The Monday Report – 09 March 2020

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            [1] => ((QAN))
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This story features OOH!MEDIA LIMITED, and other companies.
For more info SHARE ANALYSIS: OML
The company is included in ASX300 and ALL-ORDS

By Greg Peel

New Low

The ASX200 fell from the open on Friday and continued lower until 11am when it tried to bounce. That modest bounce roughly held until lunchtime before the selling started again. Around 2.30pm the index hit the prior intraday low set last Monday. There followed a very brief and ultimately unsuccessful bounce.

The index closed on its lows – a new low for the month and the year to date, at a level last seen in May last year. The index has retested the low and has not held, which suggests a new low needs to be found. The futures closed down -93 points on Saturday morning.

There was a clear polarisation of moves among the sectors on Friday. While no sector closed in the green, healthcare, telcos and utilities all fell just under -1% while consumer staples fell only -0.3%, no doubt due to the toilet paper (and everything else now) effect.

The next “best” performer was materials with -2.6%, given support from gold miners. We then jump to -3%-plus falls for industrials, energy and discretionary, and finally -4.2% falls for both IT and the banks. The banks were the major contributor to the -2.8% fall for the ASX200.

The consumer discretionary sector would not have been helped by news retail sales fell -0.3% in January when a flat result was expected. Sales fell -0.7% in December, but this cancelled out the big jump in November as Christmas spending was dragged forward thanks to the new Black Friday obsession.

Economists based their 0% growth forecast on the impact from the bushfires, with at that point little fear over the virus. The decline in January was thus much sharper than feared, and that’s before we get to the true virus impact. Fiscal support is now paramount. As ANZ Bank economists put it, “The upsides of housing market improvements and lower rates are not expected to offset these [virus-related] risks to consumption in the near term”.

Clearly the market is pricing in another rate cut from the RBA, as evidenced by the banks leading the index down. With another sell-day ahead today, the market will probably price in QE. The government has pledged a stimulus package, but as yet no details.

They’d best not muck around.

There was nothing remarkable among individual stocks on Friday. Gold miners dominated the top five leaders’ board while oOh!media ((OML)) topped the losers’ board with an -11.2% drop, presumably because if everyone’s staying indoors they won’t be noticing outdoor advertising. Qantas ((QAN)) fell -8.1% for obvious reasons, but couldn’t make the top five.

The news this morning is that the Italian government has officially locked down the entire Lombardy region, which includes the financial hub of Milan, after the death toll from the virus leapt suddenly to 366 from 233. That’s a quarter of Italy’s population now in quarantine.

Another Comeback Attempt

The Dow fell -900 points from the open on Friday night before halving that loss by late morning. The S&P500 broke the previous closing low but not the intraday low. By 3pm it appeared the bounce was set to fail as the Dow hit -800 once more, but then whammo – in came the cavalry.

The rally was likely triggered by a group of FOMC members speaking in the afternoon, providing a strong hint that the Fed was quite ready to go again. The market is now pricing in another -50 point rate cut at the scheduled March 18 meeting.

The US ten-year bond yield fell -22 basis points to 0.71%.

Before the open, US jobs data for February were released showing 273,000 new jobs were created when only 165,000 were forecast. It is a stunning result under the circumstances, but observers were quick to point out the survey is conducted mid-month, at which point the virus sell-off in markets had not yet begun. The March numbers are thus expected to look a lot different, although all and sundry agree that if it’s downhill from here, at least the US is starting from a solid position.

The US financial sector was hit hard on further rate cut expectations, but not as hard as energy. Russia did not agree to OPEC’s proposal of a further -1.5mbpd production cut, hence the proposal is rendered void. WTI crude fell -10%.

As was the case in Australia on Friday, all sectors closed in the red but the outperformers were staples, utilities, REITs and healthcare.

With the Fed signalling its intentions, Wall Street is now looking to the White House for the fiscal response. News on that front is anticipated shortly. The Trump administration was no doubt relieved at the late stock market bounce, but as we’ve seen often enough, such bounces don’t necessarily hold.

Commodities

Base metal and iron ore prices had been holding up relatively well, but not on Friday night.

Oil prices have not held up at all.

Gold seems to have reached a resistance level, failing to respond to the big drop in US yields and the greenback.

The greenback fell -0.8% on rate cut expectation and the Aussie is up 0.3% at US$0.6615.

The SPI Overnight closed down -93 points or -1.5%.

A point to note: The Friday before last also saw a rebound on Wall Street from dire lows, but not enough to get indices into the green. The ASX200 thus fell on the Monday. On Monday night, the Dow rallied 1300 points.

Just saying. But the news from Italy is not inspiring.

The Week Ahead

Wednesday’s housing finance data will be the highlight of Australia’s economic week.

The US will see February CPI data on Wednesday that will be heavily oil price-impacted. Consumer sentiment will be an interesting one on Friday.

The ECB holds a policy meeting on Thursday night, but has little room to move.

The local stock market will this week be dominated, macro moves aside, by ex-dividends.

Note that the US went on to summer time last night so as of tomorrow morning, the NYSE will close at 7am Sydney time. The SPI Overnight will also close at 7am, not 8am as is the case through summer.

The Australian share market over the past thirty days…

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