The Overnight Report: Reality Bites

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This story features SEVEN WEST MEDIA LIMITED, and other companies.
For more info SHARE ANALYSIS: SWM

By Greg Peel

Data Shock I

The ASX200 rallied 45 points from the open yesterday in the first fifteen minutes, in line with the overnight futures close after a positive session on Wall Street. An hour later, the index was down -72. A choppy afternoon took us to down -21 at the close. Seemingly a quiet day.

The IMF has forecast a -3% drop in global growth in 2020, a bigger fall than seen in the GFC. It’s a bold prediction, given the IMF typically runs about six months behind the curve, but should be of no great surprise. The GFC did not shut down the world.

Following on from a record low level of business confidence as noted in the NAB survey on Tuesday, Australian consumer confidence has fallen on the Westpac index to 75.6 in April from 91.9 in March, to mark the single biggest monthly decline since 1973 when the survey began.

Again, not that much of a shock really, but as these doses of reality begin to be administered it will be harder for the snap-back rally to find further incentive. With governments and central banks throwing everything at it, what more could happen, outside of actual virus data, to spark relief?

To that end, if you were wondering just how the Australian government will ever be able to pay for its relief packages, yesterday the Treasury sold a record $13bn of November 2024 maturity bonds at a yield of 0.47%, unable, still, to satisfy $25.8bn of demand. Yes, the country will be in deficit for a very long time, but at these rates, and with this demand, managing the debt burden should not be too challenging, even if we were to lose our AAA rating.

And if we did, wouldn’t everyone else? The US is AA. At 0.47% for four years why do we care? For years Australian governments have boasted about our AAA rating, which means we can borrow money cheaply, but we couldn’t possibly borrow any money, because we’d lose our AAA rating.

Yossarian would be impressed.

Energy was the only stand-out sector on the market yesterday, falling -3.1% as the WTI price again toys with the US$20bbl mark. Otherwise, every other sector posted moves of 0.3% to 0.7% in either direction, which in the scheme of things is hardly worth highlighting.

With Wall Street down -2.2% overnight, our futures are also down -2.2% this morning.

Nor is there much to ponder among individual stock moves. Most of the index stocks that flew up/down on Tuesday flew down/up yesterday. One standout within the index is UR Westfield ((URW)), which fell a chart-topping -9.9% as France extended its lockdown for a further three weeks.

Outside of the Index, Seven West Media ((SWM)) leapt 31% on news it is talking to its lenders.

Data Shock II

US industrial production fell -5.4% in March, the biggest monthly drop since 1946.

Retail sales fell -8.7%, more than double the biggest monthly fall seen in the GFC.

Department store chain JC Penney last night invoked a 30-day grace period on a debt repayment it cannot make as the company considers its options, including filing for bankruptcy.

The US housing market sentiment index, which is 50-neutral, fell from 72 last month to 30 this month, the biggest fall in the survey’s 35-year history.

Bank of America and Citigroup last night posted earnings, and as was the case with peers JPMorgan and Wells Fargo the night before, announced significant provisions for bad debts. Both banks fell -5-6%.

The International Energy Agency last night estimated a drop in global demand for oil of -9.3m barrels per day, equivalent to a decade’s worth of growth. Demand is forecast to drop to its lowest level since 1995. The WTI crude price again tested the US$20/bbl mark but again held fast, although one assumes it’s just a matter of time.

Energy, financials and materials were the worst performing sectors in the S&P500.

Airline stocks continued to fall back again, despite the biggest carriers agreeing last night to government bailout package, which includes taxpayers taking long term call options (warrants) over shares in the companies.

The Dow initially plunged -700 points, but managed to claw some of that back through the session. Keeping Wall Street afloat to some extent are those same stay-at-home stocks.

Amazon hit another new all-time high last night. Also hitting a new high were Netflix, Walmart (Dow) and pharma company Eli Lilly, along with gaming stocks.

Given the cohort of stay-at-home stocks that reside in the Nasdaq, including the likes of Zoom Video and online health service platform Teledoc, that index again outperformed last night falling only -1.4% to the S&P’s -2.2%.

Commentators are now worried this market-contrarian trade may be running too far.

The US ten-year bond yield last night fell -11 basis points to 0.64%.

Commodities

The US dollar index finally had a positive session last night, rising 0.8%. This sparked a -1.9% fall in the Aussie, alongside those bond sales, in what was likely a profit-taking rush by traders who have ridden the nine cent rally.

The dollar bounce/US bond rally had gold pulling back slightly.

If WTI breaks US$20/bbl, look out.

Today

The SPI Overnight closed down -122 points or -2.2%.

Australia’s March unemployment numbers are out today.

Quarterly reports are due from Aurizon Holdings ((AZJ)), Transurban ((TCL)), South32 ((S32)) and Whitehaven Coal ((WHC)).

The Australian share market over the past thirty days…

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

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