The Monday Report – 23 March 2020

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            [3] => ((FLT))
            [4] => ((SOL))
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            [6] => ((HUB))
            [7] => ((NUF))
            [8] => ((SIG))
            [9] => ((BKW))
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This story features LOVISA HOLDINGS LIMITED, and other companies.
For more info SHARE ANALYSIS: LOV
The company is included in ASX200, ASX300 and ALL-ORDS

By Greg Peel

Breaking News: US S&P500 futures have opened limit-down (-5%) this morning.

Switching Back

The story of Friday’s trade on the ASX200 can be summed up succinctly by listing the sector moves at the close:

Energy +4.5%, financials +3.6%, industrials +2.7%, IT +2.4%; and healthcare -5.3%, staples, -3.1%, telcos -3.9%, utilities -1.0%.

Everything that had been sold heavily on the way down was being bought, funded by everything that had at least held up better on the way down. A switch back to cyclicals from defensives.

Bucking the trend were materials, with a mere 0.3% gain, and discretionary, which still lost -1.8% despite some wild share price performances from the likes of Lovisa Holdings ((LOV)) up 64% (albeit not in the index).

Yet the index gave up a 230 point gain mid-session to finish up only 33. Afterpay ((APT)) was up over 60% mid-session to finish up only 25%.

The rally was sparked by announcements from banks they would defer loan payments for small businesses and mortgages, and the RBA stepped in to start making its first bond purchases. The bank move will hopefully cap business and mortgage defaults while only deferring lost income, while the RBA’s incursion is more symbolic, signalling the beginning of the rescue package.

But it was that rescue package that later had sentiment fading, as a grave Scott Morrison pre-empted the government’s next, and comparatively massive, fiscal stimulus tranche, at the same time postponing the federal budget to October. Some of the intraday moves in share prices did look overly wild, thanks to computers, so some sanity crept in in the afternoon. The big moves in sectors in both directions netted out.

We have now learned the government’s package will total $66bn, but we have also learned all hospitality businesses must close nationally as of today, and within 48 hours, all non-essential businesses must close in NSW and Victoria. Let the debate begin about what is and isn’t “essential” beyond the obvious.

And let’s see how the market takes this news this morning. It should not come as a shock, although reality may bite. The experience on Friday night was of Wall Street rebounding in the overnight futures, being up 100 Dow points by the close of ASX trade, but then turning tail in the day-session on the announcement New York City will close down.

To that end out futures closed down -87 points on Saturday morning.

Level to watch: Thursday’s low of 4747.

Sentiment still fragile

Wall Street opened higher on Friday night but not for long. Investors would have been heartened by an extraordinary intervention from the Fed, buying bonds and shovelling liquidity into short-term markets including mortgages and municipal bond markets, doubling the biggest day of stimulus since the biggest prior day in March 2009.

But while the monetary side has learned the lesson of not mucking around, the fiscal side remains bogged down in partisan politics. Billions have been touted for various programs, but no bill to that effect has yet been passed. And in the weird way the US parliament operates, the Republican Senate has put up a counter package to the Democrat House.

This is reminiscent of the early days of the Trump administration when rescinding Obamacare was job number one. Proposed bills from both houses went back and forth many times before everyone gave up. At the time I was surprised to realise the house of review could also raise its own bills in Congress. This time you’d think surely a bit of cooperation is required.

The lack of any progress frustrated Wall Street, and then as sentiment faded, out came the Mayor of New York to announce he was shutting the city down. The closure of NYC adds to the closure of California and Illinois (Chicago), thus bringing the three biggest US internal economies to a standstill.

Buying returned with a vengeance to bond markets on Fed action, with the ten-year yield falling -18 points to 0.94%.

A late afternoon attempt at a clawback rally failed and Wall Street closed almost on its lows for the session. Not helping the situation was the day’s “quadruple witching” expiry of March quarter equity derivatives, which typically results in non-fundamental volatility. Although at these times, it’s hard to notice amidst the volatility that already exists.

The Dow closed down -17% for the week and -35% off its February peak, the S&P500 lost -15% for -32% and the Nasdaq -12% for -30%.

While the “Black Mondays” of ’87 and ’29 still hold the one-day records, the Dow’s four-week fall is the largest of all time.

By Friday the US death toll had reached 200 in a case-count of 14,000, and a global case-count to 245,000.

Also not helping Wall Street on Friday night was another collapse in oil prices, although WTI did manage to fight back from a -20% fall to under US$20/bbl to a -10% fall by the close. Oil prices are reflecting an expected full shutdown of services eventually – Emirates is the latest to ground all planes – and the rescue package promised by the government but as yet not delivered.

As I write this morning, Reuters has reported one “top Senate Democrat” as suggesting the Republicans’ fiscal package “has many problems”. The Senate is expected to vote tonight.

Commodities

Some respite for base metals on Friday night, although iron ore has taken another dip.

The US dollar was a little steadier in rising only 0.2%, which allowed gold to pick up pace again.

With OPEC and Russia at war, and the world closed down, perhaps the only support for oil prices is when marginal US shale producers start going to the wall.

The Aussie is up 1.0% at US$5801 but was as high as US$5970.

The SPI Overnight closed down -87 points or -1.8%, before the announcement of national and state shutdowns.

The Week Ahead

Arguably the first data truly indicative of the virus impact will come on Tuesday in the form of flash manufacturing PMIs for March from Australia, Japan, the eurozone and US.

All other major global data releases this week are for February, which was eons ago, the one exception being the Michigan Uni fortnightly US consumer confidence survey on Friday night.

The ex-dividend season is still rolling on locally, not that you’d notice. Webjet ((WEB)) is among those stocks going ex this week, having last week failed to find any interest in its proposed capital raising. Flight Centre’s ((FLT)) on the ex-div list as well.

Earnings reports are due from WH Soul Pattinson ((SOL)) today, Clover Corp ((CLV)), Hub24 ((HUB)), Nufarm ((NUF)) and Sigma Healthcare ((SIG)) on Wednesday, and Brickworks ((BKW)) on Thursday. 

The Australian share market over the past thirty days…

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