The Monday Report (On Tuesday) – 14 April 2020

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            [9] => ((AMA))
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This story features TRANSURBAN GROUP LIMITED, and other companies.
For more info SHARE ANALYSIS: TCL
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

Thursday

There was no sign in the local market on Thursday that squaring up ahead of a four-day break might be the prudent strategy. Quite the opposite in fact. After a slight early stumble, the ASX200 tracked steadily upward all session to close on its high, up over 6% for the shortened week.

It’s starting to look very FOMO.

While all sectors closed in the green, there was no clear division of cyclicals over defensives or vice versa, but rather an uneven spread of moves.

Industrials was the leading sector (5.2%) after Transurban ((TCL)) completed its eurobond issue and jumped 11.1%. An empty Sydney Airport ((SYD)) followed in sympathy (5.7%).

IT took the silver (4.7%) while healthcare managed 4.6% after CSL ((CSL)) reaffirmed guidance, despite a drop in plasma collections amidst lockdowns. CSL jumped 5.5%.

Who needs dividends? The banks leapt back 5.0%. The switch out of consumer staples (0.2%) and into discretionary (4.4%) continued while expectations of OPEC-Plus production cuts had energy up 3.9%.

Utilities came roaring back (3.6%) after having not much participated in the snap-back to date.

So no real theme, as was also the case among individual stocks. Southern Cross Media ((SXL)) put away its capital raising and jumped 18.2%. HT&E ((HT1)) acquired a 1.8% stake in oOh!media ((OML)) and that stock rose 19.7%.

But mining services provider Perenti Global ((PRN)) topped the board on 27.6% for no obvious reason and Boral ((BLD)) similarly jumped 12.7%.

Outside of the index, Mesoblast ((MSB)) surged 36.2% as it begins trials of a lung disease treatment for virus patients. Chop shop AMA Group ((AMA)) surged 35.2% despite warning that no cars on the road means no fender benders, although the company did report a strong March quarter due to the rain returning.

Likely firing up the FOMO are ongoing signs of Australia’s curve flattening, as the cops place gun batteries on all roads leading out of Sydney. Hope you had an action-packed Easter. But if that is good news, this may not be:

“The coronavirus may be ‘reactivating’ in people who have been cured of the illness, according to Korea’s Centers for Disease Control and Prevention.

“About 51 patients classed as having been cured in South Korea have tested positive again, the CDC said in a briefing on Monday. Rather than being infected again, the virus may have been reactivated in these people, given they tested positive again shortly after being released from quarantine, said Jeong Eun-kyeong, director-general of the Korean CDC.”

-Bloomberg

Thursday Night

The Dow closed up 252 points or 1.2% while the S&P gained 1.5% to 2789 and the Nasdaq rose 0.8%.

Rumours that OPEC/Russia would indeed be cutting oil production had the WTI crude price jumping 12% ahead of the official announcement on Thursday night. An announced -10 million barrel per day cut had WTI closing down -9%.

It’s simply not enough to offset oversupply in the face of collapsed demand. Industry insiders are now wondering what happens when the world runs out of storage tanks and tankers to put the stuff in.

Another 6.6 million Americans filed for unemployment benefits last week, Thursday night’s data revealed, to make around 17 million in three weeks.

This news did not much shock Wall Street. Rather, traders were focused on the Fed hurling another US$2.3trn of support into credit markets, across a range of assets all the way to high-yield corporate bonds.

Don’t fight the Fed.

The US indices came off their highs in the afternoon – the Dow had been up over 500 points – but the S&P500 marked its best week since 1974 in rising 12% (in only four days). The broad market index is now roughly half of the way back, having bounced 27% off the March bottom to be down -17% from the February high (or having bounced 600 points having fallen -1200).

Which is an historically popular level for an initial rally out of a bear market to stall – at half way back. The S&P is also now currently around the drop-off point for the December 2018 correction, and the bottom of the May 2019 trade war sell-off. In other words, there is technical significance at this level. And technicals tend to be self-fulfilling.

In commodities, base metals saw smallish moves down while WTI crude was down -9% as noted. The new Fed injection – underscoring “QE infinity” — had the US dollar index down -0.6% and gold jumping US$39 to US$1685/oz to its highest level in eight years.

