Daily Market Reports | Mar 19 2021
| World Overnight | |||
| SPI Overnight (Jun) | 6669.00 | – 43.00 | – 0.64% |
| S&P ASX 200 | 6745.90 | – 49.30 | – 0.73% |
| S&P500 | 3915.46 | – 58.66 | – 1.48% |
| Nasdaq Comp | 13116.17 | – 409.03 | – 3.02% |
| DJIA | 32862.30 | – 153.07 | – 0.46% |
| S&P500 VIX | 21.58 | + 2.35 | 12.22% |
| US 10-year yield | 1.73 | + 0.09 | 5.42% |
| USD Index | 91.85 | + 0.44 | 0.48% |
| FTSE100 | 6779.68 | + 17.01 | 0.25% |
| DAX30 | 14775.52 | + 178.91 | 1.23% |
By Greg Peel
Good News Bad
Well, we got rid of the March futures and options expiry, with the ASX200 peaking just over 6800 in the first half hour, but on an unrelated issue it was all downhill from there.
Australia’s unemployment rate fell to 5.8% in February from 6.3% in January to mark the biggest monthly fall since the late eighties. OMG, sell everything! Economists had forecast a steady 6.3% result. And the participation rate was unchanged.
The implication is the market now fears the RBA will need to reconsider its stubborn stance of no rate hikes through to 2023. 89,000 jobs were added (69,000 female) and while it’s hard to believe, there were more Australians employed this February than February last year.
Who needs stimulus? It’s a very encouraging sign ahead of this months’ JobKeeper expiry. However, there is devil in the detail.
It has long been understood the official unemployment rate does not paint a particularly accurate picture. Despite the big fall, the underemployment rate (those who would like more hours) actually rose to 8.5% from 8.1%. The underutilisation rate – a more comprehensive measure of true unemployed – fell, but only to 14.3% from 14.4%.
You can be assured that Philip Lowe’s response would be there is still significant slack in the labour market.
But the Australian ten-year bond yield rose 8 basis points to 1.79%, and anything “yield” was taken to the cleaners in the stock market. REITs down -1.5%, industrials down -1.4%, utilities down -1.0%, staples down -0.7% and telcos down -0.5%. Healthcare is not the biggest yield payer but is still a defensive, and it fell a full -1.7%.
Materials and energy are big yield payers but aren’t seen in the same context given their links to commodity prices. Both closed slightly in the green. (Energy won’t today.) Consumer discretionary also closed slightly higher, as more jobs mean more spending power.
The banks are enigmatic in such circumstances. Strong employment removes mortgage risk and higher bond yields imply higher margins, but they’re also big yield payers so take your pick. The market picked -0.9%.
And finally, would you believe technology went the other way from the Nasdaq yesterday (-1.3%)? Higher yields erode future growth valuations. It won’t be going the other way today – just down.
Down by -43 points in the index if the new June futures contract is any guide. Wall Street was similarly frightened last night by a bond yield spike, for different reasons.
World News
The EU is now refusing to send the UK the vaccine shipments it had promised. While EU health authorities have now deemed the AstraZeneca vaccine safe following a stalled rollout across the continent, Europe’s covid situation remains in a complete mess.
Last night it was announced Paris and other French regions will go back into a one-month lockdown.
News is the Bank of Japan will widen its long-term interest rate range, when it completes its policy meeting today, from +/-0.20% to +/-0.25% to provide more scope for hamstrung Japanese banks to make some profits. The central bank will also cease its ETF purchasing program, now only jumping in during times of turmoil.
The Japanese ten-year yield rose to 0.115% from 0.09%. Doesn’t seem like much, but it’s enough to move mountains in Japanese terms, and have reverberations into the US bond market, where the Japanese are big lenders.
The US ten-year yield jumped 9 basis points to 1.73%, having earlier hit 1.75%.
All of the above led to a bit of a double-whammy effect on Wall Street. The two sectors that have led the growth-to-value rotation since November are banks and energy. Leading down the growth side has been Big Tech, exacerbated by rising bond yields. Last night the Nasdaq fell -3.0%. And the price of oil fell -8%.
Energy was thus the worst performing sector last night, outstripping tech. The two banks in the Dow Jones were the only two Dow stocks to close in the green. Initially the Dow had traded higher as the Nasdaq fell, in typical rotation fashion, but as the oil price just kept falling, everything began to slide, and momentum picked up to the close.
The plunge in oil follows what has been a solid run up to this week, before weakness began to quietly set in, then weekly US inventory data showing an ongoing build, and the news above from Europe which implies a further delay in demand recovery.
The US dollar jumped 0.5% on US yields and euro weakness.
The yield spike came even as the weekly new jobless claims number came in at 770,000 – 45,000 up on the week before and the highest level in a month. That news would be negative in itself in isolation.
Commodities
| Spot Metals,Minerals & Energy Futures | |||
| Gold (oz) | 1736.00 | – 9.30 | – 0.53% |
| Silver (oz) | 26.00 | – 0.31 | – 1.18% |
| Copper (lb) | 4.08 | – 0.01 | – 0.35% |
| Aluminium (lb) | 0.99 | – 0.00 | – 0.32% |
| Lead (lb) | 0.87 | + 0.00 | 0.48% |
| Nickel (lb) | 7.25 | – 0.01 | – 0.16% |
| Zinc (lb) | 1.26 | – 0.00 | – 0.25% |
| West Texas Crude | 59.16 | – 5.39 | – 8.35% |
| Brent Crude | 62.40 | – 5.61 | – 8.25% |
| Iron Ore (t) | 166.00 | + 0.15 | 0.09% |
The US dollar jump has impacted on just about all commodity prices, not just oil.
Under the circumstances of rising yields and greenback, gold’s response was fairly tame.
The good news is the Aussie has mirrored the greenback in falling -0.5% to US$0.7758.
Today
The SPI Overnight closed down -43 points or 0.6%.
We’ll get a first-look at February retail sales today.
The Bank of Japan’s meeting is suddenly now a focus point.
The changes to S&P/ASX indices, announced last Friday, come into effect today.
The Australian share market over the past thirty days…
| BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS | |||
| BLD | Boral | Downgrade to Lighten from Hold | Ord Minnett |
| BWP | BWP Trust | Upgrade to Neutral from Sell | UBS |
| CLV | Clover Corp | Upgrade to Buy from Neutral | UBS |
| GMG | Goodman Grp | Upgrade to Buy from Neutral | UBS |
| 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 |
For more detail go to FNArena's Australian Broker Call Report, which is updated each morning, Mon-Fri.
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