Daily Market Reports | May 24 2021
This story features A2 MILK COMPANY LIMITED, and other companies. For more info SHARE ANALYSIS: A2M
The company is included in ASX100, ASX200, ASX300 and ALL-ORDS
| World Overnight | |||
| SPI Overnight (Jun) | 7026.00 | – 5.00 | – 0.07% |
| S&P ASX 200 | 7030.30 | + 10.70 | 0.15% |
| S&P500 | 4155.86 | – 3.26 | – 0.08% |
| Nasdaq Comp | 13470.99 | – 64.75 | – 0.48% |
| DJIA | 34207.84 | + 123.69 | 0.36% |
| S&P500 VIX | 20.15 | – 0.52 | – 2.52% |
| US 10-year yield | 1.63 | – 0.00 | – 0.12% |
| USD Index | 90.02 | + 0.26 | 0.29% |
| FTSE100 | 7018.05 | – 1.74 | – 0.02% |
| DAX30 | 15437.51 | + 67.25 | 0.44% |
By Greg Peel
Getting Defensive
The futures had suggested 27 points and the ASX200 managed 37 points in the first eight minutes. Then someone pointed out it was a Friday, and by midday the index was down -19.
Which took it to smack on 7000. A half-hearted rally ensued in the afternoon.
Last week saw a general exit from the resource sectors as the euphoria suddenly wore off, thanks to a totally unsurprising blow-off in the iron ore price, and some pullbacks in base metal prices, along with a dip back in oil. Investors who had assumed prices go up forever ran screaming into the hills.
On Thursday the ancient ploy of switching into banks when resource sectors retreat was evident, as was a more defensive tone to the day’s proceedings. On Friday the banks largely watched on (+0.2%) as investors became a lot more defensive.
Countering another -2.0% fall in energy and -1.0% fall in materials was a switch into healthcare (1.8%), staples (1.7%) and utilities (1.1%), and to a lesser extent industrials (0.7%) and telcos (0.5%).
Staples were helped by a2 Milk’s ((A2M)) ongoing rebound from the depths (+6.3%), albeit countered by more profit-taking in Nufarm ((NUF)), after the agri company warned its second half may not be quite as outstanding as its first (-6.5%).
It was a session that saw investors returning to other recently beaten-down stocks, such as travel agents Webjet ((WEB)), up 5.4%, and Corporate Travel Management ((CTD)), up 4.4%. But the discretionary sector was knocked about (-0.2%) by Kogan ((KGN)), which having copped selling last month after a weak quarterly update, impacted by rising inventory levels and rising freight costs, issued a formal profit warning on Friday due to rising inventory levels and rising freight costs. It fell -14.3%.
But if cow juice and airline flights (of fancy) were making comebacks, the comeback kid on the day was EML Payments ((EML)). Although a 15.8% bounce rather pales following a -45% plunge. Brokers were circumspect about EML’s possible spanking from the Irish central bank, but to its extent they couldn’t be sure, be sure, be sure.
Technology was otherwise another general comeback story on Friday (+1.6%). So having rocked their way to giddy heights on iron ore and other commodity prices, investors are taking those profits and redirecting to defensives and “value” among beaten-downs.
Value or value trap?
The index has held above 7000, and another mixed session on Wall Street on Friday night will do little to threaten that today, one assumes. Our futures closed down -5 points on Saturday morning.
Just Not Certain
Having enjoyed a rebound two Fridays ago following a torrid week of inflation fears, Wall Street stumbled and bumbled along in uncertain fashion last week, ending on another mixed note on Friday night.
The mixed note (Dow, up Nasdaq down) reflects Wall Street’s current mindset, or lack thereof. Is inflation transitory or structural?
A flash estimate of the US manufacturing PMI for May came in at a rocketing 68.1 after a slight dip in April to 63.5%. It appears April was simply a matter of turbo lag.
The pace of manufacturing growth is accelerating at the same time rising input and transport costs are dragging on earnings. If the demand is solid, then only one thing can give – prices, to the upside.
But April sales of existing houses dropped -2.7%, continuing a more recent trend of the US housing market surge cooling off. Due to a lack of supply, sellers of existing homes can name their price. The problem is few genuine home buyers (as opposed to investors) can afford such prices.
Welcome to our world.
It’s just another sign of inflation, but is it proving transitory?
