Daily Market Reports | Jul 09 2021
This story features COMMONWEALTH BANK OF AUSTRALIA, and other companies. For more info SHARE ANALYSIS: CBA
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS
| World Overnight | |||
| SPI Overnight (Jun) | 7207.00 | – 48.00 | – 0.66% |
| S&P ASX 200 | 7341.40 | + 14.50 | 0.20% |
| S&P500 | 4320.82 | – 37.31 | – 0.86% |
| Nasdaq Comp | 14559.79 | – 105.28 | – 0.72% |
| DJIA | 34421.93 | – 259.86 | – 0.75% |
| S&P500 VIX | 19.00 | + 2.80 | 17.28% |
| US 10-year yield | 1.29 | – 0.03 | – 2.50% |
| USD Index | 92.38 | – 0.33 | – 0.36% |
| FTSE100 | 7030.66 | – 120.36 | – 1.68% |
| DAX30 | 15420.64 | – 272.07 | – 1.73% |
By Greg Peel
Reality Check
For the prior couple of sessions the local market seemed completely unfazed by the Sydney outbreak, likely assuming it would prove brief as other snap lockdowns this year have been, and in the knowledge that said lockdowns had always been followed by swift economic recovery.
But yesterday was a different story. Again the blind led out proceedings, pushing the ASX200 up 55 points from the open. But at 11am the critical number came in at 38, and by lunchtime the index was back to flat, before some tepid late buying.
The hint should have been clear in the fact the lockdown was extended. And now the risk is another extension will be forthcoming.
So it’s back to cleaning out the toilet paper aisle again. Consumer staples closed up a standout 1.0% yesterday. This was pipped in percentage terms, but not in market cap terms, by technology, which rose 1.3%.
Tech was driven by a 13.7% jump for Zip Co ((Z1P)), on news Swedish-based BNPL rival Klarna, in which Commonwealth Bank ((CBA)) is a local stakeholder, had taken a slice.
Other winners on the day included materials (+0.7%) on commodity price strength, and industrials (+0.6%). In the latter case, Sydney Airport ((SYD)) rose 2.7% on rumours of a counter-offer and Seven Group ((SVW)) rose 4.4% after securing 40% of Boral ((BLD)).
Telcos were modestly higher but all other sectors closed modestly in the red.
A notable index top five winner on the day was Redbubble ((RBL)), marketer of masks. It rose 4.4%.
The biggest loser was Magellan Financial ((MFG)), which fell -3.9% on analyst warnings following a rush of funds outflows.
It’s all going to get a bit uglier today nonetheless.
Australia’s covid issue is daunting but pales into comparison with outbreaks across the globe. The US is beginning to worry again, and Tokyo’s new state of emergency, announced yesterday, is a reminder it may be some time before the world can return to any sort of normal.
You’ll be able to hear a pin drop at the Games, although presumably they’re already working on relevant crowd noise tapes.
Bond yields are moving down again, upsetting the rebound in cyclicals. The Aussie ten-year fell another -4 basis points yesterday to 1.34%. This race to the bottom among sovereign yields is sparking volatility in exchange rates. The Aussie is down -0.7% even as the US dollar is down -0.3%.
With Wall Street taking a tumble, our futures are down -48 points this morning.
The Bond Conundrum
Debate continues to rage in the US as to why bond yields have suddenly fallen sharply. Having traded up to 1.74% in March on the initial inflation scare, the US ten-year yield fell back to find some stability around 1.50% more recently but has now plunged to 1.29%. Another -3 basis points were lost last night.
Given another debate still rages – that of whether inflation is transitory or not – it seems incongruous to many that yields should be falling.
One argument is that the faster than expected US economic rebound and “reflation trade” from November (vaccines announced) and through the subsequent months (rapid vaccine rollout) has now peaked. The economy’s not about to go backwards, but the pace of recovery is easing.
One case in point was last night’s weekly new jobless claims number, which ticked up to 373,000 from the week before when economists had forecast 350.000.
