Overnight: Ongoing Conflict

By Greg Peel

Buy Australia

Yesterday morning the futures were suggesting the ASX200 would rise 42 points, which seemed a tad ambitious, and indeed it was a bit of a stumbling start. But from half an hour in, it was straight up.

The index closed up 1.7%, and eight of eleven sectors closed up between 1.3% and 1.9%. It was, I would suggest, the most uniform one-day rally since this whole virus thingy began. Buying equities is by default “risk on”, but there was absolutely no discrimination between cyclicals and defensives.

The outlier sectors to the upside were IT, which rose 3.7% because the Nasdaq hit a new high, and real estate, which rose 3.0% after sector heavyweight Lendlease ((LLC)) provided new guidance (on Wednesday) and rose 6.0%, while Top20 stock Shopping Centres Australasia ((SCP)) jumped 6.8%.

The outlier to the downside were materials (+0.6%), because the gold price fell overnight.

The session smacked of a large fund manager or managers repositioning their equity weightings. Given the huge June quarter rally, domestic balanced funds were more likely to be sellers towards the end of the quarter, in order to rebalance against fixed income weighting, than buyers. Thus my guess is a US fund rebalanced by selling US and buying elsewhere.

Given the size of US funds, a 0.1% allocation to Australia would be enough.

But that’s just my guess.

Among individual stocks, the “sign of the times” trade yesterday was online homewares retailer Temple & Webster ((TPW)), which raised new capital and jumped 17.9%. The stock is up 170% year to date.

Jumbo Interactive ((JIN)) took silver with 11.5%, but that stock’s such a lottery it could just as easily be down by that amount today. Afterpay ((APT)) took bronze with 9.5%, as it is flag bearer for the Ausdaq.

The five top losers were all stocks that had run up on the re-opening trade, even as late as Wednesday, suggesting a few profits skimmed to be deployed elsewhere.

Outside the index, Kathmandu ((KMD)) gained 9.3% after revealing sales increases in the past six weeks of 12.5% for winter-wear and 23% for surf-wear. Yes, I’m confused too. But in its statement, management made the obvious point:

“…there remains significant downside risk over future economic conditions, following the conclusion of Government assistance packages, further COVID-19 outbreaks as recently observed in Melbourne, and the impact of lower foot-traffic…”

Winter is coming.

Roaring Back

The US added back 4.8 million jobs in June when 3.7 million was forecast. This follows a 2.7m gain in May after a -22m drop in April, netting to around one third of jobs lost during the lockdowns being recovered to date.

The unemployment rate fell to 11.1% from 14.7% in May, bearing in mind this does not count those who simply aren’t bothering to find work at present either because (a) there isn’t any or (b) they’re earning more on the dole than they were in their prior jobs. A broader “underemployment” measure suggests a rate of 18%, down from 21% in May.

The data pre-dates moves in various states to either pause re-openings or re-close businesses due to the renewed virus outbreak. More recent data in the form of weekly new jobless claims indicate that while fewer claims are being made each week since original re-openings began, they are yet to go the other way.

It is assumed re-closures will prevent that from happening yet. The White House is nevertheless reluctant to extend its equivalent JobSeeker and Keeper programs beyond the end of this month as they dis-incentivise a return to work for many lower paid employees.

But Wall Street cheered the 4.8 million number, in isolation. The Dow jumped 470 points from the open.

Donald Trump called the data “spectacular news” at a White House briefing. “Today’s announcement proves that our economy is roaring back from the impact of the coronavirus pandemic”.

Then Florida reported that Wednesday saw the biggest daily increase in new cases – over 10,000 – since the pandemic began. That number is pipped only by New York on April 10. By then New York was in full lockdown, and is yet to fully come out. Florida, and other states, came out of a brief lockdown before the virus shifted south.

That daily increase in Florida, population 21 million, is greater than any European country experienced at the height of their case-count surges in April.

Suffice to say, Wall Street began to slip on the news. It continued lower when vaccine front-runner Moderna announced it will delay its final-stage trial to later this month. The Dow dipped briefly into the negative before a late push led to a slightly better close.

The Nasdaq hit another new all-time high.

Having become the world’s largest auto-maker by valuation on Wednesday night, Tesla last night reported June quarter sales of 90,000 vehicles. The stock rose 8%.

Hyundai, on a market cap of less than 10% of Tesla’s, delivered 141,722 (in the US), and that was down -24% from the prior quarter due to factory shutdowns.

Commodities

Metal and oil prices liked the US job numbers too.

Gold has come back a tad.

Australia’s May trade surplus was a little below expectation but still very strong as imports again fell more than exports.

The Aussie is up a bit at US$0.6928.

Today

The SPI Overnight closed up 35 points or 0.6%.

It’s June services PMI day across the globe.

Except in the US, which is closed tonight.

The Australian share market over the past thirty days…