Daily Market Reports | May 31 2021
This story features INGHAMS GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: ING
The company is included in ASX300 and ALL-ORDS
| World Overnight | |||
| SPI Overnight (Jun) | 7181.00 | + 6.00 | 0.08% |
| S&P ASX 200 | 7179.50 | + 84.60 | 1.19% |
| S&P500 | 4204.11 | + 3.23 | 0.08% |
| Nasdaq Comp | 13748.74 | + 12.46 | 0.09% |
| DJIA | 34529.45 | + 64.81 | 0.19% |
| S&P500 VIX | 16.76 | + 0.02 | 0.12% |
| US 10-year yield | 1.58 | – 0.03 | – 1.80% |
| USD Index | 90.03 | + 0.02 | 0.02% |
| FTSE100 | 7022.61 | + 2.94 | 0.04% |
| DAX30 | 15519.98 | + 113.25 | 0.74% |
By Greg Peel
Record
“As to why the futures are up 0.8% this morning is unclear, unless it’s just about some base metal price gains. It might be a pre-set ahead of a big buying order today, but we’ll see.”
Given the ASX200 was up 70 points in the first half hour on Friday, I think my pre-opening assumption may have been correct. The futures were up 0.8% to the S&P500’s 0.1% gain on Thursday night.
The materials sector was indeed the biggest gainer, up 1.9%, but buying across the board, mostly in cyclicals, suggests a big order hit the market from the open. It has been suggested for US investors that the Australian market is a good hedge against inflation, given our miners and banks make up the bulk of market cap. Perhaps there’s a clue here.
What we didn’t see, nonetheless, is any pullback once the order was filled. But then maybe it wasn’t filled until the close. Or maybe, having smashed through 7100 on the open, momentum carried the index gradually higher throughout the day.
Outside of materials, energy rose 1.7% and the banks 1.3%. Industrials, in which even the airports and toll road companies can be considered cyclical rather than defensive at this time, as well as other industries, rose 1.6%. And the same can be said for property, which gained 1.7%.
The more obvious defensives closed higher but clearly underperformed. Staples up 0.7%, telcos 0.6%, healthcare 0.4% and utilities 0.1%. Technology was the only sector to miss out (-0.5%).
Staples’ gain came with the help of an 8.6% jump for Inghams Group ((ING)) after the company upgraded guidance. Covid has provided a tough time for the chook farmer, with cook-at-home failing to overcome loss of restaurant sales and surging feed prices.
A 5.6% rise for South32 ((S32)) underscored the metal price rally overnight, while 5.1% for Corporate Travel Management ((CTD)) suggested Victoria’s lockdown was of no concern in the bigger reopening picture.
CSR ((CSR)) went ex-dividend, so we can ignore its biggest loser drop of -5.3%. We can also ignore a -5.1% drop for Nuix ((NXL)), as that stock is currently up and down like a yo-yo.
This is the second time this month the ASX200 has appeared to smash through the top of the range at 7100. On May 10, the index hit 7172. On May 11, it fell -100 points.
Admittedly that was driven by a weak night on Wall Street, but it did rather show up the lack of true conviction in the prior day’s trade. Wall Street is a little higher overnight, so we probably won’t see a repeat.
And the futures closed up 6 points on Saturday morning.
But today is the last day of the month…
Less of a Shock
It was also the last day of the month on Wall Street on Friday night, given US markets are closed tonight. That explains why the major indices all dipped towards the close to a flattish session, ahead of a three-day weekend.
The highlight of the day was Wall Street’s shrugging off of the April personal consumption & expenditure number, which came in at a 13-year high of 3.2%. The core PCE result of 3.1% was a 29-year high.
The Fed’s inflation comfort zone of 2-3% is based on the core PCE. But the Fed has for months been anticipating such blow-outs.
The bottom line is the earlier CPI equivalent had shocked the market, coming in at a “hot” 4.2%. Economists had forecast 3.6%. A PCE of 3.2% is not so much “hot” as “warm”, as economists had forecast 2.9%.
Thus Wall Street is “warming” to the Fed’s insistence that a big spurt in inflation, which is cycling the depths of covid deflation last year (hence the big numbers), is both expected and transitory. As supply constraints ease and the data begin cycling the recovery period last year, so too will the inflation numbers ease.
Not everyone’s convinced. Indeed, if I took CNBC guest experts as a guide, I’d say the jury is split 50/50.
Meanwhile, the Chicago PMI, which measures activity in the major trading hub of Chicago, jumped to a 38-year high of 75.2 in May. As a PMI, this is a pace-of-growth measure, and 75 implies a rocket ship.
