Overnight: Wing And A Prayer

By Greg Peel

Consolidation

The RBA forecasts Australia’s GDP to fall by -10% in the first half and end the year down -6%, before rebounding 6% in 2021. Unemployment is forecast to hit 10% this year and still be around 7% by the end of 2021.

Interim data from the ABS provided yesterday suggested the number of jobs in Australia fell -7.5% in the four weeks to April 18. That’s around 650,000-700,000 jobs lost, but only those on a payroll. Add in business owners, contractors and the self-employed, and the ABS estimates one million of the 13 million Australians working in mid-March have since lost their jobs.

The RBA expects inflation to turn negative in the June quarter due to low oil prices, free child care and various deferrals. In 2021, the board expects inflation in the 1-1.5% range. Given the cash rate will not be raised until progress is being made towards “full” employment and inflation is back in the 2-3% range, we can safely assume the low bound of 0.25% will be with us for some years.

While the central bank has eased off from its initial foray into government bonds, albeit ever vigilant, it is now expanding QE to include Australian dollar securities issued by non-bank corporations with an investment grade credit rating.

It’s all good fodder for the stock market, although the ASX200 was already well on its way to an ultimate 87 point gain at 2.30pm yesterday.

The index fell -5% on Friday in a Sell Everything trade in which cyclicals were dumped more aggressively than defensives. A clawback on Monday was led by defensives, as cyclicals took a back seat. Yesterday defensives rested, and cyclicals bounced back.

I highlighted in yesterday’s Report that Monday saw, as an example, consumer staples rise 2.6% to only 0.3% for discretionary. Yesterday discretionary rose 1.4% to staples’ 0.1%. On Monday, the resource sectors sat it out other than strength in gold miners, which is in itself a defensive play. Yesterday resources led the charge, with energy up 4.2% and materials up 2.5%.

As the consolidation phase post the snap-back rally continues, you can forget your FOMOs and TINAs. The main force at play in the market at present is NI – no idea.

The big move up in energy can be attributed to another 20% move up in the WTI price in Asian trade, whereas nothing was happening in metals. Utilities, telcos and industrials posted modest gains in comparison to cyclicals and growth stocks (IT) and healthcare fell -0.4% — the complete reverse of Monday’s theme.

Among individual stocks, Collins Foods ((CKF)) revealed the last five weeks have seen the fall in dine-in sales at Australian KFCs balanced out by the increase in takeaway and drive-thru. It rose 11.6% to top the index.

The annual Macquarie Conference is well-timed this year, and online. Yesterday’s presenters included Polynovo ((PNV)), which saw record sales in March. It jumped 11.1%. Kathmandu ((KMD) rose 10.6% after announcing online sales are booming.

National Storage REIT ((NSR)) is the latest ASX200 to go cap in hand to the market.

The National & International Cabinet yesterday popped the Trans-Tasman bubble idea, for now, but Qantas still rose 1.2% after assuring it had enough liquidity to see it through.

Last night Wall Street gave up early gains for a more modest close, and our futures are down -11 points. Right now, each day is a different story.

It’s a Trade-Off

California, one of the biggest engines of the US economy, announced last night it will begin slowly unwinding restriction measures. The state was one of the first to shut its economy down.

New York, too, has outlined a pathway to re-opening, while at the same time calling for federal government aid for the epicentre state. To date the federal government has eschewed any idea of direct support to state governments. Governor Andrew Cuomo stressed that a decision to reopen boils down to “how much a human life is worth”, and stated the obvious: “Let’s be honest and tell people it’s a trade-off”.

The rush to find a vaccine is thus ever more critical, and last night brought news of trials beginning for four vaccine candidates produced in a joint venture between Pfizer and a German biotech.

Wall Street is jumping on any potentially positive news regarding state re-openings and vaccine progress. There was also some disturbing, although yet to be verified news from researchers in Los Alomos that the virus is mutating into a more contagious strain.

The Dow was up 420 points at its peak last night but drifted back, before a wave of selling in the last hour. The Nasdaq continues to outperform, and at its peak last night was down only -1% year to date (albeit -10% from the February high).

Commentators continue to question just how far the Big Tech names, which to a great extent are either immune from or benefit from the virus (eg Amazon, Netflix), can run. The question is important, as their combined market cap is significant, and as such, misleading if they are the sole drivers of Wall Street strength.

Commodities

The Chinese are back, yet iron ore is still unchanged and base metals are much the same.

Talk of reopenings (including Germany and Hong Kong), continues to drive the WTI price back from the brink.

In a rare quiet session, the Aussie is up a mere 0.2% at US$0.6439 despite an RBA statement on the day.

Today

The SPI Overnight closed down -11 points.

The ABS will report March retail sales today, but the tale will not really be told until the April numbers are out.

The US will see private sector employment numbers.

Virgin Money UK ((VUK)) and Pushpay Holdings ((PPH)) report earnings today.

Genworth Mortgage Insurance ((GMA)) provides an update.

The Australian share market over the past thirty days…