Overnight: Accentuate The Positive

By Greg Peel

Empty Pockets

The news came through on Tuesday that APRA had advised Australia’s banks to “seriously consider deferring decisions on the appropriate level of dividends until the outlook is clearer”.

The regulator expects that all discretionary capital distributions, particularly ordinary dividends, to be deferred or “materially reduced”. See: Australian Banks: There Go The Dividends ( https://www.fnarena.com/index.php/2020/04/08/australian-banks-there-go-the-dividends/ )

The directive came just in time for Bank of Queensland ((BOQ)), which reported earnings yesterday and suspended its dividend. ANZ Bank ((ANZ)), National Bank ((NAB)) and Westpac ((WBC)) report and respond in May, while Commonwealth Bank ((CBA)) and Bendigo & Adelaide Bank ((BEN)) have already paid their interim dividends, but analysts warn their final dividends may still be up for reassessment.

The financials sector fell a standout -2.8% yesterday. Next worst was consumer staples on -1.6% as investors continue to ease out of defensives.

The flipside was consumer discretionary, which was the only sector to close in the green and did so by 1.8%. Looks like a switch into the beaten-downs.

But despite closing lower on the day, the ASX200 showed signs of still wanting to fight back in the face of the wobbles setting in on Tuesday. The index dropped -131 points on the open but immediately began grafting back to late afternoon, peaking up 69. At that point US futures had shifted from up to down again, and a quick sell-off (Future Fund taking profits?) ensued.

Volumes were a little lighter yesterday and will no doubt be lighter again today ahead of Easter, although this year there’ll be no getting away early to beat the traffic. Can’t go to lunch, can’t go to the pub. Rather, commute from the lounge room to the fridge.

Speaking of switching, there was a bit going on the retail property sector yesterday with owner-developer UR-Westfield ((URW)) and retail REIT Vicinity Centres ((VCX)) each rising around 11% and owner-developer Stockland ((SGP)) gaining 7.8% after pledging to help its tenants through the crisis, while retail (mostly supermarket) REIT Shopping Centres Australasia ((SCP)) fell -6.4%. The property moves mimic switching between staples and discretionary.

Otherwise a few of the usual suspects were flying around, up and down, again, although Westpac managed to sneak into fifth worst performer with -5.3%. Westpac is widely seen as the most vulnerable of the Big Four in terms of upcoming dividend cuts.

Outside of the bank bombshell, we’re seeing clear signs of portfolio consolidation as investors look to pick up the cheapies at the expense of the defensives that have proven resilient up to now. As to whether the timing of such a move proves prescient is yet to be seen.

The futures are up 70 points this morning. Will traders want to carry longs over a four-day break?

Follow the Science

“We’re going to put a hold on money spent to the W.H.O. We’re going to put a very powerful hold on it and we’re going to see. They called it wrong. They call it wrong. They really, they missed the call.”

No prizes.

Never mind that WHO put out an alarm in the earliest days of the crisis and it was weeks before Trump declared a national emergency. Never mind that Wuhan is now reopening for travel and on Tuesday the US racked up a world-topping 29,556 new cases.

Indeed, the fact that Wuhan is now reopening has given Wall Street some hope. But last night that hope was closer to home on news the anointed head US medico Dr Fauci suggested the worst hotspots are showing signs of stabilisation, and virus taskforce chief and VP Mike Pence informed Congress the White House is exploring ways to return to “normality” and would soon unveil guidance for eventually reopening the country.

Wall Street also liked the news Bernie Sanders has thrown in the towel. Great news for the US health insurance sector.

Senior Democrats last night said they would support a White House request for another US$250bn in aid for small businesses if it included support for hospitals, local governments and food services.

In for a penny…

Despite the US Energy Information Agency revealing last week saw the biggest jump in US oil inventories on record – not really a surprise – optimism that tonight’s meeting of OPEC/Russia will result in production cuts sparked an 8% jump in the WTI price and lifted the US energy sector.

The news flow had US indices tracking higher all session, to close not far from the highs.

Right now Wall Street is following science, rather than the economy. Respected billionaire investors and Wall Street analysts nonetheless continue to warn of the yet-to-come economic shock – currently expected but not yet starkly obvious. While all are themselves following the science rather than the politics, consensus still has another leg down for the stock market as economic reality sets in.

Not a guarantee, just a warning, while hoping to be proven wrong.

Commodities

Outside of oil, not much to see here.

After surging on Tuesday after the RBA informed it was tapering its bond purchases, the Aussie is up another 0.9% to US$0.6233.

Today

The SPI Overnight closed up 70 points or 1.4%.

The RBA will issue a Financial Stability Review today, supposedly.

The US will see weekly new jobless claims and fortnightly consumer sentiment.

All Western markets are closed tomorrow and most on Monday, but not the US.

Have a wonderfully tedious Easter.

The Australian share market over the past thirty days…