Overnight: Around The Globe

World Overnight
SPI Overnight (Jun) 5673.00 + 47.00 0.84%
S&P ASX 200 5615.60 + 118.60 2.16%
S&P500 2955.45 + 6.94 0.24%
Nasdaq Comp 9324.59 + 39.71 0.43%
DJIA 24465.16 – 8.96 – 0.04%
S&P500 VIX 28.16 – 1.37 – 4.64%
US 10-year yield 0.66 – 0.02 – 2.95%
USD Index 99.80 – 0.06 – 0.06%
FTSE100 5993.28 – 21.97 – 0.37%
DAX30 11391.28 + 317.41 2.87%

By Greg Peel

Cleared For Take-Off

“We now have over five consecutive weeks…in which the growth rate of new cases in Australia has been less than half a per cent,” said federal health minister Greg Hunt yesterday, praising the response of Australians to restrictions on everyday life.

Comforting words, but colleague Josh Frydenberg had a more specific impact on the local market yesterday, in suggesting “The tourism sector could be one sector in need of further support. That’s what we’ll look at in the context of the economic situation at the time. You’ll continue to see our international borders closed for some time.”

No reopening of international borders ahead, although trans-Tasman travel looms ever closer, but domestic travel is set to fire up again, despite Queensland remaining stubborn. However one unpacks it, the travel industry was top of the pops yesterday.

Webjet ((WEB)) rose 15.6%, Flight Centre ((FLT)) 15.2%, Helloworld ((HLO)) 10.7%, Qantas ((QAN)) 7.2%, and Sydney Airport ((SYD)) 3.9%.

Throw in schools returning to normal in NSW yesterday, thus releasing parents to return to work, and suggestions not to catch public transport, and Transurban ((TCL)) rose 3.4%.

Put that lot together alone and we saw the consumer discretionary sector jump 2.6% yesterday and industrials 3.0%. And the energy sector rose 2.9%.

Every sector closed in the green, on a range from materials, up 1.3%. to IT, up 3.6%. It was a Buy Everything session, and what’s more, a close of 5615 suggests that the largely sideways range the ASX200 has been trading in since mid-April has been broken to the upside, now that 5600 has been breached.

It’s only just been breached, but with Wall Street closed overnight, our futures are up another 47 points this morning. That just never happens.

So what changed from Friday?

Friday had seen a soggy session, with the index falling -50 points on growing alarm over China’s proposed new laws for Hong Kong. It seems the local market was assuming Wall Street would respond rather badly on Friday night.

It didn’t, which likely explains why our futures were up 65 points on Saturday morning. Yesterday’s trade was not a momentum-driven rally, feeding upon itself. The index opened 90 points higher and there it remained all session, before a little kick towards the close. The additional 47 points suggested this morning is more of a momentum response, on top of the technical breakout trade.

And we also have news of Japan ending its state of emergency, Spain further easing restrictions, and Europeans flocking to beaches over the weekend. The early victims are coming out the other side, we’re coming out the other side, and the US is coming out one way or another.

Never mind Russia and Brazil. Indeed, most of South America.

The turn-on-a-dime swing from fear to exuberance we’ve seen from Friday to Monday only underscores that we are still in a No Idea phase. As we move into June, and the economy begins to stabilise, we should start seeing companies that withdrew guidance due to uncertainty begin to provide some real number estimates ahead of end of financial year, and more so in July, ahead of August result season.

That will be the reality check.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz) 1727.60 – 5.10 – 0.29%
Silver (oz) 17.11 – 0.08 – 0.47%
Copper (lb) 2.38 0.00 0.00%
Aluminium (lb) 0.66 0.00 0.00%
Lead (lb) 0.74 0.00 0.00%
Nickel (lb) 5.49 0.00 0.00%
Zinc (lb) 0.90 0.00 0.00%
West Texas Crude 33.72 + 0.47 1.41%
Brent Crude 35.53 + 0.40 1.14%
Iron Ore (t) futures 96.85 0.00 0.00%

Yesterday the ABS released preliminary April data for the export/import of goods, but not services. While the trade surplus declined, it was still very solid. Resource exports fell, but remain around historically high levels.

Imports fell, and will likely continue to do so for some time, ANZ Bank economists suggest. Exports, on the other hand, should improve as China’s economy recovers – barring any shenanigans – which implies Australia’s trade surplus should remain solid for a while yet.

Lord knows we need it.

UK markets were closed last night, so no base metals trading. It was a public holiday in Singapore as well, so no iron ore either.

Oil prices continue their march, while the Aussie is slightly higher at US$0.6543.

Today

The SPI Overnight closed up 47 points or 0.8%.

The US will see numbers for consumer confidence and new home sales tonight.

ALS Ltd ((ALQ)) reports earnings today, Brambles ((BXB)) hosts an investor day and Coca-Cola Amatil ((CCL)) holds its AGM.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
CLV Clover Corp Downgrade to Neutral from Buy UBS
FBU Fletcher Building Downgrade to Neutral from Buy Citi
FMG Fortescue Upgrade to Hold from Reduce Morgans
Downgrade to Sell from Neutral Citi
SGM Sims Metal Management Upgrade to Hold from Lighten Ord Minnett
TNE Technologyone Downgrade to Sell from Neutral UBS
TPM TPG Telecom Upgrade to Add from Hold Morgans
Upgrade to Accumulate from Hold Ord Minnett
WGN Wagners Holding Upgrade to Outperform from Neutral Credit Suisse
WSA Western Areas Downgrade to Neutral from Buy Citi
Greg Peel

About Greg Peel

Greg Peel joined Macquarie Bank in 1986 and acquired trading experience in equities, currency, fixed income and commodities derivatives, ultimately being appointed director of equity derivatives trading. He later published In With The Smart Money (a plain English guide to the mysterious world of financial markets and derivatives) and acted as a consultant to boutique investment funds. In 2004 Greg joined FNArena as a contributing writer. He is now a director and principal of the company. Greg compliments the journalistic background of the FNArena team with lengthy experience as a financial markets proprietary trader.

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