Overnight: Nifty Fifty

By Greg Peel

I Get Knocked Down

Wall Street fell on Tuesday night after cold water was thrown on the Moderna vaccine excitement which drove a rally on Monday night. The Australian market also stepped up on Tuesday, so it was understandable that futures traders and algos assumed we, too, would drop back yesterday.

Which we did, for all of ten minutes. The ASX200 managed to fall only -50 points of the -83 suggested by the futures before the buyers jumped out from behind the bushes. The index then tracked a steady path back to a modest positive, closing almost but not quite at the high of the day, which is not far off Tuesday’s 5600 peak.

The futures are up 36 this morning, so if they’re right this time the index will be testing that 5600 level again today.

The “shock” news of the day were preliminary data from the ABS estimating retail sales fell -17.9% in April. The market had expected -5%. It was the worst month on record, by a chasm.

But easily explained. The market was similarly surprised when March retail sales rose 8.5% for the biggest monthly jump on record. Australia gradually moved into full lockdown over March. That jump was nevertheless all about supermarket hoarding. By April, consumers could not get into their spare bedrooms for the toilet paper, and had enough rice to start their own Thai restaurant.

So in April, they stopped buying. Meanwhile, retail stores of all persuasions had locked their doors. The preliminary numbers thus describe a double-whammy of the end of hoarding meeting the nadir of shopping availability (and hospitality, travel and so forth).

The market was far from stunned by the numbers. Consumer discretionary rose 0.9% (stores are now reopening) and staples fell -0.4% (still won’t be buying toilet paper for a year or more).

The winning sector on the day was IT (+2.2%), spurred on by a 12.8% jump for prepaid/contactless payments provider EML Payments ((EML)), which is heavily exposed to retail but yesterday provided a positive update. The update also floated Zip Co’s ((Z1P)) boat (+8.4%).

Industrials (+1.6%) performed well, with toll road operators Atlas Arteria ((ALX)) and Transurban ((TCL)) finding buyers along with Sydney Airport ((SYD)), which reported a -97.5% fall in traffic from a year ago. The only way is up, presumably.

Other sector moves were small and of little consequence, and there was clearly no theme. The resource sectors saw a little give-back, while utilities dropped -1.0%. The government’s new energy “road map” includes an emphasis on gas, a shift towards renewables (don’t mention the bushfires) and even consideration of nuclear power. Not so promising for coal-power electricity generators.

Next Scott Morrison will walk into parliament holding a solar panel.

Strike up the Band

This weekend is a long one in the US. The Memorial Day holiday typically signals the approach of summer, and is normally a big one in terms of travel, shopping and entertainment.

It won’t be so big this year, but US states are now doing their darndest to ensure it is as big as is possible under the circumstances. All fifty states are now in a re-opening phase.

This news continues to enthuse Wall Street, as does a case-count that continues to grow but at an easing pace. Trump has described America’s way-and-above, globally disproportionate case-count as a “badge of honour”, as it reflects the greatest number of tests conducted in the world.

Wall Street is also enthused about retail company earnings results, which typically roll out at this stage of the earnings season. Lowe’s (a form of Bunnings, remember Masters?) reported sales and profit well above expectation while Target (like ours, but plus supermarket) also beat and reported 141% growth in online sales.

The new trend in Big Chain retailing is the drive-by pick-up, which sort of brings online and bricks & mortar together. Sales are still made online, but you don’t have to wait for a clogged up delivery service. Analysts agree this new system has been so successful it will not be binned when stores fully reopen. Such a paradigm shift would normally be something retailers would test and roll out over about three years. The virus established the service in about three weeks.

Speaking of online shopping, Facebook has launched a new service to provide digital shop fronts for retailers on its platform and on Instagram. After hours of think-tanking, they called it Shops. Facebook shares rose 6% last night, to a new all-time high.

Amazon rose 2%, to a new all-time high.

And therein lies the rub. In terms of the major indices, the Great Rally Back on Wall Street has been driven almost single-handedly by the “mega-cap secular growth stories”, aka Big Tech. It’s simple maths. When the far-and-away largest capped stocks in the index rise, the whole index is dragged along with them only to provide a misleading picture.

More telling is the fact that as of last night, the Dow is down only -4% over twelve months. The Nasdaq is up 21%. And imagine what those numbers would be if not for Apple and Microsoft being Dow components.

No one disagrees that Big Tech deserves to be where it is based simply on the businesses they run, and their dominance. It’s just that their success is creating a false impression for an overall US economy the stock market is meant to predict.

Meanwhile, the minutes of the April Fed meeting, released last night, indicate the FOMC’s genuinely grave concern for the trajectory of the US economy.

Commodities

Strength all round on the same re-opening enthusiasm, but for iron ore, which was due a pullback.

Australian retail sales plunge -18% and the Aussie rises 0.9% to US$0.6597.

Today

The SPI Overnight closed up 36 points or 0.7%.

Flash estimates of May manufacturing PMIs will be released across the globe today/night.

Aristocrat Leisure ((ALL)) reports earnings.

The Australian share market over the past thirty days…