Then there’s the issue of vaccine rollout falling short of Biden’s target of 70% fully vaccinated by July 4. The problem is not a lack of vaccines – they are abundant – it’s the refusal of many in Republican states to be vaccinated. It is in those states that the delta variant is now threatening to run amok.
Tokyo’s state of emergency drives home this risk.
The counter argument for falling bond yields is that it is simply “technical”. The non-transitory camp has been selling bonds, and shorting bonds, in the belief inflation will linger for longer and the Fed will be forced to act sooner rather than later. So when foreign sovereigns and pension funds started buying US bonds for yield and protection, the shorts were squeezed.
As they bailed out, critical chart levels were breached and stop-losses triggered, and as momentum built, on jumped the algos.
So take your pick, but either way Wall Street decided last night it’s all looking a bit pear-shaped, and hence headed for the exits. The Dow was down over -500 points early in the session. There was no rotation evident.
If the history of 2021 is any guide, this little tantrum may run further but probably not for long. There has not been a -5% pullback in the S&P500 since October, because every dip brings in the buyers.
The prevailing view among analysts is that bond yields will rise by the end of the year, perhaps to 2.0%, but the S&P will close out the year above current levels as well.
Note that last night’s falls set Wall Street back all of one week.
Commodities
| Spot Metals,Minerals & Energy Futures | |||
| Gold (oz) | 1803.10 | – 0.30 | – 0.02% |
| Silver (oz) | 25.88 | – 0.22 | – 0.84% |
| Copper (lb) | 4.26 | – 0.05 | – 1.22% |
| Aluminium (lb) | 1.12 | – 0.03 | – 2.35% |
| Lead (lb) | 1.05 | – 0.00 | – 0.32% |
| Nickel (lb) | 8.31 | – 0.02 | – 0.24% |
| Zinc (lb) | 1.33 | – 0.01 | – 0.84% |
| West Texas Crude | 72.94 | + 0.74 | 1.02% |
| Brent Crude | 74.31 | + 0.89 | 1.21% |
| Iron Ore (t) | 218.20 | – 4.65 | – 2.09% |
What goes up…
Last night’s falls did not quite wipe out Wednesday night’s gains in base metals but presumably delta fears have crept in here too, given the US dollar is down -0.3%.
The oils finally saw a bounce on the usual US weekly crude inventory lottery.
The Aussie is down -0.7% at US$0.7432.
Today
The SPI Overnight closed down -48 points or -0.7%.
China will report June inflation data today.
Viva Energy ((VEA)) provides a quarterly update.
The Australian share market over the past thirty days…
| BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS | |||
| ABP | Abacus Property | Downgrade to Hold from Accumulate | Ord Minnett |
| ASX | ASX | Downgrade to Sell from Neutral | Citi |
| BLD | Boral | Downgrade to Neutral from Outperform | Macquarie |
| BSL | Bluescope Steel | Upgrade to Overweight from Equal-weight | Morgan Stanley |
| CRN | Coronado Global Resources | Upgrade to Add from Hold | Morgans |
| CVN | Carnarvon Petroleum | Upgrade to Buy from Hold | Ord Minnett |
| IPL | Incitec Pivot | Upgrade to Outperform from Neutral | Credit Suisse |
| OSH | Oil Search | Upgrade to Add from Hold | Morgans |
| SVW | Seven Group | Upgrade to Buy from Accumulate | Ord Minnett |
| SYD | Sydney Airport | Upgrade to Neutral from Underperform | Credit Suisse |
| Downgrade to Hold from Add | Morgans | ||
| TAH | Tabcorp | Upgrade to Add from Hold | Morgans |
| WTC | Wisetech Global | Downgrade to Neutral from Outperform | Macquarie |
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CHARTS
For more info SHARE ANALYSIS: BLD - BORAL LIMITED
For more info SHARE ANALYSIS: CBA - COMMONWEALTH BANK OF AUSTRALIA
For more info SHARE ANALYSIS: MFG - MAGELLAN FINANCIAL GROUP LIMITED
For more info SHARE ANALYSIS: VEA - VIVA ENERGY GROUP LIMITED