The Overnight Report: Out Of Home

By Greg Peel

Break Out

“[Monday’s] trade was not a momentum-driven rally, feeding upon itself. The index opened 90 points higher and there it remained all session, before a little kick towards the close. The additional 47 points suggested this [Tuesday] morning is more of a momentum response, on top of the technical breakout trade.”

And so it came to pass. After half an hour yesterday morning, the ASX200 was only up 42 points, in line with the pre-market futures. But from that point, it was momentum all the way. The technical break-out through 5600 resistance had opened the door. It was a steady upward rally, unlike Monday’s step-jump.

There was no doubt plenty of FOMO going on to encourage a positive feedback loop, but the market was also encouraged when Scott Morrison channelled the ghost of Bob Hawke in his Press Club speech. First the Coalition adopts a Kevin Rudd policy, and now that of the former president of the ACTU. Tony Abbott must be turning in his grave.

What? Oh. Well, pretty upset anyway.

And just when it couldn’t get any better, the Dow futures opened after the US long weekend and shot straight up 500 points.

As the economy continues its staggered reopening across the country, fears of mass business failures and mortgage defaults begin to ease. The biggest chunk of yesterday’s 164 point gain was provided by a standout 4.3% jump for the banks, with daylight second.

After daylight came telcos, up 3.3%. While telcos are typically considered defensive, in this case it’s a similar story to the banks – homes and businesses can now start paying their phone bills again.

Consumer discretionary (3.1%) speaks for itself, and given staples managed only 1.5%, our risk-on indicator told a simple tale. Utilities (1.0%) was the sector laggard on the day. Everything else rallied 2-3%.

To highlight the momentum and FOMO trades, on Monday Webjet ((WEB)) rose 15.6%, Flight Centre ((FLT)) 15.2%, Helloworld ((HLO)) 10.7%, Qantas ((QAN)) 7.2%, and Sydney Airport ((SYD)) 3.9%.

Yesterday, Webjet rose another 5.8%, Flight Centre 9.5%, Qantas 5.4%, Sydney Airport 4.2%, and Helloworld…32.7%.

Southern Cross Media ((SXL)), which rose double-digits on Monday, rose another 15.6% yesterday to top the index winners, with the Mungos back on the field tonight and advertising to follow suit.

Retail landlord UR Westfield ((URW)) had been bucking the recent trend, falling even as stores reopened given debt concerns, but yesterday it took the index silver with 12.7%.

The market did make a mid-afternoon attempt to take some heat out yesterday – possibly short-term traders cashing in, or others calling over-exuberance, but as soon as the index dipped more buyers appeared to ensure a close on the high.

Those latent sellers, and the fact the Dow did no more last night than confirm the 500 point rally the Dow futures had suggested during our day-session, is likely why our futures are down -63 points this morning.

So rest assured, it’s not going to be a one way street back to 7000. We’re not yet back to 6000. We’re now back 31% from the March low, but still -19% below the February high.

Gid-day Mate

By contrast, the S&P500 is now -12% below its all-time high and the Nasdaq a mere -5%.

US biotech firm Novavax announced last night it was commencing human trials of its vaccine candidate, in collaboration with Australia’s Nucleus Network. The phase one trials will begin in Melbourne and Brisbane, with results expected by July. If successful, thousands of candidates in several countries would then become involved in a second phase.

Anyone feeling like a monkey this morning?

Perhaps more significant news is that biotech giant Merck (Dow) is also set to trial two vaccine candidates. Merck has the world’s best track record of vaccine development, and most recently was first to develop an Ebola vaccine.

Vaccine optimism is underpinning the general reopening theme in the US, providing hope that even if a second wave does hit, there’ll be a treatment.

Wall Street was also happy just to get through the long weekend without any news that might upset the rally. The Dow futures had called it – indeed the Dow shot up to a 700 point gain from the get-go, and then stayed there almost all day. Late selling shaved off a couple of hundred points.

Ahead of the selling the Dow had reclaimed 25,000, and the S&P500 3000, but more significantly both had come very close to their 200-day moving averages.

The underlying tale is told by the spread between the three major indices – Dow up 2.2%, S&P up 1.2%, and Nasdaq up only 0.2%, which is a clear reversal of the trend that had to date taken Wall Street this far. Banks, industrials and energy led the charge. Tech, staples and healthcare sat it out.

It was a clear rotation out of stay-at-home and into get-out-of-home. Airline stocks took off. Big industrials roared. REITs rebounded (normally defensive, but now a “cyclical” of sorts based on rent deferrals). Mind you, in the case of the likes of airlines and some of the other most beaten-down sub-sectors, big double digit moves barely scratch the surface of, in some cases, -80% falls from the sky.

Even the banks are still down up to -40%, undermining JPMorgan’s (Dow) 7% leap last night.

It has been FAAMG that has led the rebound rally, it was FAAMG, and Walmart (Dow), and other previous stay-at-home winners that stalled last night. If those stocks remain stalled, as investors continue to rotate into out-of-home cyclicals, then the S&P500 is going to struggle to push forward, being the broad market indicator.

That 200-day moving average may prove a stubborn barrier.

Commodities

Iron ore’s taken a  bit of a tumble after a three-day break, but with Brazil now being warned its case-count could hit 125,000, exceeding even that of the US, while the president continues to refuse to implement lockdowns, there doesn’t seem to be a lot of downside.

Otherwise, risk-on was largely evident across other commodities, including a dip for gold.

Investors in Aussie gold won’t be happy with the currency up 1.7% at US$0.6651.

It was Bob Hawke who floated the thing in the first place.

Today

The SPI Overnight closed down -63 points or -1.1%.

March quarter construction work done numbers will be released today.

China will report industrial profits for April.

The Fed Beige Book is out tonight.

AMA Group ((AMA)) and Spark Infrastructure ((SKI)) host AGMs.

The Australian share market over the past thirty days…