Overnight: Fierce Resilience

By Greg Peel

Back on the Defensive

Last week, up until Thursday, the ASX200 rally further led largely by those stocks and sectors most heavily impacted by the virus through to April, ended in what proved to be a last hurrah at the close on Thursday. As to what effect end-of-month actually had is unclear, but it clearly was a blow-off top in the snap-back.

Friday’s -5% reality check was led by the same stocks and sectors featuring in the run-up to Thursday. Everything was sold across the board, but defensives fared better, or less worse. Selling fed on itself through the session.

Yesterday saw the index recover some ground. It was a stumbling start, but after the first half hour the ASX200 tracked a steady 45 degrees upwards to close near its high for the day. Yet it was not a case of getting back into those same cyclicals that had led last week. Instead, investors once again bulked up on defensives.

A clear example is provided by the consumer sectors – staples up 2.6% and discretionary up 0.3%. If we want a list of stocks that had been most heavily virus-impacted but were in rebound mode last week, spurred on by rolling re-openings of the economy, we need only look at yesterday’s index losers’ board.

AP Eagers ((APE)), down -7.3%, oOh!media ((OML)), down -7.0%, Flight Centre ((FLT)), down -6.3% and Webjet ((WEB)), down -5.6%.

Healthcare (+2.4%), utilities (1.6%) and telcos (+1.3%) all had strong sessions alongside staples. Industrials (+1.5%) were helped along by an investor briefing from Transurban ((TCL)), worth 2.8%, and the return of Qube Holdings ((QUB)) post capital raising, worth 17.7%.

Materials (+0.5%) and energy (-0.2%) sat it out.

The banks gained 1.5% after Westpac ((WBC)) deferred its dividend but did not announce a capital raising.

The only aberration in the defensives-over-cyclicals theme yesterday was IT, which jumped 5.0%, but only because Chinese tech giant Tencent took a 5% stake in Afterpay ((APT)). That stock jumped 23.8% on expectation the BNPL company will now expand into China, and floated all similar boats.

The other three top five winners after Afterpay and Qube were gold miners, which we can also call defensive.

Governments federal, state, and neighbouring are now moving swiftly towards re-opening the economy, even if “swiftly” still implies a gradual and cautious approach. The prime minister has notably called it an “early mark” for Australia’s good behaviour. Presumably today we’ll learn of the plan to re-open travel between here and New Zealand, just to prove the Warriors didn’t get any special exemption after all.

Meanwhile, if you can sneak out of your own state unnoticed, head to Darwin. The pubs are re-opening.

ANZ job ads series showed a fall of -53.1% in April, following a -10% fall in March. The previous record monthly fall was -11.3% in January 2009. With Josh revealing the federal government is bleeding -$4bn a week, it is becoming imperative to get life back on track.

The fact Victoria had registered a sudden burst of new cases, all at the one abattoir, speaks to the danger.

Oracle Stumped

Warren Buffett can’t find anything worth buying, he told Berkshire Hathaway investors at its AGM. The man who made his billions by buying when everyone else is selling, and was famously waving the flag as he hoovered up stocks in the GFC, is stumped. Instead, he sold out of all his airline holdings.

Mind you, the virus crash and V-bounce moved rather too swiftly for an 89 year-old used to making more measured decisions.

This news weighed on Wall Street from the open, along with increasing Sino-US tensions. “I think they made a horrible mistake and they didn’t want to admit it,” said Trump in a TV interview last night, referring to the “enormous evidence” the Secretary of State has claimed he has that the virus began in a lab in Wuhan.

Trump’s threat of retaliatory tariffs, reversing what had been early this year an easing of tensions and a driver of stock markets, has Wall Street worried, but then pundits suggest Trump is unlikely to do anything before the election, as it would risk kicking a US economy while it’s down.

The Dow was down -360 points early in the session but a late rally wiped out all of those losses. The energy sector stood out with a 3.7% gain as the WTI price continues to climb back, with next best IT on 1.4%. In contrast to the Australian session, consumer discretionary was a positive driver, along with communication services and IT, but then this simply means Amazon, Facebook, Microsoft et al.

Every time there is the slightest pullback, the big tech names are snapped up once more.

The Nasdaq thus outperformed last night with a 1.2% rise to the S&P500’s 0.4%. The S&P is down -12% year to date. The Nasdaq is down -3%.

The ASX200 is down -20% year to date. We don’t have Big Tech, despite Little Tech having its aspirations.

Meanwhile, lockdown restrictions continue to be lifted across the US, with the hottest day of the year so far causing difficulty for police in trying to keep people apart in public spaces. Updated modeling, not endorsed by the White House, is now predicting the US death toll reach 134,000 by August. The US currently accounts for around a quarter of deaths globally.

Commodities

Base metal falls eased slightly last night, but continue to fall on tensions with China.

Iron ore is unchanged with the Chinese on a public holiday.

WTI is now looking more comfortable above US$20/bbl.

The Aussie and the US dollar index have been completely disconnected since the outbreak began. Both are up 0.4% overnight, with the Aussie at US$0.6429.

Today

The SPI Overnight closed up 17 points or 0.3%.

The RBA meets today.

April services PMIs are due across the globe.

The US reports March trade.

The Australian share market over the past thirty days…