The RBA released a reasonably upbeat, in the current environment, Financial Stability Review on Thursday, Australia is clearly winning the curve war against the US, and the Fed is going even further all-in. The Aussie rose another 1.6% to US$0.6333, to be up around US8c from its March nadir.

Monday Night

The technicals did fulfil, thus the Dow was down -625 points in early trade last night. Likely sapping the exuberance seen through the week was news of the US death rate now being the largest in the world. This underscores calls by many that while Wall Street may have fallen too far, too fast in March, it has now rebounded too far, too fast from that level.

Dr Fauci, the voice of US medical experts, said last night the economy in parts of the country could have a “rolling re-entry” as early as next month, provided health authorities can quickly identify and isolate people who will inevitably be infected. But Dr Fauci also said social restrictions aimed at stopping the spread of the coronavirus could have saved lives if they’d been started earlier, and when they’re eased new cases are certain to arise.

President Trump called this “fake news”, and reposted tweets calling for Fauci to be sacked.

Yet it is strikingly clear on global curve comparisons that the US case-rate climb started much later than those of European countries, and is continuing upward as Europe shows signs of peaking. The later start does not mean it took longer for cases to emerge in the US, just longer for testing to identify those cases.

The New York governor nevertheless suggested last night the worst may be over in the epicentre state, but that is not to suggest over for the whole country. Neighbouring New Jersey now appears to be the new New York.

Over in the oil market, prices again weakened slightly in the wake of the announced -10mbpd OPEC-Plus production cuts, with many pointing out the cut represents less than half the level of demand destruction due to the virus.

On the other side of the coin, so-called “stay-at-home” stocks found strong support last night, which suggest few investors foresee the economy being reopened and the lockdowns being lifted anytime soon. Amazon, Netflix and Zoom Video were obvious choices (anyone who hadn’t heard of Zoom before certainly has now), along with Activision Blizzard (online gaming).

Amazon announced it will begin to restock and reship a limited number of third party products that had been shunted aside while the company concentrated on moving essential health products through its warehouses. Given Amazon’s market cap clout, the Nasdaq closed up on the day.

All indices generally pared back earlier losses to the close, although the heavily beaten down Russell small cap index remained much that way, given a high weighting of small oil companies and the regional banks that extend credit to them.

The US earnings season kicks off tonight, with the first of the big banks revealing their March quarter numbers. Wall Street will largely ignore actual results, given January and February were business as usual and only in March did it all go awry. More pertinent is guidance for the June quarter, but here Wall Street is not expecting any hard and fast predictions.

For how does one guide to earnings expectations entirely dependent on when a shuttered business, or heavily impacted business, can return to normal activity when no one knows when normal activity may be allowed to resume? Analysts are in the dark as well, thus while June quarter earnings forecasts have been dropping steadily, investors know it’s all with a lag and for the most part a complete guess.

So it is questionable just what might be learned as the long quarterly US earnings season plays out.

Commodities

The LME was closed on Friday and Monday night so the base metal price moves above reflect only Thursday night trade.

The iron ore price reflects a net move from Thursday night.

The gold price has taken another healthy step up, despite the Fed announcing it is easing back its overnight repo injections now things are calming down in credit markets. Of course they are calming down – the Fed has declared its cheque book open.

The Aussie continues its relentless recovery, up another 0.8% last night to US$0.6384.

The SPI Overnight closed up 43 points on Friday morning but was closed last night, thus not reflective of last night’s moves on Wall Street.

The Week Ahead

March economic data will now begin to roll in in earnest. China reports trade today and industrial production, retail sales and fixed asset investment on Friday, as well as a much anticipated March quarter GDP.

No doubt the Communist Party will be meeting this week to decide what that should be.

The US will also see March industrial production and retail sales numbers on Wednesday night.

Locally we’ll see the March jobs numbers on Thursday, following today’s NAB business confidence survey and tomorrow’s Westpac consumer confidence survey.

There is little in the way of scheduled local corporate releases on the calendar this week.

The Australian share market over the past thirty days…

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