Daily Market Reports | May 21 2021
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| World Overnight | |||
| SPI Overnight (Jun) | 7042.00 | + 27.00 | 0.38% |
| S&P ASX 200 | 7019.60 | + 87.90 | 1.27% |
| S&P500 | 4159.12 | + 43.44 | 1.06% |
| Nasdaq Comp | 13535.74 | + 236.00 | 1.77% |
| DJIA | 34084.15 | + 188.11 | 0.55% |
| S&P500 VIX | 20.67 | – 1.51 | – 6.81% |
| US 10-year yield | 1.63 | – 0.05 | – 2.91% |
| USD Index | 89.76 | – 0.42 | – 0.47% |
| FTSE100 | 7019.79 | + 69.59 | 1.00% |
| DAX30 | 15370.26 | + 256.70 | 1.70% |
By Greg Peel
By the Book
I noted yesterday morning that big sell-off days like we saw on Wednesday, for which the trigger was likely one big index sell order that had buyers simply standing aside, are typically followed by a meaningful rebound the next day. The only problem was, the futures were only up 4 points.
But the ASX200 closed up 87, with a bit of a kick from the jobs numbers, and regained the 7000 level.
The jobs numbers were quite the mixed bag.
April saw a net -31,000 jobs lost when a 20,000 gain was expected, which is not good, except that it was part-time jobs that were lost, with full-time increasing 34,000, which is good. The unemployment rate fell to 5.5% from 5.7%, which is good, but the reason both jobs and the unemployment rate fell is because the participation rate fell, which is not good.
Overall, it was a better result than feared given JobKeeper ended in March, which is good, although the ABS suggests the real JobKeeper impact won’t be seen until May, which is not good.
The biggest driver of yesterday’s rally were the banks. While there was nothing in the jobs numbers to suggest the RBA needs to diverge from its current path, lower unemployment does mean less chance of mortgage default, which was a possibility if jobs had “fallen off a JobKeeper cliff” in April as feared. The financials sector rose a significant 1.9%.
Technology won the day in percentage terms (4.3%). A news report suggested Afterpay ((APT)) is about to take BNPL to SMEs, which was worth a chart-topping 7.7%. Altium ((ALU)) took silver with 6.6% on a move in substantial shareholding.
Countering the tech trend was Nuix ((NXL)), which was back in the bad books again (-6.8%).
It was a solid day for healthcare, industrials, telcos and consumer discretionary. An update from Qantas ((QAN)) was positive despite the extended border closure (+3.5%), with inter/intrastate travel bringing in the cash. An update from Eagers Automotive ((APE)) showed ongoing strength in car sales (+5.9%).
Standing out, however, were the REITs (+2.6%), led by Goodman Group ((GMG)), up 2.3%.
Dragging the chain were energy (+0.4%), although it managed to hang in there against lower oil prices, which are lower again overnight, and materials (-0.4%), on lower iron ore and base metal prices.
May has now seen one surge past 7100 and one plunge below 7000 but with the futures up 27 points this morning, following strength on Wall Street, it looks like we’re back in that 7000-7100 range once again.
Just talking about discussing a plan
When on Wednesday night the Fed said it might have to start talking about discussing a plan for tapering ahead, Wall Street shrugged, despite a 4 point jump in the US ten-year yield and a -0.5% jump in the US dollar. The major indices were already in rebound mode from early falls.
Last night the ten-year yield fell back -5 points to 1.63% and the dollar dropped -0.5%. If the stock market is not concerned, then bond and currency markets aren’t either.
The stock market is unconcerned because it has never believed the Fed’s insistence that inflation is transitory, and always believed the Fed will be forced to move at least by early next year, if not by late this year. Even if talking about discussing a plan is a bit vague, markets are pricing in expectations of tapering in November-December.
Given recent volatility on Wall Street, the suggestion is the beginnings of a taper are already priced in.
