Overnight: Signs Of Consolidation

World Overnight
SPI Overnight (Jun) 5986.00 – 14.00 – 0.23%
S&P ASX 200 5991.80 + 50.20 0.84%
S&P500 3112.35 – 10.52 – 0.34%
Nasdaq Comp 9615.81 – 67.10 – 0.69%
DJIA 26281.82 + 11.93 0.05%
S&P500 VIX 25.81 + 0.15 0.58%
US 10-year yield 0.82 + 0.06 7.75%
USD Index 96.76 – 0.55 – 0.57%
FTSE100 6341.44 – 40.97 – 0.64%
DAX30 12430.56 – 56.80 – 0.45%

By Greg Peel

Reaching a Barrier?

The ASX200 charged through the 6000 level in the first half hour yesterday morning, rising 100 points, where it ran into selling. That selling begat more selling, accelerating late in the morning.

The timing suggests acceleration was due to the release of April retail sales numbers, showing a -17.7% record “lockdown” fall compared to March’s record 8.5% “hoarding” gain. However, the ABS had previously released preliminary numbers and the final result was little different. Nor should anyone have been surprised.

Whatever the case, the index was back to square by lunchtime.

Also in the not surprising category were April’s trade data. Australia’s trade surplus dropped in the month from a record $10.4bn in March to a second highest $8.8bn. Iron ore exports fell back in April from March highs (in terms of volume, with prices still elevated), suggesting the peak of China’s re-opening scramble had passed. This fall was offset by a plunge in travel imports.

Travel imports (outbound) fell to zero, basically, while travel exports (inbound) only fell by -15%. Presumably this reflects the rush of ex-pats escaping to home shores. ANZ Bank economists expect this figure to fall in May, and for trade surpluses to continue to drift lower.

Take it while you can.

Travel stocks had a solid session on the market yesterday, not due to the data, but as a result of Qantas ((QAN)) announcing it will lift its domestic flight capacity to 15% of pre-virus by the end of June from a virus low of 5%. More flights will be added in July, depending on demand.

Qantas shares closed up 7.2%, while Corporate Travel Management ((CTD)) gained 8.8% and Flight Centre ((FLT)) 8.4%. Both are heavily shorted, but more so Webjet ((WEB)), which only managed 2.5%.

These moves helped to lift the consumer discretionary sector 1.7%, which also helped the ASX200 to bounce at lunchtime and recover 50 points to the close.

For most of this recent FOMO rally, healthcare has been the source of funds, having been the best performer both during and after the crash. But yesterday the sector jumped 2.7% to win the day, as dip-buyers returned to CSL ((CSL)). Staples rose 1.4%.

Banks followed their US counterparts higher (+1.3%) while the losers on the day were energy (-1.0%), probably profit-taking, and materials (-0.6%) because of a big drop in the AUD gold price.

All in all a messy session without any theme, except perhaps that 6000 may need some consolidation after a strong rally before it could be breached. As of yesterday, the index has recovered 36% from the March low, having fallen -38% from the February high. Even-Stevens might be a good place to stop and recalibrate, although on top-down/bottom-up we’re still -16% shy of the February high.

On Wednesday night the Dow recovered to its 200-day moving average. The ASX200 is still around -300 points short.

The individual index stock winner on the day was FOMO flag-bearer UR Westfield ((URW)), again, up another 12.0%.

On the downside, Nufarm ((NUF)) copped two downgrades to Sell from FNArena database brokers after a disappointing update, which revealed the virus impact in Europe was worse than feared. It fell -11.5%.

Wall Street also tracked a meandering path last night suggesting it, too, might be looking a bit exhausted. Our futures are down -14 points this morning.

Ring the Bell

The Nasdaq 100 hit a new all-time intraday high last night, then fell. For those having successfully ridden the FAANMG wave through the crisis, while other sectors were floundering in the white water, it was perhaps time to cash in. And maybe look to punt the gains on some beaten-down names.

Airlines perhaps? American Airlines surged 40% last night on news that it, too, was increasing capacity and that it, too, will increase further if demand dictates. AA was the hardest hit of the US major airlines due to carrying the highest level of debt.

