Overnight: Big Tech Turns

By Greg Peel

Risk Off Further

You’ll be pleased to know the WTI crude May contract expired on the Nymex last night at positive US$10.01/bbl, up US$47.63 from the previous night’s closing price of -US$37.63. Clearly there are some parties out there happy to take delivery of oil, but they missed out on being paid for the privilege.

Not sure where they’re going to put it. Perhaps in 44 gallon drums next to their toilet paper stash.

The not so good news is Monday night’s Nymex escapade has sufficiently rattled the market to send the June contract, now the front month, down -33% to US$13.11/bbl from the prior night’s settlement above the US$20/bbl mark. Realistically the May and June contracts had to meet in the rollover, net of one month’s “carry” (time value at the risk free rate).

And the contagion has spread. Last night saw all base metal prices falling on the LME, the hardest hit being bellwether copper, down -4.5%. I would suggest this, too, is the work of investors rather than producers/consumers, as the oil price collapse would have forced reweighting in commodity funds, and any redemptions would have forced funds to sell all basket commodities.

If there was any major damage to Australia’s oil & gas producers yesterday, bearing in mind Australia is close to being the world’s largest producer of LNG, the price of which is indexed to the oil price, it wasn’t apparent in yesterday’s share price moves.

The energy sector fell -2.0%, in line with the broader market, and was only the equal sixth worst performer. Six sectors fell in the range of -2-3%, in line with the ASX200.

I’d wager that a continuation of the “risk off” trade that began on Monday is not related to oil price woes, as is more the case on Wall Street, but rather disappointment in the pace of the “reopening” of the Australian economy.

It seems much excitement was built in ahead of the National Cabinet’s announcements yesterday, but the recommencement of some elective surgery, the reopening of beaches for exercise, and kids going back to school one day a week, is a far cry from being finally being able to have a schooner at the local again.

Or go to a restaurant, or the footy, or for a drive to the country.

Notably, the bulk of yesterday’s slide for the ASX200 occurred as Scott Morrison rattled off these eased restrictions. Nor did it probably help that RBA governor Philip Lowe told Australians to prepare for the biggest contraction in output and income since the Great Depression, estimating GDP will fall -10% in the first half of the year.

At least the RBA has our backs. From yesterday’s board minutes:

“Members noted that the policies should cushion the labour market adjustment and reduce the financial stress of households and businesses. However, they observed that it was unlikely that these policies would provide a strong boost to spending in the near term given the broadening shutdown of non-essential activities and the restrictions placed on household activities.”

But…

“The Board would not increase the cash rate target until progress is made towards full employment and it is confident that inflation will be sustainably within the 2–3% target band.”

Which may not be in our lifetimes.

An update from the ABS yesterday intended to quash any false hope that may have come from the March employment figures, which only covered the first two weeks of the month, suggested employment fell -6% in the three weeks to April 4.

IT was the worst performing sector (-4.9%) yesterday, as BNPL and payments players were hit on the realisation we won’t all be back out in the shops anytime soon, and ditto Southern Cross Media ((SXL)), down -14.3% to be the worst index stock performer on the day, on the realisation crowds at the footy are still a long way off.

On the upside, the four top places in the top five were taken by gold miners.

Pulling out the FANGs

Netflix reported after the bell on Wall Street last night. The stock has been one of the best performers throughout the crisis for obvious reasons, initially falling with everyone else in March but since smashing through its prior all-time high and not stopping. If the earnings result was going to be well received at this lofty level, it would have to be good.

And it was. March quarter new subscriptions came in double Wall Street estimates, bearing in mind this whole shooting match didn’t kick off until the last two weeks of the month of March. The stock jumped 10% in the aftermarket.

But now, as I write, it’s back to flat. And therein lies the story. Aside from your cohort of stay-at-home stocks, which includes Netflix but also Amazon, supermarkets, toilet paper manufacturers, online gaming companies and others, US Big Tech companies had led the 30% rally on Wall Street from the bottom, so throw in Apple, Google, Microsoft and Facebook as well.

The thesis here is that these stocks had led the rally pre-virus, and the virus provided a welcome opportunity for those investors who’d missed out and couldn’t bring themselves to pay too-high prices. But now those investors have pushed those prices higher still. Last night that trade began to unwind.

Hence we see the Nasdaq down -3.7% to the S&P’s -3.1% and the Dow’s -2.7%.

Throw in the general unease caused by the oil market dislocation – a wake-up call as to just what lies ahead in Virus World — and the slide back on Wall Street continued last night.

The energy sector, believe it or not, was the best performer on the day, albeit all sectors closed in the red.

As I write, the US Senate should have passed another US$450bn relief package, representing a second round of SME handouts as well as assistance to the health sector (‘bout time?).

“Kim Jong Ill”, screamed the headlines this morning, given Kim Jong-Un hasn’t been seen in public since April 11 and it’s known he had an operation. Probably just in iso watching Tiger King. But then who knows what impact the virus might have had so far on North Korea?

Commodities

Largely covered above.

Another slide in the Aussie, of -0.8% to US$0.6285, no doubt reflects our commodity price reliance.

Today

The SPI Overnight closed down -109 points or -2.1%.

The ABS will release a “preliminary” March retail sales report today. Probably preliminary so not to give another misleading impression as was the case with jobs, pending a wider March result at a later date.

Atlas Arteria ((ALX)) will use its fingers to report traffic numbers today, Challenger ((CGF)) provides a quarterly update and Syrah Resources ((SYR)) reports quarterly production.

The Australian share market over the past thirty days…