The Overnight Report: Close The Books

This story features QANTAS AIRWAYS LIMITED, and other companies. For more info SHARE ANALYSIS: QAN

World Overnight
SPI Overnight (Jun)	6785.00	+ 19.00	0.28%
S&P ASX 200	6790.70	+ 52.30	0.78%
S&P500	3972.89	+ 14.34	0.36%
Nasdaq Comp	13246.87	+ 201.48	1.54%
DJIA	32981.55	– 85.41	– 0.26%
S&P500 VIX	19.40	– 0.21	– 1.07%
US 10-year yield	1.75	+ 0.02	1.16%
USD Index	93.23	– 0.07	– 0.08%
FTSE100	6713.63	– 58.49	– 0.86%
DAX30	15008.34	– 0.27	– 0.00%

By Greg Peel

End of Quarter I

After two sessions in which the futures had suggested significant gains in the morning, only for the ASX200 to close down on the day, yesterday the futures got it right. They had closed up 56 before the open and the index ultimately closed up 52.

But it was a rock’n’roll ride to get there.

At 1pm the index was up 124 points, at the closing bell it was up 81 points, and after the closing settlement, up only 52, below 6800.

Classic last-day stuff, although we could probably count the last three sessions as end-of-quarter squaring/window dressing. Yes, we have Brisbane and Byron in lockdown (Brisbane still awaiting to hear whether the Bunny will be quarantined) and we had the stuck ship and the Archegos scare, but none of that mattered yesterday.

If you need any clue, look at industrials (+2.2%), the standout winner on the day. The sector was driven by Sydney Airport ((SYD)) up 3.9%, Qantas ((QAN)) up 1.8% and Transurban ((TCL)) up 2.6%, despite flights to Brisbane being cancelled amid lockdowns, and a threat of the virus spreading further south.

These stocks have been losers over the quarter as snap lockdowns have been called, the timing of an international border reopening has been pushed out, and JobKeeper has come to an end. Yesterday they were squared up.

Atlas Arteria ((ALX)), which collects tolls in France and Washington DC, rose 5.7% despite France now going into country-wide lockdown.

It’s been a difficult quarter for investors. The index closed up a net 3.1%, which is a solid result, but you had to be on the right side of a value to growth rotation that remained mostly consistent over the period but still flip-flopped every now and again. If you were managing a balanced fund, including a fixed interest allocation, rising bond yields added further to the complication.

All sectors closed in the green yesterday, although utilities, telcos and energy largely sat it out. Classic lockdown winner consumer staples, which had stalled recently, was second best performer (+1.2%), but then discretionary (+0.9%) did well also, and would have done better had Harvey Norman ((HVN)) not gone ex-div.

Even insurance companies bounced ahead of the final tally of flood claim costs, helping financials up 0.7%. Materials (+0.5%) managed to offset a drag from a lower gold price.

At the end of the day, what transpired yesterday can now be written off as non-fundamental volatility that does not tell us anything about how the market plans to start the June quarter. We might take it from this morning’s close in the futures of +19 points that it could be a positive start, but really that would just get us back above 6800, which is our pivot point.

And it’s the Thursday before Easter, and Easter leads into school holidays in NSW and Victoria, so if anyone actually is working in a CBD office these days they will be out of there at lunchtime.

There will follow the age-old dilemma of do we get out of town early to beat the rush, or will everyone think that so it’s better to leave on Friday, or will it be a double-bluff so perhaps leave later at night? Or…

This year, I doubt it will matter when you leave.

End of Quarter II

See above.

And note the Nasdaq jumped 1.5% to the Dow’s -0.3%, with no change to the US ten-year bond yield, and nothing much else to prompt reverse-rotation other than squaring up.

The opportunity has nevertheless coincided with brokers now deciding the Big Tech names have corrected sufficiently. I noted yesterday ratings upgrades for Amazon and Google, and last night it was Apple’s turn.

The focus of the session, other than end of quarter shenanigans, was on Biden’s infrastructure plan.

By the time you read this, Biden will have delivered his speech outlining that plan. But as of last night we learned it would initially cost US$2.3trn, perhaps rising to as much as US$4trn over time (8 years), and will include not only billions for roads, bridges, airports and water infrastructure as one might expect, but also billions for green technology.

