|SPI Overnight (Jun)||6063.00||– 66.00||– 1.08%|
|S&P ASX 200||6148.40||+ 3.50||0.06%|
|S&P500||3190.14||– 17.04||– 0.53%|
|Nasdaq Comp||10020.35||+ 66.59||0.67%|
|DJIA||26989.99||– 282.31||– 1.04%|
|US 10-year yield||0.75||– 0.08||– 9.77%|
|USD Index||96.08||– 0.31||– 0.32%|
|FTSE100||6329.13||– 6.59||– 0.10%|
|DAX30||12530.16||– 87.83||– 0.70%|
By Greg Peel
The futures had called the ASX200 down -83 points yesterday morning after a pullback on Wall Street but the index only managed -55 in the first ten minutes before sharply bouncing. It traced a straight line back up to over square by midday, thereafter losing interest.
One of the features of this week have been updates from discretionary retailers, basically reporting against-the-trend sales growth over the lockdown period. Indeed, very strong growth.
On Tuesday it was Wesfarmers ((WES)), which reported big growth numbers for Bunnings and Officeworks during lockdown and encouraging sales for Kmart once stores reopened. The stock has had two good sessions since, yesterday rising 4.9%.
But of seven FNArena database brokers, only one (Macquarie) remains bullish on Wesfarmers. Others suggest Bunnings’ success was all about households deciding to do some DIY over the lockdown, while Officeworks benefited from the work-from-home theme. While Bunnings will continue to be supported by the government’s housing stimulus, neither chain is likely to see such growth numbers again, brokers suggest.
Online retailer Kogan ((KGN)) – call it an infant Amazon aspirant – also reported big sales numbers, as one might expect, and shot up in share price. Two FNArena brokers cover Kogan and both see it as fully priced.
Yesterday it was Harvey Norman’s ((HVN)) turn. It reported a 17.5% increase in Australian sales in the second half to May, albeit with mixed results offshore. Again we can point to work-form-home, chest freezers for storing all that mince, and maybe TV upgrades for Netflix binging. The company also announced a 6c special dividend, and subsequently jumped 7.3%, or 26c.
Before yesterday, two of six FNArena brokers had Gerry as a Buy with the rest on Hold.
The consumer discretionary sector was the standout performer yesterday in rising 2.4%, notwithstanding IT actually led the percentages with 3.1%. Afterpay ((APT)) by association is a beneficiary of strong discretionary sales and yesterday rose 7.5% to a new all-time high, to become the leading stock in the sector. Peers followed.
Shutting the gate after the horse? Watch this space.
Otherwise it was a mixed bag of sector moves yesterday. Energy (-2.1%) and banks followed their US counterparts down, albeit -0.8% for the banks suggest some resilience. US banks were trashed last night, so we’ll see.
Materials traded off a lower iron ore price against a better gold price and closed flat, while elsewhere the tone was defensive, with healthcare (1.9%) still playing ping pong while staples, telcos and utilities all posted gains.
Gold miners will be back in fashion again today, but our futures are down -66 points this morning.
Trading went quiet in the afternoon as the market awaited the Fed.
Even More Stark
“We’re not thinking about raising rates, we’re not even thinking about thinking about raising rates.”
Jay Powell at last night’s Fed press zoomference.
When asked about the stock market, the Fed chair insisted the FOMC doesn’t worry about the stock market. Yet his speech and Q&A responses amounted pretty much to pouring a bucket of cold water over Wall Street, without any direct reference, implying “you’re all mad”.
“The path of the economy still looks “highly uncertain,” said Jay, and “we are going to learn a whole lot” over the next few months, notwithstanding the Fed statement included a forecast of a -6% fall in US GDP in 2020 followed by a 5% bounce in 2021. All agree it’s dart board stuff at this time.
“Many millions of people” will likely need further government support in the coming months. “The key thing people need to understand” is that there remains “a lot of work” to do with millions still out of jobs.
And therein lies the rub. If the Fed thinks the US stock market is wildly overvalued, then it’s as much about all-in monetary support as it is panicked FOMO investors. The Fed is using “all the tools in the tool box,” as is so often suggested, and pretty much making others up as it goes along. It is this safety net – this “Powell put option” – that provides comfort for investors that they can buy in with little downside risk.
So how did Wall Street respond last night? One the one hand, stock markets love low interest rates. On the other, they don’t necessarily love the reason for low interest rates.
Wall Street swung into full defensive mode. And in 2020, when you talk defensive, you talk mega-cap growth over cyclicals.
IT was the only S&P500 sector to close in the green last night, standing out with a 1.7% gain (Apple up 3%, Microsoft 4%). Energy, banks and industrials were the hardest hit, including all the previously surging “reopening” stocks, such as airlines.
The disparity is yet again starkly apparent in the Dow falling -1.0% and the Nasdaq gaining 0.7%, to another new high. A -0.5% fall for the S&P is net of FAANMG, hence the general move was to the downside.
The US ten-year bond yield fell -8 basis points to 0.75%. Gold jumped US$25/oz.
Speaking of the reopening theme:
A resurgence in new infections has been detected in states including Florida, Texas and California – the three most populous states (New York is fourth, and remains well behind in its reopening phase).
A total of 14 states and Puerto Rico have recorded their worst week yet for new coronavirus infections, with Texas hitting a record high in hospitalisations.
Big one out the back.
|Spot Metals,Minerals & Energy Futures|
|Gold (oz)||1739.30||+ 24.70||1.44%|
|Silver (oz)||18.12||+ 0.57||3.25%|
|Copper (lb)||2.60||+ 0.02||0.75%|
|Aluminium (lb)||0.72||+ 0.02||2.26%|
|Lead (lb)||0.78||– 0.00||– 0.19%|
|Nickel (lb)||5.84||+ 0.11||2.00%|
|Zinc (lb)||0.91||+ 0.00||0.04%|
|West Texas Crude||39.06||+ 0.67||1.75%|
|Brent Crude||41.22||+ 0.46||1.13%|
|Iron Ore (t) futures||103.85||– 1.30||– 1.24%|
Base metals were strong overnight, but remember that the LME closes before the Fed press conference.
With the Fed on zero for longer, the Aussie is back up 0.6% to US$0.7001, despite all the CCP wants to throw at us. The problem with propaganda is it trends well when you only have state-owned media.
The SPI Overnight closed down -66 points. It didn’t have much impact yesterday.
Stuff-all on the calendar today.
The Australian share market over the past thirty days…
|BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS|
|AMI||Aurelia Metals||Downgrade to Accumulate from Buy||Ord Minnett|
|BEN||Bendigo And Adelaide Bank||Upgrade to Accumulate from Hold||Ord Minnett|
|BWP||BWP Trust||Upgrade to Buy from Hold||Ord Minnett|
|CLW||Charter Hall Long Wale Reit||Upgrade to Buy from Hold||Ord Minnett|
|DMP||Domino’s Pizza||Downgrade to Hold from Add||Morgans|
|HLS||Healius||Upgrade to Outperform from Neutral||Macquarie|
|IGO||IGO Co||Downgrade to Neutral from Buy||Citi|
|SFR||Sandfire||Downgrade to Neutral from Buy||Citi|
|SGM||Sims Metal Management||Upgrade to Buy from Neutral||UBS|
|VCX||Vicinity Centres||Downgrade to Neutral from Outperform||Macquarie|
|WOR||Worley||Upgrade to Outperform from Neutral||Credit Suisse|
|Z1P||Zip Co||Downgrade to Neutral from Buy||UBS|