Overnight: Back To Work

By Greg Peel

Nabbed

National Australia Bank ((NAB)) caught the market off guard yesterday in releasing its interim earnings result ahead of schedule, gazumping its rivals. But it was not the -50% drop in earnings that drew attention.

The bank cut its interim dividend to 30c, down from 83c last year, and announced a fully underwritten institutional placement of $3bn at $14.15, an -8.5% discount to Friday’s close, plus a $500m share purchase plan for retail investors. The dividend cut was not a shock – being in line with APRA’s directive – but there had been much debate about whether the banks would need to also raise capital.

NAB has gone into a trading halt, leaving Westpac ((WBC)) to provide the market response yesterday in falling -4.4%, to top the ASX200 losers’ board – a rare feat for a big bank. Westpac had been considered the bank-most-likely, while ANZ Bank ((ANZ)) fell -2.3% and Commonwealth Bank ((CBA)), which has already paid its interim dividend, closed dead flat.

The financials index fell only -0.15%, given other stocks in the sector were not infected. REITs in particular had a solid session.

Indeed the rest of the market had a solid session, as hope springs eternal that the economy will be reopening in the not too distant future. New Zealand will from today allow retailers, restaurants and schools to reopen on a limited basis. Australia’s per capita case count and curve flattening is similar to that of our neighbours.

Footwear retailer Accent Group ((AX1)) announced yesterday it would begin reopening stores from May 11. I was not aware we had the green light yet. Accent jumped 16.1%.

Domain Group ((DHG)) revealed its revenue was up 10% in March before plunging in April. That was worth 18.6%, on the assumption Domain is well-placed on the other side.

But the star of the day was again Mesoblast ((MSB)), which surged on Friday locally, surged more on its US listing on Friday night, and yesterday added another 41% downunder, thanks to its promising remestemcell drug trial.

The IT sector topped the session with a 3.6% gain, as reopenings bode well for credit providers, alongside industrials, also up 3.6%, on the expectation there’ll shortly be cars on the road again and planes in the sky, at least across the Tasman, sending all of Transurban ((TCL)), Sydney Airport ((SYD)) and Qantas ((QAN)) up around 4%.

The laggards on the day were the resource sectors, having been the leaders the prior two sessions, and consumer staples, which in theory should suffer from the end of hoarding. Otherwise, all other sectors were up over 2%.

Excitement is building, on top of the 25% rally from the bottom that anticipated one day excitement would build. Meanwhile, NAB was not the only company to announce a capital raising yesterday. Monash IVF Group ((MVF)), Charter Hall Retail REIT ((CQR)) and Qube Holdings ((QUB)) also put their hands up, adding to a growing list, and growing earnings per share dilution.

Just Do It

Jacinta Ardern declared NZ had won the battle against community transmission. Germany has also fought a good battle, and is looking to reopen. Spain has allowed kids outdoors for the first time in six weeks. The worst is now past for Italy and it, too, is looking towards reopening.

As are thirteen US states, and counting.

While each state’s plans vary in timing, which restrictions are lifted and which businesses can open, all in staggered fashion, it almost seems like the pressure is on to not be the state that fares economically worst if all about are back in business, despite strong warnings against such premature steps from US health officials.

And Wall Street is lapping it up. Last night the market leaders to date – FANG and friends – sat it out while beaten-down retailers, industrials, REITs and banks led the “back to business” charge. Even the energy sector rose 2%, on a day the WTI crude price again fell over -20%.

The Russell 2000 small cap index, which has underperformed throughout the crisis, and which is heavily weighted towards smaller reginal banks, that carry the bulk of exposure to small oil producer debt, surged 4%. Last night oil producer Diamond Offshore filed for bankruptcy, which is why WTI crashed again.

The US ten-year yield rose 6 basis points to 0.66%, gold fell seventeen bucks and the VIX volatility index, which had been stuck at 40 through most of April, is now down in the low 30s.

If you’re a glass half full type, you’d say this is a sign of fear easing. If you’re glass half empty, you’d say this is a sign of complacency rising.

This week is the biggest in the US March quarter result season calendar. The 122 companies having reported to date saw a net earnings reduction of -22.7%. This week’s reporters include Amazon, Apple, Google and Microsoft.

General Motors, which reports next week, has pre-announced a suspension of its dividend.

Of course it is universally agreed that March quarter results don’t provide much indication, that the June quarter will be the real test, and that without any earnings guidance, valuations are purely a guess and giggle, dependent on how long the crisis persists.

At this rate Wall Street is predicting it won’t last much longer.

In just two weeks, the global (known) case count has risen to three million from two million.

Commodities

Despite the excitement on Wall Street, the forex market appears to consider Australia the better bet. The Aussie is up 1.1% at US$0.6463, and it’s not about commodity prices.

Weakness in WTI futures suggests concern the June expiry may be headed for a repeat negative performance. Note that while WTI contracts must be settled at expiry with oil delivery, Brent futures have a cash settlement option.

Today

The SPI Overnight closed up all of 5 points. Looks like our excitement was used up yesterday.

The Bank of Japan jumped the gun yesterday and went all-in on QE. Its meeting was scheduled for today.

The US will see monthly consumer confidence tonight.

Gold miners Northern Star Resources ((NST)), Saracen Mineral Holdings ((SAR)) and St Barbara ((SBM)) all report quarterly numbers today.

The Australian share market over the past thirty days…