To that end, one element is to pour billions into establishing an EV charging point network, and subsidise and/or provide tax incentives for EV purchases. This news had Tesla rebounding, along with all other EV hopefuls and charging station manufacturers.

But how to fund it all? The corporate tax rate will rise to 28% from Trump’s 21%, which had been a cut from the earlier 35%. Hence on a four-year basis it’s still a net cut. Down the track, income/capital gains tax increases will be applied to the wealthy.

Of course it’s all a utopian vision at this stage, as it has to pass through Congress. And to get it through Congress, Biden has to wind back the filibuster law (60 vote majority required rather than a simple 51), and to do that, he has to rein in the odd Democrat who is not so keen to fiddle with this element of democracy, put in place to prevent a three-house majority government ramming through anything it likes, uncontested.

So it’s going to be a long few months.

In economic news last night, the US added 517,000 private sector jobs in March to mark the largest gain in six months, albeit in line with expectations. Attention now turns to tomorrow night’s non-farm payroll report.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1708.50	+ 24.90	1.48%
Silver (oz)	24.40	+ 0.46	1.92%
Copper (lb)	4.01	+ 0.03	0.75%
Aluminium (lb)	1.00	– 0.00	– 0.27%
Lead (lb)	0.88	+ 0.00	0.48%
Nickel (lb)	7.35	+ 0.07	0.99%
Zinc (lb)	1.27	+ 0.01	0.75%
West Texas Crude	59.33	– 1.13	– 1.87%
Brent Crude	63.54	– 0.48	– 0.75%
Iron Ore (t)	164.75	– 1.80	– 1.08%

Infrastructure can only be good for commodities, but then we’ve known this was coming for some time. A bit of a dip in the US dollar provided a little bit of a kicker last night.

The oils continue to drift back now the Suez tail-back is being cleared, but only in an orderly fashion.

The big mover last night was gold, after two sessions of selling. Apart from the dip in the greenback there’s been no new news on the Archegos front, suggesting no sign of systemic risk.

The Aussie is pretty much “unch” at US$0.7594.

Today

The SPI Overnight closed up 19 points or 0.3%, but we could all yet be fooled.

Today is the first day of the month, hence global manufacturing PMI day.

For us it also means house price data, and the ABS will provide revised February numbers for retail sales and trade.

Note that all Western markets are closed on Friday, and again on Monday except for the US. Summer time ends on the weekend in relevant states, so as of Tuesday morning the NYSE will close at 6am Sydney time. The SPI Overnight will continue to close at 7am.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
AFG	Australian Finance	Upgrade to Add from Hold	Morgans
AGL	AGL Energy	Downgrade to Hold from Accumulate	Ord Minnett
AWC	Alumina	Upgrade to Neutral from Underperform	Macquarie
CMM	Capricorn Metals	Upgrade to Neutral from Underperform	Macquarie
COE	Cooper Energy	Downgrade to Hold from Add	Morgans
CRN	Coronado Global Resources	Downgrade to Hold from Add	Morgans
GXY	Galaxy Resources	Upgrade to Buy from Hold	Ord Minnett
IAG	Insurance Australia	Upgrade to Add from Hold	Morgans
ILU	Iluka Resources	Upgrade to Buy from Hold	Ord Minnett
JBH	JB Hi-Fi	Downgrade to Underweight from Equal-weight	Morgan Stanley
JMS	JUPITER MINES	Upgrade to Outperform from Neutral	Macquarie
MCP	Mcpherson'S	Downgrade to Hold from Buy	Ord Minnett
MGX	Mount Gibson Iron	Upgrade to Outperform from Neutral	Macquarie
ORE	Orocobre	Upgrade to Buy from Hold	Ord Minnett
OSH	Oil Search	Upgrade to Neutral from Underperform	Macquarie
REA	REA Group	Upgrade to Neutral from Underperform	Credit Suisse
S32	South32	Upgrade to Outperform from Neutral	Macquarie
TLS	Telstra Corp	Upgrade to Overweight from Underweight	Morgan Stanley

For more detail go to FNArena's Australian Broker Call Report, which is updated each morning, Mon-Fri.

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available on the FNArena website.  Click here. (Subscribers can access prices on the website.)

(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author's and not by association FNArena's – see disclaimer on the website)

All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts on the website and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided. www.fnarena.com

FNArena is proud about its track record and past achievements: Ten Years On

Click to view our Glossary of Financial Terms