the week.
The biggest driver of index points on Friday were the banks (+1.9%). As I noted on Thursday, while rising bond yields make bank dividend yields marginally less attractive, they also improve bank interest margins, and thus earnings. And banks pay dividends as a percentage of earnings.
Telcos are another bond proxy of sorts. Or at least one of them is. Telcos also recovered Thursday losses on Friday (+1.2%).
The only flaw in the picture was utilities (-0.3%), which is a bond proxy sector and should have also turned around with the others but not for AGL Energy ((AGL)), which was still being exited following its profit warning.
Technology matched industrials with a 2.3% gain because the Nasdaq went up. The usual suspects drove the rally.
The standout individual stock move of the day was that of News Corp ((NWS)), which rose 13.2% on its earnings result. The standout feature of the result is that it was, for the first time in years, not driven solely by the company’s investment in online real estate advertiser REA Group ((REA)). REA’s own result only produced a 1.6% gain.
A modestly positive gain on Wall Street ended a very positive week in the US. Our futures were up 5 points on Saturday morning.
Fears Fade
As noted, many on Wall Street have been fearing an early-year correction after the strong run on Biden’s election, vaccines and stimulus hopes. While two weeks ago the great GameStop saga was specifically what sent Wall Street into a tail spin, all corrections need a trigger no matter how unrelated.
Thus the fear was the short squeeze would lead to a larger pullback. This was evident in the VIX volatility index rising to above 35 at the peak. But it didn’t happen. The pullback was ultimately only worth -2%, and the subsequent swift rebound is evidence there remain plenty of buyers ready to snap up stocks at lower levels.
Which has now led the fearful to rethink their correction concerns. Not that there won’t be one sometime, just that there won’t be one just yet. The VIX is back at 21.
And the season’s earnings results just keep on coming in on the positive side, to the level of a record number of beats among S&P500 stocks reporting to date for a record average quantum of beat. However, most beats are not driving major share price spikes on the day. This is because investors are more interested not in the past but in what lays ahead in a vaccinated, Biden-stimulated America.
US hospitalisations and deaths appear now to have peaked. Meanwhile, actual vaccinations are catching up to vaccines distributed, which was the big stumbling block under the previous administration.
On Friday night the Senate approved a budget resolution, with the help of Kamala’s casting vote, to fast-track Biden’s US$1.9trn package.
All of the above is sufficient reason for Wall Street not to be put off by only 49,000 new jobs being created in January, and almost all of them government positions. A new world lays ahead, which hopefully will largely resemble the old one, pre-covid.
The S&P500, Nasdaq and Russell small cap indices all hit new all-time highs on Friday night, while the Dow is just shy. The S&P booked a 4.6% gain for the week.
Commodities
| Spot Metals,Minerals & Energy Futures | |||
| Gold (oz) | 1815.20 | + 20.40 | 1.14% |
| Silver (oz) | 26.73 | + 0.64 | 2.45% |
| Copper (lb) | 3.60 | + 0.06 | 1.65% |
| Aluminium (lb) | 0.91 | + 0.01 | 1.33% |
| Lead (lb) | 0.92 | + 0.01 | 0.80% |
| Nickel (lb) | 8.18 | + 0.21 | 2.59% |
| Zinc (lb) | 1.21 | + 0.03 | 2.30% |
| West Texas Crude | 56.85 | + 0.52 | 0.92% |
| Brent Crude | 59.34 | + 0.46 | 0.78% |
| Iron Ore (t) | 155.90 | – 2.15 | – 1.36% |
Talk is that once that stimulus package is delivered, the next focus for the administration will be infrastructure, as it offers the greatest potential for job creation. The Trump administration was also keen on infrastructure, but just never got around to it. Will the Republicans be onside?
Infrastructure spending is good for materials prices, as is a drop in the US dollar (-0.5%), following a week of steady gains, on the weak jobs number.
Alas this means the Aussie has leapt back up 0.8% to US$0.7666.
A weaker greenback is nevertheless good for gold.
The SPI Overnight closed up 5 points on Saturday morning.
The Week Ahead
As the US earnings season begins to head into its long twilight, the local earnings season starts to pick up pace this week.
Some of the bigger names reporting this week are Suncorp ((SUN)) and Insurance Australia Group ((IAG)), Commonwealth Bank ((CBA)), Newcrest Mining ((NCM)) and Telstra ((TLS)).
Macquarie Group ((MQG)) provides a quarterly update tomorrow.
FNArena's Corporate Results Monitor is now being updated daily:
https://www.fnarena.com/index.php/reporting_season/
NAB’s monthly business confidence survey is due tomorrow and Westpac’s consumer confidence survey on Wednesday.
China and the US both report inflation numbers on Wednesday and the UK reports December quarter GDP.
From Friday, China will close for a week for Lunar New Year.
New Zealand is closed today. No I hadn’t noticed either.
The Australian share market over the past thirty days…
| BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS | |||
| ABC | AdBri | Upgrade to Neutral from Underperform | Macquarie |
| AMC | Amcor | Upgrade to Buy from Neutral | UBS |
| BHP | BHP | Downgrade to Neutral from Outperform | Credit Suisse |
| CSR | CSR | Upgrade to Outperform from Neutral | Macquarie |
| CTD | Corporate Travel | Upgrade to Buy from Accumulate | Ord Minnett |
| DRR | DETERRA ROYALTIES | Upgrade to Outperform from Neutral | Credit Suisse |
| FMG | Fortescue | Upgrade to Outperform from Neutral | Credit Suisse |
| GWA | GWA Group | Upgrade to Outperform from Neutral | Macquarie |
| MFG | Magellan Financial Group | Upgrade to Outperform from Underperform | Macquarie |
| MQG | Macquarie Group | Downgrade to Sell from Neutral | Citi |
| ORG | Origin Energy | Downgrade to Neutral from Buy | Citi |
| SGR | Star Entertainment | Upgrade to Accumulate from Hold | Ord Minnett |
| TAH | Tabcorp Holdings | Downgrade to Neutral from Outperform | Credit Suisse |
| TWE | Treasury Wine Estates | Downgrade to Equal-weight from Overweight | Morgan Stanley |
| UWL | Uniti Group | Downgrade to Accumulate from Buy | Ord Minnett |
| VHT | Volpara Health Technologies | Downgrade to Lighten from Hold | Ord Minnett |
| WEB | Webjet | Upgrade to Buy from Hold | Ord Minnett |
| WES | Wesfarmers | Upgrade to Outperform from Neutral | Macquarie |
| WSA | Western Areas | Downgrade to Neutral from Outperform | 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: AGL - AGL ENERGY LIMITED
For more info SHARE ANALYSIS: CBA - COMMONWEALTH BANK OF AUSTRALIA
For more info SHARE ANALYSIS: IAG - INSURANCE AUSTRALIA GROUP LIMITED
For more info SHARE ANALYSIS: MQG - MACQUARIE GROUP LIMITED
For more info SHARE ANALYSIS: NCM - NEWCREST MINING LIMITED
For more info SHARE ANALYSIS: NWS - NEWS CORPORATION
For more info SHARE ANALYSIS: REA - REA GROUP LIMITED
For more info SHARE ANALYSIS: SUN - SUNCORP GROUP LIMITED
For more info SHARE ANALYSIS: TCL - TRANSURBAN GROUP LIMITED
For more info SHARE ANALYSIS: TLS - TELSTRA GROUP LIMITED