Overnight: Tech Fights Back

By Greg Peel

Last Hurrah

A preliminary estimate from the ABS suggested Australian retail sales surged a record 8.2% in March from February and 10% from last March, pipping the prior record of 8.1% in the month before the GST was introduced in 2000.

Sales of canned goods, medicinal products (you know what) and cleaning products (sanitiser) jumped 50%. The split between perishable product sales and all other groceries was 21.6% to 35.6%. The offset was provided by anything you couldn’t buy at a locked down store, such as restaurants, clothing etc.

ANZ Bank economists suggest that while strong retail sales would normally provide a boost to GDP, this unusual sales level will be offset by an unusual drop in inventories. Toilet paper inventories, for example, would presumably have fallen to zero, as it was straight off the production line and gone.

And ANZ Bank also highlights the obvious. April sales will likely have fallen off a cliff as consumers reach peak-hoarding (although you still can’t buy flour) and attention turns to diminished household budgets due to job losses and fallen wages on JobKeeper. The trend thereafter is likely to remain weak for some time.

We recall that retail sales were disturbingly weak late in 2019, and one reason the RBA was cutting even before we started to get sick.

Which is likely why the consumer staples sector closed up an unremarkable 0.8% yesterday, but then the ASX200 opened down -120 points before spinning on a dime when the ABS numbers came out, and running all the way back up to square by the close.

Funny old market.

There was some help from US futures swinging to positive from negative during the session as well, largely due to after-the-bell earnings results on Wall Street.

Healthcare was the best performing sector up 1.3%, even as Ramsay Health Care ((RHC)) entered a trading halt pending a capital raise to top its revolving debt facility back up. The company will temporarily suspend its dividend.

Between healthcare, utilities (+1.4%) and staples it looked like a fairly defensive session yesterday, although the banks managed +0.8%.

The offset was provided by materials (-2.0%) and energy (-1.1%) following across-the-board commodity selling on Tuesday night in the wake of the oil price debacle. Last night saw all of copper, iron ore and oil bounce back.

The government has announced its intention to create a Strategic Oil Reserve – an idea that for some reason has been dismissed for years, but perhaps someone pointed out oil is rather cheap now. The reserve will be kept in the US.

Now, call me stupid, but (a) how useful is a “strategic” reserve 15,000km away in another jurisdiction, and (b), has anyone pointed out just why oil is so cheap at the moment? Because there’s nowhere to store it?

WiseTech Global ((WTC)) led the charge among index stocks yesterday in rising 16.8% following a trading update, while Southern Cross Media’s ((SXL)) ongoing re-entry (-8.3%) brings its price back to the recent raising level.

Falls in Qantas ((QAN)) of -6.3% and Flight Centre ((FLT)) of -6.0% suggest realisation we won’t be back in the air anytime soon.

Snap!

It was a fair assumption to make that the virus would lead to companies pulling the pin on advertising both to preserve cash at this time and for the obvious reason there was not much point in many cases (the upside being, when did you last have to suffer a Trivago ad?).

Last night Snap, owner of Snapchat, released earnings that showed advertising revenues exceeded expectations, by enough to send the stock up 37%. The result impacted on social media peers, such that Twitter rose 10% and Facebook 7%. Google rose 4% and Microsoft 3% and on it went. After two days of apparent exhaustion, in a heartbeat Big Tech was back.

Hence the Nasdaq rose 2.8% to the S&P’s 2.3% and the Dow’s 2.0%.

Wall Street was also relieved to see the oil market settle down, with the WTI June contract rising 8.5% (off a small base), although fears remain the June expiry could be a bit disruptive as well.

It had been well touted, but there’s always relief when Congress actually manages to pass something, hence last night’s passage of a second rescue package for small business, this time US$500bn (the original US$350bn went in a flash) also provided some comfort.

And the debate over reopening continues to heat up, well beyond the protests in some states. The mayor of Las Vegas called the lockdown “insane”, basically arguing that a crippled hospitality economy will severely impact on far more people than the virus, which has only left a few corpses in the town to date compared to the large population.

It seems callous, but the woman does have a point. South Dakota, which has resisted strict lockdown measures to date, will allow a couple of car racing events to go ahead this week, attracting 700 people (in a 4,000-seater, socially distanced). I wonder what Washington, Jefferson, Roosevelt and Lincoln think about that.

The more the get-back-to-work mantra grows, with the president its flag-waver, the more Wall Street becomes excited about an end to all this.

For an opposite view, see: Singapore.

Commodities

After Tuesday night’s big sell-off across the spectrum, there was a bit of a recovery last night.

The US ten-year bond yield recovered most of what it lost on Tuesday night, hence gold, too, has kicked off again, despite US dollar strength.

All of the above impacts on the Aussie, which has bounced back 0.6% to US$0.6321.

Today

The SPI Overnight closed up 49 points or 0.9%.

The ABS seems to be rather fluid at the moment, which is both understandable and welcome. Having decided to now issue “preliminary” data, such as yesterday’s retail sales, following the no-fault-of-their-own misleading jobs number from last week, today the statisticians will release preliminary March trade data, despite last month declaring they would suspend this series.

Today brings flash estimates of April manufacturing PMIs from across the globe, which should be fun.

Weekly new jobless claims are in the frame again tonight in the US.

Galaxy Resources ((GXY)) issues a production report today and Megaport ((MP1)) provides a quarterly update.

The Australian share market over the past thirty days…