Daily Market Reports | Mar 18 2021
This story features METCASH LIMITED. For more info SHARE ANALYSIS: MTS
The company is included in ASX100, ASX200, ASX300 and ALL-ORDS
| World Overnight | |||
| SPI Overnight (Mar) | 6777.00 | – 14.00 | – 0.21% |
| S&P ASX 200 | 6795.20 | – 31.90 | – 0.47% |
| S&P500 | 3974.12 | + 11.41 | 0.29% |
| Nasdaq Comp | 13525.20 | + 53.63 | 0.40% |
| DJIA | 33015.37 | + 189.42 | 0.58% |
| S&P500 VIX | 19.23 | – 0.56 | – 2.83% |
| US 10-year yield | 1.64 | + 0.02 | 1.23% |
| USD Index | 91.41 | – 0.46 | – 0.50% |
| FTSE100 | 6762.67 | – 40.94 | – 0.60% |
| DAX30 | 14596.61 | + 39.03 | 0.27% |
By Greg Peel
Gravitational Pull
Today is expiry day for March quarter SPI futures and ASX200 options and I’d wager there is sizeable open interest at the 6800 level, given we just can’t seem to get away from it.
On Tuesday we saw the ASX200 shoot up past 6850 on RBA dovishness. Yesterday the index opened a bit lower, as might be expected after the solid rally and modest weakness on Wall Street. But at 11am the index breached 6800, and promptly fell into a hole.
The -66 point plunge bottomed out at lunchtime and the index grafted its way back to 6795 by the close. This morning, with the S&P500 up 0.3% on Fed dovishness, our futures are showing down -14. It’s not making much sense, but when it comes to derivative expiries, it never does.
We could argue market weakness may be due to the government’s complete balls-up of the vaccine rollout, and extension of the time expected to full vaccination, but with the virus well controlled here that seems a long bow to draw. I’d be waiting until tomorrow to see what the market does once this expiry is out of the way, and next week we see the one-year anniversary of the covid bottom.
The iron ore price rose overnight but yesterday the materials sector dropped -1.6%, led by the big miners. Energy fell -1.2% on lower oil prices and it seems, just for the moment, resources are out of fashion. There was no switch into the banks – they fell -0.3% — and even staples dropped -0.7%, likely because it appears Metcash ((MTS)) has taken share from the supermarket majors.
Telcos (+1.0%) and utilities (+0.5%) were left to save the day even as the ten-year bond yield ticked up 3bps to 1.71%. The yield has nonetheless fallen from close to 2% recently, with Tuesday’s RBA minutes helping.
It was a very mixed bag of top five index winners and losers with no themes evident and nothing much to report.
This morning we have a bounce in gold but so too the Aussie, which is a net-out, and nothing overly significant in other commodity price moves. Hence there is no fundamental reason why a big turnaround into the positive on Wall Street last night has resulted in our futures, on their last day of trade, suggesting a weak opening.
Read My Lips
Jerome Powell has been steadfast all year in his insistence that the FOMC is not even thinking about tapering bond purchases and/or raising its cash rate anytime soon, despite rising US bond yields. Only were the credit markets to become “disorderly” would the Fed step in to calm the waters (as the RBA did last week), temporarily.
But Wall Street has not been able to simply take the Fed chair at his word. The bottom line is, Wall Street is worried about inflation, even if the Fed is not. While it was not going to be any surprise if Powell stuck to his script last night at his press conference, there was no point in being complacent. The US ten-year yield jumped up 5 basis points to 1.67% ahead of the Fed announcement, giving stock markets the wobbles. The Nasdaq fell -1%.
What was remarkable about the Fed statement was not the fact Powell stuck to his guns – no tightening ahead – but that he did so even after the Fed raised its 2021 GDP growth forecast to a whopping 6.5% and forecast inflation to exceed 2% at some point this year. Throw out the text book.
Sure – that 6.5% is coming off a very low 2020 base, and the forecast is for a decline in pace of growth to a more familiar 2% by 2023, but it now seems that after years of being criticised for being forever behind the curve, the FOMC now wants to be behind the curve. They want to see strong growth and inflation confirmed by the data before stepping in to kill the goose.
Their main concern is the 9.5 million Americans still out of work (not fully represented in the official unemployment rate). The Fed will only consider inflation to be a threat once this “slack” in the labour market is overcome and unemployment returns to its 2019 level of 3.5%.
A spike in inflation above 2% this year will only be temporary, the Fed insists. To that end, the intention remains that there will be no rate hike before 2024 and no reduction in QE. Echoes of Philip Lowe.
The Fed statement had markets sharply swinging around after 2.30pm. The ten-year yield fell back to 1.64%. The Nasdaq closed up 0.4%. The Dow closed above 33,000 for the first time for another new record, and the S&P also marked another new record.
The US dollar index plunged -0.5% in a hurry.
Star-struck commentators can see no reason why the rally on Wall Street cannot just keep on keeping on.
And we haven’t heard anything yet from Biden on planned infrastructure stimulus.
Commodities
| Spot Metals,Minerals & Energy Futures | |||
| Gold (oz) | 1745.30 | + 13.60 | 0.79% |
| Silver (oz) | 26.31 | + 0.41 | 1.58% |
| Copper (lb) | 4.09 | + 0.02 | 0.58% |
| Aluminium (lb) | 1.00 | + 0.01 | 1.38% |
| Lead (lb) | 0.87 | – 0.00 | – 0.40% |
| Nickel (lb) | 7.26 | – 0.13 | – 1.73% |
| Zinc (lb) | 1.27 | + 0.00 | 0.36% |
| West Texas Crude | 64.55 | – 0.13 | – 0.20% |
| Brent Crude | 68.01 | – 0.27 | – 0.40% |
| Iron Ore (t) | 165.85 | – 0.45 | – 0.27% |
That aforementioned plunge in the greenback came after base metals and bulk markets were closed, but the reaction in gold is clear.
As is the reaction in the Aussie, up 0.7% to US$0.7800.
Today
The SPI Overnight closed down -14 points.
Speaking of unemployment, our own February numbers are out today. But really the next number to watch out for will be April, after JobKeeper expires.
New Zealand reports its December quarter GDP today and recent sailing results.
The Bank of England holds a policy meeting tonight.
The Australian share market over the past thirty days…
| BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS | |||
| BWP | BWP Trust | Upgrade to Neutral from Sell | UBS |
| CLV | Clover Corp | Upgrade to Buy from Neutral | UBS |
| FLT | Flight Centre | Downgrade to Underweight from Equal-weight | Morgan Stanley |
| GMG | Goodman Grp | Upgrade to Buy from Neutral | UBS |
| QAN | Qantas Airways | Upgrade to Outperform from Neutral | Macquarie |
| RIC | Ridley Corp | Upgrade to Outperform from Neutral | Credit Suisse |
| SGP | Stockland | Downgrade to Neutral from Buy | UBS |
| TLS | Telstra Corp | Upgrade to Buy from Accumulate | Ord Minnett |
| VCX | Vicinity Centres | Downgrade to Hold from Buy | Ord Minnett |
| WPL | Woodside Petroleum | Upgrade to Buy from Neutral | UBS |
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