Daily Market Reports | May 13 2021
This story features QANTAS AIRWAYS LIMITED, and other companies. For more info SHARE ANALYSIS: QAN
The company is included in ASX50, ASX100, ASX200, ASX300 and ALL-ORDS
| World Overnight | |||
| SPI Overnight (Jun) | 6993.00 | – 28.00 | – 0.40% |
| S&P ASX 200 | 7044.90 | – 52.10 | – 0.73% |
| S&P500 | 4063.04 | – 89.06 | – 2.14% |
| Nasdaq Comp | 13031.68 | – 357.75 | – 2.67% |
| DJIA | 33587.66 | – 681.50 | – 1.99% |
| S&P500 VIX | 27.59 | + 5.75 | 26.33% |
| US 10-year yield | 1.70 | + 0.07 | 4.37% |
| USD Index | 90.78 | + 0.60 | 0.67% |
| FTSE100 | 7004.63 | + 56.64 | 0.82% |
| DAX30 | 15150.22 | + 30.47 | 0.20% |
By Greg Peel
Follow the Leader
On Tuesday night the Treasurer threw a cool $95bn at the economy and yesterday the local market plunged -50 points. The two are nevertheless largely uncorrelated. Our market fell because Wall Street fell.
This is most evident in the technology sector recovering 0.8% yesterday when all about, other than telcos (+0.2%), closed down. The Nasdaq had plunged early on Tuesday night but made a full recovery.
Given the big ticket items in the budget were well telegraphed I did note yesterday that perhaps the “clanger” would be a confirmed border closure until at least mid-2022. Alan Joyce’s rose-tinted glasses fogged up as Qantas ((QAN)) fell -3.4% yesterday and Sydney Airport ((SYD)) -4.8%, helping industrials to a -1.6% loss.
Yesterday I noted a standout fall for energy on Tuesday may well be in anticipation of the budget, as the US energy sector has been outperforming on strength in oil prices, and yesterday it fell another -2.0% with aeroplanes grounded for another year (but free to collect Australians in India).
Financials held up relatively well in percentage terms (-0.6%) and included a -5.3% fall for Suncorp ((SUN)) on broker downgrades. In nominal terms the banks still added a lot of index points to the downside.
Materials was also an “outperformer” in falling -0.7% (iron ore up another four bucks). The biggest percentage fall was reserved for usually staid utilities (-2.2%).
Investors are continuing to abandon AGL Energy but the big move in the sector came from AusNet Services ((AST)), down -7.7% after announcing a dividend cut with its earnings result.
CSR’s ((CSR)) earnings result led to a 4.2% gain. Otherwise, the index winners/losers boards were full of the losers/winners from earlier in the week. Bounces for the likes of Nearmap ((NEA)) and Nuix ((NXL)) and pullbacks for Pilbara Minerals ((PLS)) and Omni Bridgeway ((OBL)).
The bad news is the Dow fell almost -700 points last night and the S&P500 lost -2.1%.
The good news is our futures are down only -28 points this morning. Perhaps today we will not blindly follow Wall Street, but then the futures can often be wrong.
Nowhere to run to
The two factors that have made US investors nervous these past couple of months, as the S&P500 has hit record highs (and more recently the Dow), are (a) stretched valuations and (b) inflation. Given blow-away March quarter earnings results failed to bring in fresh buyers, (a) was looking very much the case.
As for (b), last night’s April CPI data showed a 4.2% annual increase at the headline, the biggest since 2008, up from 2.6% in March. OMG. The month on month rise of 0.8% was the biggest since 2009. Economists had forecast 0.2%.
Central banks do not, of course, pay much heed to headline inflation, preferring core measures which exclude food and energy. The core rate rose 0.9% month on month, the highest in 26 years, to 3.0% from 1.6%.
The biggest headline moves within segments were in energy (including petrol, avgas etc), used cars and sporting tickets. Retail elements like apparel also saw decent gains. But let’s put this in perspective.
Do you remember what you were doing in April 2020? That’s right, so were Americans. Energy prices plunged as transport came to a standstill. Demand for cars crashed as no one was driving. Discretionary retail demand crashed as stores were closed. Sport was also suspended. Twelve months on the US economy has reopened and significantly rebounded.
This CPI print is cycling the depth of the initial covid outbreak.
Oil prices have rebounded strongly and car demand has rebounded, but used cars are being favoured over new cars, given new car production is constrained by the current chip shortage. Sport is back on and stadiums need to recoup some losses. US consumer spending has surged as pent-up demand, matched with savings accumulated during lockdowns, is unleashed.
The Fed has said, all along, we expect a spike in inflation, and it will prove transitory. Well, here it is. The one little problem is, however, that even the Fed got a bit of a shock from the data.