The problem with the great inflation debate for investors in the US and across the globe is the fact it cannot be resolved in the short term. While the Fed might be conceding the timing of a taper should probably now at least be discussed, it remains resolute in insisting more evidence is required before the inflation debate can be resolved one way or the other.
In other words, several more months of data.
Recent data have been sufficiently conflicting, as was evident on Friday night (surging manufacturing growth but signs of a cooling housing market) and earlier in the month (week April jobs growth but a blow-away April CPI), to underscore that more reports are needed before one could point to a trend.
Which suggests it could be a long northern summer.
| Spot Metals,Minerals & Energy Futures | |||
| Gold (oz) | 1880.70 | + 4.10 | 0.22% |
| Silver (oz) | 27.53 | – 0.20 | – 0.72% |
| Copper (lb) | 4.51 | – 0.07 | – 1.49% |
| Aluminium (lb) | 1.07 | – 0.01 | – 0.70% |
| Lead (lb) | 1.00 | – 0.00 | – 0.02% |
| Nickel (lb) | 7.70 | – 0.16 | – 2.00% |
| Zinc (lb) | 1.34 | + 0.00 | 0.29% |
| West Texas Crude | 63.58 | + 1.53 | 2.47% |
| Brent Crude | 66.44 | + 1.50 | 2.31% |
| Iron Ore (t) | 200.10 | – 10.75 | – 5.10% |
Commodities
Ongoing selling in copper and nickel and iron ore provides another hint that perhaps inflation is transitory. At least until prices start rising again.
Gold continues to graft higher, suggesting recent crypto converts are quietly changing their minds about stores of value. Bitcoin fell another -8.5% on Friday night.
After a week of selling in the face of an assumed new deal with Iran, the oils found some buyers with a bit of help from a storm apparently brewing in the Gulf.
The Aussie is back down -0.5% at US$0.7735.
The SPI Overnight closed down -5 points on Saturday morning.
The Week Ahead
A busy week on the US data front will only serve keep the inflation debate bubbling, culminating on Friday with the Fed’s preferred PCE measure of April inflation.
Ahead of that, numbers for consumer confidence, house prices, new home sales and durable goods orders will season the pot. A first revision of March quarter GDP is also due.
In Australia we’ll see two important lead-in reports ahead of the following week’s GDP result, being construction work done and private sector capex. We’ll also see a preliminary look at April trade.
The RBNZ holds a policy meeting on Wednesday and the Bank of Japan on Thursday.
It’s another busy week on the local corporate calendar, featuring another slew of earnings results and AGMs, which I will highlight on a daily basis.
Aristocrat Leisure ((ALL)) and Select Harvests ((SHV)) report earnings today.
The Australian share market over the past thirty days…
| BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS | |||
| APT | Afterpay | Upgrade to Outperform from Neutral | Macquarie |
| CCP | Credit Corp | Upgrade to Buy from Hold | Ord Minnett |
| ILU | Iluka Resources | Downgrade to Accumulate from Buy | Ord Minnett |
| NUF | Nufarm | Downgrade to Equal-weight from Overweight | Morgan Stanley |
| ORE | Orocobre | Upgrade to Accumulate from Hold | Ord Minnett |
| PX1 | Plexure Group | Downgrade to Hold from Buy | Ord Minnett |
| SBM | St Barbara | Downgrade to Underperform from Neutral | Macquarie |
| Downgrade to Hold from Buy | Ord Minnett | ||
| UMG | United Malt Group | Downgrade to Neutral from Outperform | Credit Suisse |
| VCX | Vicinity Centres | Upgrade to Outperform from Neutral | Macquarie |
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CHARTS
For more info SHARE ANALYSIS: A2M - A2 MILK COMPANY LIMITED
For more info SHARE ANALYSIS: ALL - ARISTOCRAT LEISURE LIMITED
For more info SHARE ANALYSIS: CTD - CORPORATE TRAVEL MANAGEMENT LIMITED
For more info SHARE ANALYSIS: EML - EML PAYMENTS LIMITED
For more info SHARE ANALYSIS: KGN - KOGAN.COM LIMITED
For more info SHARE ANALYSIS: NUF - NUFARM LIMITED
For more info SHARE ANALYSIS: SHV - SELECT HARVESTS LIMITED
For more info SHARE ANALYSIS: WEB - WEB TRAVEL GROUP LIMITED