Daily Market Reports | Mar 16 2021
This story features MAGELLAN FINANCIAL GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: MFG
The company is included in ASX200, ASX300 and ALL-ORDS
| World Overnight | |||
| SPI Overnight (Mar) | 6804.00 | + 26.00 | 0.38% |
| S&P ASX 200 | 6773.00 | + 6.20 | 0.09% |
| S&P500 | 3968.94 | + 25.60 | 0.65% |
| Nasdaq Comp | 13459.71 | + 139.84 | 1.05% |
| DJIA | 32953.46 | + 174.82 | 0.53% |
| S&P500 VIX | 20.03 | – 0.66 | – 3.19% |
| US 10-year yield | 1.61 | – 0.03 | – 1.71% |
| USD Index | 91.80 | + 0.12 | 0.13% |
| FTSE100 | 6749.70 | – 11.77 | – 0.17% |
| DAX30 | 14461.42 | – 40.97 | – 0.28% |
By Greg Peel
Still Loving China
The ASX200 opened to the downside yesterday morning after a mixed session on Wall Street, dominated by another pop in US yields. The Aussie ten-year duly rose 9 basis points to 1.78% and the ASX200 was down almost -40 points in the first hour.
But a gloomy session was saved by Chinese data for February.
Chinese industrial production rose 35.1% year on year in the January-February period (amalgamated given the new year break), up from 7.3% in December. Retail sales increased 33.8%, up from 4.6%, and fixed asset investment rose 35%, up from 2.9%.
Economists had forecast big numbers, given yesterday’s data were cycling the depth of China’s covid lockdown. Industrial production and retail sales nevertheless exceeded forecasts, while fixed asset investment was a little disappointing given government stimulus.
All agree China has made a solid comeback, and by lunchtime the ASX200 was up 27 points – a turnaround in the morning of over 60 points. But excitement waned in the afternoon and the index closed flat.
Technology was quite predictably the worst performing sector (-1.9%), given the Nasdaq had fallen overnight. Afterpay ((APT)) fell -4.5%.
Materials was always set for weakness as well (-0.6%) given another big fall in the iron ore price, whatever numbers Beijing cooked up.
Smaller falls were booked by consumer discretionary and energy while elsewhere all was green. The comeback for healthcare continued (+1.1%) as miners fell and the banks did little (+0.3%). REITs also performed well despite higher yields.
REITs are playing off between having been carted last year and now facing ongoing challenges (online shopping, lower office occupancy) and the vaccine rollout leading consumers back into shops and workplaces. Despite higher yields impacting on dividend comparisons, REIT distributions are not necessarily down and out with bond yields remaining historically low.
Fund manager Magellan Financial ((MFG)) topped the index winners’ board with a 4.9% gain after its part-owned investment start-up Barrenjoey Capital attained its ASX licence and promptly raided UBS for no less than ten of its stock analysts. UBS is now expected to send out raiding parties of its own, so for once it might be a good time to be analyst.
Topping the loser’s board was kitchen & bathroom specialist GWA Group ((GWA)), which fell -7.6% having been ousted from the ASX200, effective from next week.
US bond yields stabilised in the US last night and a late burst of selling had all three major indices closing in the green. Our futures are thus up 26 points this morning.
Vapour Rub
The US ten-year yield slipped back -3bps last night to 1.61% and despite the solid data out of China, the stock market meandered directionless right up until the last half hour. The Nasdaq was putting in the better performance of the three majors, given yield stability, but nothing to write home about.
Then in the last half hour, in came the buyers. The Nasdaq still closed as the outperformer on the day but rotation did not have much impact with all three closing in the green. Those late buyers did not likely take human form.
With around half an hour to go, the VIX volatility index on the S&P500 slipped below 20. It is an unwritten law that 20 is the line between nervousness and contentment. The VIX plunged all the way down to 19.98 before recovering to close at 20.05, but that little incursion was enough to fire up certain algos that have been laying dormant since before covid, given the VIX has not been below 20 since.
A contented market is a bullish market, so the buying began. The VIX after all is known as the “fear index”.
Which is a complete misnomer.
The VIX typically rises in times of uncertainty and surges in times of panic (eg GFC, covid). This is because investors are rushing to buy downside protection via put options on the S&P. But just as influential on the VIX is the buying of call options, which are a bet on the market going up.
Since April last year, aside from a couple of brief blips, Wall Street has done nothing but rally. So why has it taken this long for the VIX to fall back under 20?
The answer is that the second half of last year saw a big surge in call option buying, beginning with the Big Tech growth stocks and anything else that was a stay-at-home beneficiary. Then in November, the rotation began out of the covid winners and into the reopening winners. As a whole, Wall Street did not stop rising.
And call option buying did not stop either, for new retail players in the market (millennials) learned that call options are a cheaper way to get in, or can be used as a form of leverage. Call options continued to prop up the VIX.
The excitement has since waned, particularly with the Nasdaq underperforming on bond yield fears, and so the VIX has settled back to more familiar (pre-covid) territory.
Nothing to do with fear.
The Dow has now been up seven sessions in a row, the last three new all-time highs. Wall Street now keenly awaits what the Fed has to say after the FOMC meeting concludes on Wednesday night.
Commodities
| Spot Metals,Minerals & Energy Futures | |||
| Gold (oz) | 1730.70 | + 2.80 | 0.16% |
| Silver (oz) | 26.22 | + 0.29 | 1.12% |
| Copper (lb) | 4.12 | – 0.01 | – 0.32% |
| Aluminium (lb) | 0.98 | + 0.01 | 0.80% |
| Lead (lb) | 0.88 | – 0.00 | – 0.39% |
| Nickel (lb) | 7.32 | + 0.04 | 0.51% |
| Zinc (lb) | 1.28 | + 0.01 | 0.87% |
| West Texas Crude | 65.35 | – 0.26 | – 0.40% |
| Brent Crude | 68.89 | – 0.33 | – 0.48% |
| Iron Ore (t) | 163.65 | – 2.05 | – 1.24% |
Not a lot to see here, other than to note iron ore has fallen further.
The Aussie is steady at US$0.7759.
Today
The SPI Overnight closed up 26 points or 0.4%.
The minutes of the March RBA meeting are out today.
The US will see its February industrial production and retail sales numbers tonight.
The Australian share market over the past thirty days…
| BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS | |||
| CSL | CSL | Upgrade to Add from Hold | Morgans |
| FLT | Flight Centre | Downgrade to Underweight from Equal-weight | Morgan Stanley |
| IRE | Iress | Upgrade to Outperform from Neutral | Credit Suisse |
| LNK | Link Administration | Upgrade to Buy | Citi |
| QAN | Qantas Airways | Upgrade to Buy from Neutral | Citi |
| Upgrade to Outperform from Neutral | Macquarie | ||
| RIC | Ridley Corp | Upgrade to Outperform from Neutral | Credit Suisse |
| TWE | Treasury Wine Estates | Downgrade to Neutral from Outperform | Credit Suisse |
| Downgrade to Hold from Accumulate | Ord Minnett | ||
| WPL | Woodside Petroleum | Upgrade to Buy from Neutral | UBS |
| WSA | Western Areas | Upgrade to Outperform from Neutral | 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.)
(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author's and not by association FNArena's – see disclaimer on the website)
All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts on the website and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.
Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided. www.fnarena.com
FNArena is proud about its track record and past achievements: Ten Years On
Click to view our Glossary of Financial Terms
CHARTS
For more info SHARE ANALYSIS: GWA - GWA GROUP LIMITED
For more info SHARE ANALYSIS: MFG - MAGELLAN FINANCIAL GROUP LIMITED