Overnight: Struggling For Air

By Greg Peel

Falling Apart

After swinging from cyclical one day to defensive the next and back again, yesterday the ASX200 was simply all over the shop sector-wise. The No Idea theme strengthens. Volume was light.

The index did manage to claw back from -60 points down at lunchtime, with healthcare (+0.4%) providing the most support. Utilities (+0.8%) also rose but telcos were flat and staples fell (-0.6%), while discretionary also fell (-0.3%).

Energy rose (+0.3%) but materials fell (-0.4%). The major drag on the index were the banks (-1.1%), as they trade non-dividend (short term).

Weakness in the consumer sectors came despite March retail sales data showing an 8.5% gain compared to +0.6% in February and -0.4% in January. It was nothing to get excited about, and the ABS had already pre-empted the data. Food sales rose 24.1% and household goods 9.1% while restaurants fell -22.9% and clothing/footwear -22.6%.

No surprises there. That was March, when hoarding was rampant. Wait for April.

With Wall Street down overnight our futures are down -48 points this morning. The index has struggled to recover from last Friday’s -5% drop, with no market leadership apparent. Barring any unexpectedly good news, sentiment appears to be fading.

There were some sizeable individual stock moves yesterday nonetheless.

PushPay Holdings ((PPH)) reported earnings and jumped 19.5%, despite, one might have thought, weightier church collection plates being a no brainer at this time.

Mesoblast ((MSB)) rose another 12.1% as enrolments open for its phase 2/3 virus treatment trials.

Kathmandu ((KMD)) kicked on from Tuesday’s update, another 10.2%, as stores begin to reopen.

And Electro Optic Systems ((EOS)) jumped 12.1%.

No, I hadn’t heard of them either. Not covered by FNArena database brokers but in the ASX200, apparently.

The only move of note on the downside was that of National Storage REIT ((NSR)), which dropped -6.5% after returning post capital raising.

Outside the index, the once bedevilled Retail Food Group ((RFG)) leapt 35% after Morgan Stanley took a sizeable stake.

Fading Away

The US private sector lost -20.1m jobs in April. This was actually a bit better than the -22m forecast, but no one’s quibbling. Tomorrow night’s non-farm payrolls are predicted to show a -21m loss to be far the worst on record. St Louis Fed president James Bullard suggested it will be “one of the worst ever” results, which doesn’t bode well.

Wall Street has been trying to look through to the other side, buoyed by gradual re-openings planned across what are now 40 of 50 states. But the case-count and death toll continue to rise. The US accounts for one third of global cases, and is indeed the world’s third most populous country, except that that equates to only 4.2% of global population with China on 18.5% and India 17.7%.

President Trump last night about-faced on his earlier intention to shut down his virus task force, led by the Veep, probably because all around said “Are you mad!” Trump has been pushing the re-opening theme hard, and shutting down the taskforce was clearly all part of a pre-election, “nothing to worry about” strategy. Yet despite now tweeting that the taskforce would continue “indefinitely”, he still defiantly refused to wear a mask when touring a Honeywell factory which makes – you guessed it – masks.

Yeah, take that.

On Tuesday night Wall Street gave back most of its gains for the session in the last hour. Last night the S&P500 was bumping along the flatline right up until the last hour, when it again fell away. And the dichotomy between Big Tech and The Rest was even more stark last night. The S&P closed down -0.9% and the Nasdaq up 0.7%.

Given the FANGs are all in the S&P and Nasdaq, and Apple and Microsoft are in the Dow as well, we might ponder what Wall Street might look like ex of Big Tech.

Only two sectors closed in the green last night – consumer discretionary (Amazon) and IT (Apple, Microsoft), while communication Services (Facebook, Google) was only down slightly.

The US ten-year bond yield suddenly rose 5 basis points to 0.71% last night after the US Treasury announced it will increase the size of its long-dated bond auctions and introduce a new 20-year maturity, all to cover the trillions worth of fiscal relief packages.

Utilities was the worst performing sector, followed by energy, as the oil price slipped back, and, as is the case most days, banks.

Disney (Dow) reported a -90% fall in profit.

Commodities

A sudden spike for base metal prices is reported to be due to the PBoC setting the renminbi at the neutral point yesterday, when typically, when the US threatens more tariffs, Beijing responds by devaluing its currency. As this didn’t happen, the market is assuming China does not want to raise tensions further.

The jump in US bond yields, implying selling of bonds given increased supply, has impacted on gold in the short term, although in the longer term, increased US debt should be positive for gold.

The oils have slipped back a bit after their stellar run.

The Aussie is down -0.5% at US$0.6408.

Today

The SPI Overnight closed down -48 points or -0.9%.

The ABS is due to release March trade numbers today, but this is unsure. China will release April trade numbers.

The Bank of England meets.

Rio Tinto ((RIO)), QBE Insurance ((QBE)) and Here, There & Nowhere much at the moment ((HT1)) are among those companies holding AGMs.

The Australian share market over the past thirty days…