Overnight: Wing And A Prayer

By Greg Peel

Material Move

A 1% gain for the ASX200 is a good day in anyone’s books but realistically the index opened up around 70 points yesterday and basically stayed there all day, until slipping a bit at the death. It was a lacklustre session featuring tepid volume.

Traders could have simply gone home after the open, if they weren’t already home in the first place.

It was all about the overnight action, and here the focus was on commodity prices. Gold was again on the move, as was iron ore, while oil prices continue to rally back. The materials sector rose a standout 4.1% yesterday with next best energy on 2.8%. Commodity price moves were even more pronounced last night (but for gold), so look out again today.

If we look at our consumer sector indicator, it suggested risk-on, with discretionary rising 1.3% to staples 0.7%, but more notably, utilities, telcos and industrials all closed in the red.

Financials was the worst performer (-1.2%), perhaps realising the folly of the previous day’s rally, although Macquarie Group ((MQG)) did go ex-dividend.

Clearly we’re in for more of the same today or better, with the Dow up a thousand points at one stage last night and our futures up 109 points this morning, shaking off news that China has indeed enforced an 80% tariff on Australian barley, wiping out half of that industry’s exports.

Barley is nonetheless seen as a soft target for Beijing to make a point, and no one expects tariffs on iron ore, coal and LNG – the big-hitters in Australia’s GDP. Moreover, Beijing has agreed to an independent investigation of the source of the virus, seemingly playing good global citizen at face value while cooking up a “government subsidised” story for Australian barley.

We recall the US-China trade war began with a tariff on steel, with Washington citing “dumping” of cheap, government subsidised product.

Meanwhile Elders ((ELD)) reported earnings yesterday and rose 9.9%, posting a beat on profit, an upbeat outlook for the winter crop following recent rain and no impact on operations from the virus.

Gold miners, a lithium miner and car dealer AP Eagers ((APE)) were the other top five index winners on the day. Losers were inconsequential.

Outside the index, internet network company Superloop ((SLC)) provided a trading update highlighting the stock as a stay-at-home winner, which was good for an 18% gain.

If the futures prove accurate, the ASX200 is on course to return to its April 30, post-crash high today.

Haven’t We Seen This Movie?

Wall Street got there last night. April 30 was also the peak for the S&P500, and that’s where the index closed.

April 30 was the day Wall Street was sparked into excitement by news Gilead’s remdesivir drug had shown (vaguely) positive signs en route to a covid treatment.

Last night another US biotech, Moderna, announced before the bell its antibody treatment had proven successful in eight people. The stock jumped 20%, which equates to around US$700m for each of those eight people. Admittedly it was eight from eight, but they were all in the safer 24-55 year age bracket.

Immediately after the bell, Moderna announced a capital raising. One could be churlish and suggest this is opportunism writ large, given the stock is now up 300% year to date, but the reality is if the company is going to move a drug into large-scale production, it’s going to need the money.

Meanwhile, remdesivir has not been heard of since.

The difference between now and three weeks ago, nonetheless, is that the US is in a widespread reopening phase, and the case-count has at best plateaued. This is underpinning investor excitement, as is monetary and fiscal support.

On Sunday night Fed chair Jerome Powell appeared on US Sixty Minutes and ensured the Fed has “not run out of ammunition, not by a long shot”. Powell also urged further fiscal support, which currently the White House is working on.

Powell did not reveal anything new – “whatever it takes” has been the mantra from day one – and if anything he stepped up his warning the US economy is set to be heavily impacted from an economic and unemployment perspective.

So what? The Fed’s there to save the bacon, and the White House is unconcerned about the depth of the debt its fiscal support implies.

Wall Street is also safe in the knowledge that even if Moderna’s drug, or any of the other drugs being worked on by hundreds of biotechs worldwide, do ultimately prove to be a commercially viable vaccine, we won’t know that until next year at the earliest, and probably not until mid-year. So if a vaccine is to end up being allusive, it’s not an issue for right now.

Meanwhile, the country with 4.25% of the global population is still clocking up one third of global cases.

Commodities

Looks like a bomb went off under metal prices last night, including silver, but with the exception of gold.

The US ten-year yield jumped 10 basis points to 0.74% but the US dollar index fell -0.8%.

Tonight is the expiry of the WTI crude June delivery contract. Be very afraid. Actually don’t be very afraid, given a combination of reduced US production and a growing number of cars on the roads means storage facilities are no longer full. Hence oil price strength.

The lower greenback, and surging commodity prices, have the Aussie up a full 1.6% at US$0.6521. What trade war?

Today

The SPI Overnight closed up 109 points or 2.0%.

Jerome Powell will provide a mandated testimony to a Senate Banking Committee tonight. Not much more he can say.

The minutes of the May RBA meeting are out today.

James Hardie ((JHX)), Ozforex ((OFX)) and TechnologyOne ((TNE)) report earnings today.

Adelaide Brighton ((ABC)) and Atlas Arteria ((ALX)) hold AGMs and Appen ((APX)) hosts an investor day.

The Australian share market over the past thirty days…