The Monday Report – 20 April 2020

Array
(
    [0] => Array
        (
            [0] => ((TCL))
            [1] => ((SYD))
            [2] => ((QAN))
            [3] => ((CCL))
            [4] => ((MYX))
            [5] => ((SGP))
            [6] => ((EHE))
            [7] => ((SKC))
            [8] => ((BHP))
            [9] => ((CGF))
            [10] => ((AHY))
            [11] => ((BKL))
        )

    [1] => Array
        (
            [0] => TCL
            [1] => SYD
            [2] => QAN
            [3] => CCL
            [4] => MYX
            [5] => SGP
            [6] => EHE
            [7] => SKC
            [8] => BHP
            [9] => CGF
            [10] => AHY
            [11] => BKL
        )

)

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

Back to Business

China’s GDP fell -9.8% in the March quarter from the December quarter as expected, to be down -6.8% year on year, which was worse than the -6.0% expected.

In the month of March, Chinese retail sales fell -15.8% year on year when -12.2% was forecast, fixed asset investment fell -16.1% when -18% was forecast, but industrial production fell only -1.1% when -7.7% was forecast.

Bearing in mind China went into lockdown in January, pretty much the whole quarter reflected a lockdown, with late March seeing a gradual restart of some factory production. That may explain the industrial production number, or it could be explained by most of the sector being state-owned and maybe economic with the truth, but foreign companies with interests in China have been corroborating the restart story.

The point is this should be the last of the dire numbers out of China, with the June quarter looking more positive as the country reopens, despite an upward adjustment in Wuhan deaths. The same has been the case in New York City. If you die before being tested, you’re not initially counted.

And now Australia is looking towards reopening. There remains confusion, particularly around schools, but if Sydney beaches are being opened for exercise then it has to be a positive sign. The local market was happy to take the leap on Friday from surfing at Coogee to cars back on the road and planes back in the sky.

Transurban ((TCL)) was up 6.7%, Sydney Airport ((SYD)) 8.3% and Qantas ((QAN)) 7.2%.

Industrials was thus the standout sector (+4.5%) on a day all sectors closed in the green bar consumer staples, which closed flat.

Some high-level investigative reporting found my local supermarket had taken delivery of seven pallets of toilet paper ahead of Saturday shopping, and rather than bothering to stack the shelves had placed three of those pallets out on the floor, and stood back.

When I was there each pallet had only three or four packs removed. We knew there would be light at the end of the virus tunnel when we hit peak toilet paper.

Consumer staples was also dragged down by Coca-Cola Amatil ((CCL)), the worst performing index stock on the day, after the company reported an okay March quarter followed by a -30% drop in volumes in the first two weeks of April, largely due to Indonesian lockdowns impacting Easter/Ramadan. The stock fell -6.1%.

Next best performing sector was consumer discretionary (+2.3%) and gains tapered off among sectors thereafter.

Mayne Pharma ((MYX)) kicked on to top the board with a 9.1% gain in the wake of its application for a new virus-related drug, but otherwise it was the beaten-downs that found the buyers. Stockland ((SGP)) up 8.5%, Estia Health ((EHE)) up 8.4%, and NZ casino Skycity Entertainment ((SKC)) up 8.1%.

Also providing a boost locally on Friday was news from the US that Gilead had seen early positive results from its remdesivir drug, used to treat severe virus cases. This had the US futures rising strongly during the session.

It means we front-ran Wall Street, given the Dow was up 700 points on Friday night and our futures closed up…wait for it…one point on Saturday morning.

Full Steam Ahead

“America wants to be open, and Americans want to be open. We must have a working economy, and we want to get it back very, very quickly.”

And with that President Trump outlined a three-stage reopening plan for the US economy.

In the first phase, movie theatres, restaurants, sports venues, places of worship, gyms and other venues could reopen with social distancing guidelines in place. Non-essential travel, bars, and schools could be restarted with limitations in the second phase, and further restrictions would be slowly phased out in the final stage.

Meanwhile, the US reported 31,000 new case of the virus on Friday.

The combination of reopening plans and drug success excitement had Wall Street powering further ahead on Friday night, with all sectors closing in the green. Even energy managed to rise, despite WTI falling further below US$20/bbl.

The Dow was led by Boeing, which announced it would reopen a factory on Monday, and by consumer staples supplier Proctor & Gamble, which exceeded already positive forecasts with its March quarter earnings result and increased its dividend.

But P&G stood alone among virus “winners”, with Wall Street switching out of the likes of Walmart and friends and into the beaten-downs, such as Boeing, which is yet to decide whether it will accept government support.

A sign of peak recovery approaching?

On the drug front, many an expert, including the journalist who broke the Gilead story on Thursday night US time, has strenuously warned that it is very early days and a lot more testing needs to be done before remdesivir can be hailed as the holy grail. Even Gilead downplayed the success in a press release.

And on the reopening front, the decision remains one for each state, and so far protests in various states have not prompted any change of heart, while New York and New Jersey aren’t going to be reopening anything until the medicos give the green light.

Commodities

Gold pulled back as “risk on” sentiment returned. The US ten-year bond yield rose 5 basis points to 0.65%.

Where is the bottom for crude?

The Aussie looks like it’s settled down a bit, rising 0.3% to US$0.6367 to match the US dollar’s fall.

The SPI Overnight closed up 1 point on Saturday morning.

The Week Ahead

Tomorrow brings the minutes of the April RBA meeting and the governor will speak.

The ABS will release preliminary March retail sales data on Wednesday.

On Thursday, flash manufacturing PMI estimates for April will be released across the globe.

The US will see the Chicago Fed national activity index tonight, numbers for new and existing home sales across the week, weekly new jobless claims on the Thursday and durable goods orders and consumer sentiment on the Friday.

BHP Group ((BHP)) releases its quarterly report tomorrow, and Challenger ((CGF)) on Thursday. Asaleo Care ((AHY)) will have to answer questions as to why it sold its toilet paper business a year ago as it faces shareholders tomorrow, while Blackmores ((BKL)) holds an investor meeting on Thursday.

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.

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