Just as the inflation story is splitting commentators, so too is the correction debate. A correction is coming, say some. A correction is a-ways off, say the rest.
Interestingly, the VIX volatility index has now fallen below 17, having spiked up to 27 mid-month on the April CPI result. This suggests Wall Street is as relaxed as it has been since covid hit last year.
If it gets down to low double-digits, that’ll be the time to really start talking correction, as corrections always arrive at times of complacency. But it is not unheard of for the VIX to bang along in a 10-12 range for months.
In other news, Joe Biden has unveiled a US$6trn budget spending plan, which would lead to a -US$1.8trn deficit in the next fiscal year. Seems a lot, but Trump’s final year produced a -US$3.1trn deficit. The cost of Biden’s multi-year projected deficits is to be paid for by tax increases.
After Friday night’s rejection by the Republicans to hold an independent commission into what happened on January 6, discussing the merits or otherwise of Biden’s plan seems rather moot. It may take months for a budget to be agreed upon. But budget laws require only a 51% majority, whereas non budget laws require 60-40.
Commodities
| Spot Metals,Minerals & Energy Futures | |||
| Gold (oz) | 1903.50 | + 7.60 | 0.40% |
| Silver (oz) | 27.94 | + 0.10 | 0.36% |
| Copper (lb) | 4.61 | + 0.03 | 0.62% |
| Aluminium (lb) | 1.08 | – 0.01 | – 0.66% |
| Lead (lb) | 0.99 | + 0.01 | 1.08% |
| Nickel (lb) | 8.07 | + 0.01 | 0.09% |
| Zinc (lb) | 1.38 | + 0.02 | 1.46% |
| West Texas Crude | 66.32 | – 0.53 | – 0.79% |
| Brent Crude | 68.72 | – 0.75 | – 1.08% |
| Iron Ore (t) | 189.55 | + 1.90 | 1.01% |
More general strength in metals prices.
Having hit their highest levels since 2018 on Thursday night, oil prices pulled back on Friday night.
Gold has cracked US$1900/oz once more.
As to why the Aussie is down -0.5% at US$0.7707 when the greenback didn’t move is strange, but it traded as low as US$0.7681 on Friday night. Looks like someone selling out at month’s end.
The Week Ahead
Wall Street is closed tonight.
With inflation numbers now out of the way, it’s on to US jobs numbers – private sector on Thursday and non-farm payrolls on Friday.
Tomorrow brings global May manufacturing PMI numbers from across the globe and Wednesday service PMIs, except in the US, which will be pushed back one day.
China reports both today.
The US will also see data for construction spending and factory orders this week, and the Fed Beige Book.
It’s GDP week in Australia, with March quarter numbers due for company profits and inventories today and the current account, which includes trade numbers, tomorrow, ahead of Wednesday’s big reveal.
This week also brings monthly numbers for private sector credit (today), building approvals, house prices and housing finance, along with final numbers for retail sales and trade.
The RBA meets tomorrow.
Worley ((WOR)) holds an investor day on Wednesday and Wesfarmers ((WES)) a strategy day on Thursday.
Incitec Pivot ((IPL)) and Orica ((ORI)) go ex today.
The Australian share market over the past thirty days…
| BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS | |||
| ALQ | ALS Ltd | Downgrade to Equal-weight from Overweight | Morgan Stanley |
| Downgrade to Hold from Add | Morgans | ||
| CGC | Costa Group | Upgrade to Outperform from Neutral | Credit Suisse |
| Downgrade to Hold from Add | Morgans | ||
| CIA | Champion Iron | Upgrade to Neutral from Sell | Citi |
| FPH | Fisher & Paykel Healthcare | Downgrade to Neutral from Outperform | Credit Suisse |
| MGR | Mirvac | Upgrade to Overweight from Equal-weight | Morgan Stanley |
| NHC | New Hope Corp | Upgrade to Buy from Neutral | Citi |
| OZL | Oz Minerals | Upgrade to Buy from Neutral | Citi |
| UWL | Uniti Group | Downgrade to Hold from Accumulate | Ord Minnett |
| XRO | Xero | Neutral | Citi |
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: CTD - CORPORATE TRAVEL MANAGEMENT LIMITED
For more info SHARE ANALYSIS: ING - INGHAMS GROUP LIMITED
For more info SHARE ANALYSIS: NXL - NUIX LIMITED
For more info SHARE ANALYSIS: ORI - ORICA LIMITED
For more info SHARE ANALYSIS: S32 - SOUTH32 LIMITED
For more info SHARE ANALYSIS: WES - WESFARMERS LIMITED
For more info SHARE ANALYSIS: WOR - WORLEY LIMITED