The Fed expects this inflation spike to be more than just a one-month-wonder, but still nothing structural given these unprecedented times. But Wall Street is more inclined to lean towards such an inflation result including a structural element. Only time will tell. In the meantime, sell everything.
No great surprise that bonds were sold. The US ten-year yield jumped 7 basis points to 1.70%.
No great surprise, thus, that the Nasdaq was yet again hammered, but there was no rotation last night, just selling across the board. Banks should love a big jump in yields, but even they were sold.
Inflation? Get me into gold! Gold fell over twenty bucks. It’s the conundrum of gold: supposedly an inflation hedge, but sold when yields go up (and the US dollar, up 0.7% last night). Supposedly a safe haven against stock market turmoil, except when leveraged investors have to sell gold to cover their margin calls.
The US dollar jump sparked selling in most commodities, except for iron ore of course, and the oils, which continue to graft upward. Energy was the only sector to close in the green last night, but only just (+0.06%). Otherwise selling was relatively uniform across all other sectors, although weighted to Big Tech.
The S&P500 is now down -5% from its all-time high and the Nasdaq down -8%. As a testament to the Nasdaq having become vastly overvalued last year, even -8% has not brought that index back to its 200-day moving average. Thus commentators don’t see this as being over quite yet. A full -10% for the Nasdaq would be quite neat.
Commodities
| Spot Metals,Minerals & Energy Futures | |||
| Gold (oz) | 1815.40 | – 22.50 | – 1.22% |
| Silver (oz) | 26.98 | – 0.65 | – 2.35% |
| Copper (lb) | 4.81 | + 0.02 | 0.38% |
| Aluminium (lb) | 1.14 | – 0.03 | – 2.34% |
| Lead (lb) | 0.99 | – 0.01 | – 1.20% |
| Nickel (lb) | 8.11 | – 0.04 | – 0.55% |
| Zinc (lb) | 1.36 | – 0.01 | – 0.74% |
| West Texas Crude | 66.08 | + 0.80 | 1.23% |
| Brent Crude | 68.92 | + 0.26 | 0.38% |
| Iron Ore (t) | 233.10 | + 4.20 | 1.83% |
Copper managed to hold its ground against the US dollar. Iron ore typically ignores the currency.
One wonders just how much more iron ore pain Beijing can take before responding, somehow. We really must feel very sympathetic.
One positive from Australia’s point of view is a full -1.5% drop in the Aussie to US$0.7724, on a combination of last night’s greenback rally, and Josh’s cash splash.
Today
The SPI Overnight closed down -28 points or -0.4%. Yesterday the ASX200 left 7100 firmly behind, and today 7000 may be tested, dependent on just what that cent-plus drop in the Aussie might backstop.
The open will look more nasty than it realistically is, because both National Bank ((NAB)) and Westpac ((WBC)) go ex today.
GrainCorp ((GNC)), Orica ((ORI)) and Xero ((XRO)) report earnings.
GPT Group ((GPT)), oOh!media ((OML)) and Waypoint REIT ((WPR)) hold AGMs.
Treasury Wine Estates ((TWE)) hosts an investor day.
The US will see April wholesale inflation data tonight (PPI). Strap in.
The Australian share market over the past thirty days…
| BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS | |||
| A2M | a2 Milk Co | Downgrade to Underperform from Neutral | Macquarie |
| DCN | Dacian Gold | Upgrade to Neutral from Underperform | Macquarie |
| IAP | Irongate Group | Downgrade to Neutral from Outperform | Macquarie |
| SUN | Suncorp | Downgrade to Neutral from Buy | Citi |
| Downgrade to Hold from Add | Morgans | ||
| VUK | Virgin Money Uk | Upgrade to Hold from Reduce | Morgans |
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: CSR - CSR LIMITED
For more info SHARE ANALYSIS: GNC - GRAINCORP LIMITED
For more info SHARE ANALYSIS: GPT - GPT GROUP
For more info SHARE ANALYSIS: NAB - NATIONAL AUSTRALIA BANK LIMITED
For more info SHARE ANALYSIS: NXL - NUIX LIMITED
For more info SHARE ANALYSIS: OBL - OMNI BRIDGEWAY LIMITED
For more info SHARE ANALYSIS: OML - OOH!MEDIA LIMITED
For more info SHARE ANALYSIS: ORI - ORICA LIMITED
For more info SHARE ANALYSIS: PLS - PLS GROUP LIMITED
For more info SHARE ANALYSIS: QAN - QANTAS AIRWAYS LIMITED
For more info SHARE ANALYSIS: SUN - SUNCORP GROUP LIMITED
For more info SHARE ANALYSIS: TWE - TREASURY WINE ESTATES LIMITED
For more info SHARE ANALYSIS: WBC - WESTPAC BANKING CORPORATION
For more info SHARE ANALYSIS: WPR - WAYPOINT REIT LIMITED
For more info SHARE ANALYSIS: XRO - XERO LIMITED