Overnight: Two Steps Forward…

By Greg Peel

Trade Off

In March, as was revealed in April, China’s exports fell only -6.6% (year on year) when -14% was forecast and imports fell only -0.9% when -9% was forecast.

In March, it was revealed yesterday, Australia’s exports rose 15.1% (month on month) while imports fell -3.6%.

Bearing in mind China went into lockdown and started coming out of it again around a month ahead of Australia, we can pinpoint a 32.1% rise in iron ore exports in March as one reason why China’s imports did not fall as much as expected. Not only did the virus have its impact, but so did Cyclone Damien, by delaying supply in February.

Travel exports (inbound tourism) fell -14.4% in March but travel imports (outbound tourism) fell -35.6%. The result is Australia’s trade surplus surged to a record high $10.6bn — $3bn higher than the previous record, up from $3.9bn in February and well ahead of forecasts of $6bn.

In April, it was revealed yesterday, China’s exports rose 3.5% (year on year) when a fall was expected and imports fell -14.2%. The implication here is we can lock in that record March surplus – it may not be exceeded for some time.

The Aussie has shot back up 1.3% to US$0.6494, but the Australian stock market showed no signs of excitement yesterday. Quite the opposite in fact – it was another dull session on light volume, featuring more random shuffling around in sectors.

Materials gained 0.6%, but this will have included some overnight strength in base metal prices as much as month-old excitement over iron ore. Rio Tinto ((RIO)) actually fell -0.6%, although it did hold its AGM.

Healthcare was the other positive performer (+0.5%) pipped only by IT (+0.7%), while every other sector closed in the red, led once again by the banks (-1.5%). Macquarie Group ((MQG)) reports today.

Energy fell -1.1% as the oil price fell back while staples and utilities fell -0.6%, and beyond that sectors were little moved.

Not much to read into it leading into today’s session which will feature much anticipation of the National Cabinet’s “road map” to re-opening. Sogginess in the ASX200 this week after an initial rebound on Monday may reflect waning enthusiasm as governments continue to warn nothing is going to happen quickly.

Among individual stocks, Kiwi collection plate company PushPay Holdings ((PPH)) backed up Wednesday’s 19.5% jump on its earnings result with another 15.7% yesterday, to again top the index.

Polynovo ((PNV)) continues to rise (7.9%) after reporting record sales this week and oOh!media ((OML)) continued its comeback from the depths (7.8%) in anticipation of more outdoor movement.

Bingo Industries ((BIN)) topped the losers’ list with a -5.5% fall after talking a lot of rubbish at the Macquarie Conference on Wednesday.

Bonding Session

It’s been a funny couple of days in US bond markets.

On Wednesday night the US Treasury announced it was ramping up its issuance of longer-dated bonds, and introducing a new 20-year bond, in order to fund its fiscal commitments. The US ten-year yield rose 5 basis points (bonds sold).

Last night the ten-year yield fell -8 basis points (bonds bought). This was attributed to Japan coming back from a week-long holiday and buying bonds and the unwinding of hedges put in place during a ramp-up in US corporate bond issuance seen this week.

The US funds rate futures went negative last night, implying the Fed will cut its cash rate from zero into the negative shortly, despite the Fed insisting it doesn’t believe negative rates work (and there’s plenty of evidence to back that up). More importantly, the US 2-10 year yield curve noticeably steepened.

Remember last year when the yield curve briefly inverted, prompting forecasts of a US recession approaching? Others dismissed the notion, pointing to global bond rates that have never been so low (including negative), implying the old formula is no longer applicable.

Well look who’s laughing now.

Not that the aforementioned forecasted a global pandemic as the trigger. But a steepening yield curve is good for banks, so last night US banks finally overcame their malaise and led Wall Street higher. At least for a day.

For the third session running, Wall Street gave up earlier gains by the close. The Dow rally halved. And for the third session in a row, despite strength in banks, the Nasdaq outperformed the S&P500. The Nasdaq is now flat for 2020.

Another 3.2m Americans applied for the dole last week, taking the total since March to 33m. Wall Street shrugged. It’s not a surprise. Tonight’s non-farm payrolls number for April is expected to show a fall of -21m jobs and an unemployment rate of 15%, slightly up from the record low 3.5% seen in February.

If anything, Wall Street is buoyed by last week’s jobless claims being slightly less than the week before, suggesting a slowing in pace, ahead of rolling re-openings of economies across the country.

Wall Street remains on track to finish the week higher, but it’s a case of two steps forward and one step back.

Commodities

Oil prices were on a tear last night once more, before spinning around and heading straight back down again, on reports some of the more peripheral OPEC-Plus members, such as Kazakhstan, may struggle to cut output in line with Saudi Arabia/Russia’s plan to cut by -9.7m barrels per day.

The past two sessions have seen gold track US bond rates, hence last night saw a rebound after Wednesday night’s fall, aided by a lower US dollar.

China’s trade data boosted some base metals, while iron ore is unchanged.

Today

The SPI Overnight closed up 5 points.

All hinges on the National Cabinet’s road map.

The RBA will issue a quarterly Statement on Monetary Policy today.

US jobs numbers tonight.

Earnings reports are due from Macquarie Group and Orica ((ORI)), as well as a quarterly from REA Group ((REA)) which will inform a quarterly from News Corp ((NWS)).

AMP ((AMP)) and InvoCare ((IVC)) hold AGMs.

The Australian share market over the past thirty days…

For more detail go to FNArena’s Australian Broker Call Report, which is updated each morning, Mon-Fri.

All overnight and intraday prices, average prices, currency conversions and charts