The biggest issue driving inflation right now is not pent-up demand meeting supply bottlenecks, it’s a shortage of labour. We recall that on the last count, US businesses had a total of 8 million job vacancies, while unemployment was still at 8 million. Nowhere is the problem more evident than in the trucking industry.
At present, 21% of oil tanker trucks are sitting idle because there just aren’t enough drivers. And that’s representative across the whole trucking industry, from big rigs down to suburban delivery trucks. You do not need to be a computer geek to drive a truck, you just need to get your licence. So why the shortfall?
It is suggested perhaps that when trucking was shut down but for essential services last year, out of work drivers simply went and found work elsewhere. Whatever the cause, a lack of drivers means freight charges are going up and up, impacting on the prices of everything from petrol to food to building materials.
Transitory? Well I suppose it depends on what sort of wages will need to be offered to entice more drivers back into the game, which implies inflation anyway.
While last night’s rally on Wall Street suggests the trend is back on track, it was not overly convincing. Having been up over 300 points in the afternoon, late selling trimmed the Dow’s gain down to 188.
The Nasdaq outperformed, implying re-rotation, as previously surging cyclicals have started to ease back off. The obvious example is materials, where prices of metals and minerals have dropped back, and so too have the likes of lumber after extraordinary gains.
At the end of it all Wall Street, too, is still in its range.
Commodities
| Spot Metals,Minerals & Energy Futures | |||
| Gold (oz) | 1876.60 | + 7.30 | 0.39% |
| Silver (oz) | 27.73 | + 0.03 | 0.11% |
| Copper (lb) | 4.58 | + 0.02 | 0.35% |
| Aluminium (lb) | 1.08 | – 0.01 | – 0.50% |
| Lead (lb) | 1.00 | + 0.00 | 0.44% |
| Nickel (lb) | 7.86 | – 0.06 | – 0.75% |
| Zinc (lb) | 1.34 | + 0.01 | 0.96% |
| West Texas Crude | 62.05 | – 1.31 | – 2.07% |
| Brent Crude | 64.94 | – 1.69 | – 2.54% |
| Iron Ore (t) | 210.85 | – 4.60 | – 2.14% |
The fall in the US dollar led some renewed support to prices last night but iron ore missed out. It would not be too surprising to see iron ore back at US$200/t before settling again, given the speed at which it raced through that level.
Oil prices continued to fall on the assumption a nuclear deal will again be reached with Iran, and fell further on the ceasefire in Gaza lowering general Middle East worries.
The Aussie is back up a full 0.7% to US$0.7776, despite commodity price weakness.
Today
The SPI Overnight closed up 27 points or 0.4%.
Flash estimates of May manufacturing PMIs will be released across the globe today.
Adbri ((ABC)), Deterra Royalties ((DRR)) and Sydney Airport ((SYD)) holds AGMs.
The Australian share market over the past thirty days…
| BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS | |||
| ALD | Ampol | Upgrade to Overweight from Equal-weight | Morgan Stanley |
| APT | Afterpay | Upgrade to Outperform from Neutral | Macquarie |
| CAR | Carsales.Com | Upgrade to Add from Hold | Morgans |
| CCP | Credit Corp | Upgrade to Buy from Hold | Ord Minnett |
| CPU | Computershare | Upgrade to Hold from Lighten | Ord Minnett |
| ORE | Orocobre | Upgrade to Accumulate from Hold | Ord Minnett |
| S32 | South32 | Downgrade to Neutral from Outperform | Macquarie |
| SBM | St Barbara | Downgrade to Underperform from Neutral | Macquarie |
| Downgrade to Hold from Buy | Ord Minnett | ||
| SUN | Suncorp | Upgrade to Buy from Neutral | Citi |
| Upgrade to Add from Hold | Morgans | ||
| UMG | United Malt Group | Downgrade to Neutral from Outperform | Credit Suisse |
| VCX | Vicinity Centres | Upgrade to Outperform from Neutral | Macquarie |
For more detail go to FNArena's Australian Broker Call Report, which is updated each morning, Mon-Fri.
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