Wall Street had opened higher following the ECB’s decision to go all-in on the QE, raising its bond-buying program by another E600bn on top of the E750bn announced in March, which at the time was seen as a bit light on. The duration of the program will be extended to June 2021 from a prior end-2020, or sooner if the need subsides.

Echoes of Mario Draghi here, who was never able to end GFC-driven QE.

Earlier this week the German government announced a massive fiscal package, which has sent the DAX soaring. While the DAX came off a bit last night, likely a sell-the-fact, the ECB’s move spurred Wall Street on to a solid start. Until the Nasdaq 100 hit its high.

It was all rock ‘n’ roll from there, with the Dow down -170 points in the last hour, before rallying back to ensure a six-day winning streak (just).

Another 1.9 million Americans filed for unemployment benefits last week, taking the total to around 48 million. The number of continuous, as opposed to new, claims nonetheless has fallen back to 19.3 million from a lockdown peak of 23 million, reflecting some workers returning after re-openings.

The number of new claims has been steadily falling from the early surge, but there was some consternation that last week’s 1.9m was actually a tick above the prior week’s 1.8m.

There is also consternation that some of the earliest reopening cities are beginning to see a tick-up in new virus cases. This is coupled with a fear the large protest crowds, however well supported across the country and the world, may well lead to a burst of new cases.

Another sign of things returning to normal last night was the first IPO of a tech company since the pre-virus era. Zoominfo – an AI company servicing sales & marketing – jumped 62% on debut.

I don’t know the history but don’t confuse Zoominfo with the totally unrelated Zoom Video. If you’re going to list a new company, I’d suggest you call it Zoom Something.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz) 1712.90 + 12.10 0.71%
Silver (oz) 17.73 + 0.08 0.45%
Copper (lb) 2.48 + 0.01 0.36%
Aluminium (lb) 0.69 + 0.00 0.22%
Lead (lb) 0.77 + 0.01 1.12%
Nickel (lb) 5.75 + 0.01 0.09%
Zinc (lb) 0.91 + 0.01 0.82%
West Texas Crude 37.33 + 0.58 1.58%
Brent Crude 39.86 + 0.41 1.04%
Iron Ore (t) futures 99.20 – 2.30 – 2.27%

After ticking down slightly on Wednesday night, last night the US$100/t mark proved a bridge too far for iron ore.

On the other hand, gold recovered some ground despite another 6 basis point rise in the US ten-year yield to 0.82%, thanks to a -0.6% fall in the US dollar.

One might expect the ECB news would impact on the dollar index but no – the euro is up 1.2% against the greenback. The ECB might be all-in, but the Fed is unlimited.

The Aussie briefly fell back below 69 on the trade numbers yesterday, but thanks to the dollar is up 0.3% in 4 hours to US$0.6942.

Today

The SPI Overnight closed down -14 points or -0.2%.

US May jobs numbers are out tonight. The market is looking for around -20m jobs lost.

oOh!media ((OML)) holds its AGM today.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
ALX Atlas Arteria Downgrade to Hold from Add Morgans
AQG Alacer Gold Downgrade to Neutral from Buy UBS
ARF Arena Reit Upgrade to Overweight from Equal-weight Morgan Stanley
AWC Alumina Upgrade to Buy from Neutral UBS
EVN Evolution Mining Downgrade to Neutral from Buy UBS
GWA GWA Group Upgrade to Neutral from Underperform Credit Suisse
IRE Iress Downgrade to Accumulate from Buy Ord Minnett
JBH JB Hi-Fi Upgrade to Outperform from Neutral Macquarie
NCM Newcrest Mining Upgrade to Buy from Neutral UBS
NST Northern Star Downgrade to Sell from Neutral UBS
NUF Nufarm Downgrade to Underperform from Neutral Macquarie
Downgrade to Reduce from Hold Morgans
PME PRO Medicus Downgrade to Neutral from Buy UBS
SGP Stockland Upgrade to Overweight from Equal-weight Morgan Stanley
SGR Star Entertainment Downgrade to Neutral from Buy Citi
SUL Super Retail Downgrade to Neutral from Buy UBS
VCX Vicinity Centres Downgrade to Hold from Accumulate Ord Minnett
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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