The Monday Report – 04 May 2020

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This story features NATIONAL AUSTRALIA BANK LIMITED, and other companies.
For more info SHARE ANALYSIS: NAB
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

As You Were

The ASX200 rose 5% up to Thursday last week and on Friday fell -5% to close the week flat. Good ol’ stairs and elevators.

The rally last week was largely driven by the hope offered from the gradual reopening of the economy, by varying degrees across the states. Never mind that the ASX200 had already rallied back 25% from the oversold bottom in March, which included pre-emption of the economy reopening, underpinned by monetary and fiscal backstopping. In short, the rubber band had stretched too far to the downside and then too far to the upside. All it needed was a trigger.

All week the market appeared to shrug off festering geopolitical tensions, as Australia pushes for an inquiry into the virus source and in return the Chinese Ambassador effectively threatened trade boycotts. But when President Trump proposed on Thursday night that increased trade tariffs on China might be a way to force cooperation, suddenly we were all reminded that the trade war never actually ended.

The rally in the Australian market in 2019, peaking at a new all-time high this February, was largely driven by the prospect of an end to the trade war, culminating in the signing of the phase one deal in January which by all accounts China has been complying with up to now.

Cyclical sectors that had enjoyed revitalisation last week saw the heaviest selling on Friday. Defensive sectors, which had been left behind having been the go-tos amidst earlier volatility fared better, if you can call a -2.2% drop for utilities something “better”.

This was the smallest sector fall, followed by telcos (-2.7%), healthcare (-2.8%) and staples (-3.3%).

On the other end of the scale, materials fell -6.8% to be the worst performer, without any adverse commodity price moves, followed by energy (-6.2%), even as the oil price rallied further. Additional tariffs may well impact on commodity prices, and with Chinese demand for Australian rocks.

The banks fell -5.6% after being star performers through the week, because National Bank ((NAB)) was the only bank to raise capital (although Westpac does officially report today, and is yet to confirm a capital policy). Industrials fell -5.3% despite cars returning to roads. Consumer discretionary fell -4.2% despite the potential for shop reopenings ahead.

So Friday had little to do with fundamentals and all to do with sentiment – swinging from too exuberant back to OMG.

Three of the worst performing individual stocks on the day were three that saw large gains during the week on the back-to-business theme, being Virgin Money UK ((VUK)), down -12.3%, diversified REIT GPT Group ((GPT)), down -9.9% and Star Entertainment ((SGR)), down -9.9%. Austal ((ASB)) fell -19.9% after losing a ship building contract.

On the flipside, a positive quarterly result from Janus Henderson ((JHG)) had the fund manager up 8.2% against the tide, and a positive quarterly result from ResMed ((RMD)) was worth 3.2% pklus 4.9% for rival Fisher & Paykal Healthcare ((FPH)).

Wall Street also tumbled on Friday night, with the tariff news a contributing factor but a similar overbought theme being cited. To that end Australia fell ahead of the US, hence our futures closed down only -7 points on Saturday morning.

See Above

The US manufacturing PMI fell to 36.1 in April from 48.5 in March to mark its greatest ever monthly decline.

While startling, it was hardly unexpected, but perhaps just a piece of the puzzle that prompted Wall Street into rethinking what on Thursday night was a stock market down only -12% year to date amidst the deepest recession since the Great Depression.

A lot of that has to do with the fact that in the five weeks following the March 23 bottom, the Fed pumped more liquidity into US markets than it did for the entire twelve months following the collapse of Lehman Bros in 2008.

Amazon and Apple (Dow) were two stocks reporting after-market on Thursday night.

Amazon saw surging revenues, as one might expect, but also rising costs as the company struggled to meet demand and expedient delivery while ensuring worker safety. To that end Amazon will plough -US$4bn back into the business to cope with the new normal. Amazon shares fell -7.6% on Friday night.

Apple revealed lower sales in the March quarter due to Chinese restrictions, but more tellingly failed to provide June quarter guidance due to ongoing uncertainty.  Apple shares fell -1.6%.

You know it could be a soft day if two of the world’s biggest companies lose ground, and came after FANG peers Facebook and Google, as well as Microsoft (Dow), had posted gains during the week off the back of their earnings reports.

Put these together, in an overbought market, and then throw in Trump’s tariff threat, and the S&P500 fell -2.8%, with the Dow slightly outperforming and the Nasdaq underperforming.

Gilead got the green light on Friday night for the “emergency” use of its remdesivir drug for acute cases. Gilead shares did not move nonetheless, given (a) this was anticipated and (b) the company does not intend to profit from remdesivir.

(As an aside, did anyone see Clive Palmer’s three-page advertising spreading the Saturday papers, lauding his stockpiling of hydroxychloroquine? A drug that has already been dismissed as not just ineffective but actually dangerous?)

Commodities

Tariff talk clearly impacted on base metals trade on the LME on Friday night but not so iron ore, which did close flat.

Gold is back in vogue on a renewed geopolitical threat despite the US bond yield ticking up and the dollar being unmoved.

Once upon a time a 3% move in oil was a big day.

The dream run for the Aussie appears to be over for now, as attention turns from curve-flattening comparisons to trade war escalation. It’s down -1.7% at US$0.6403.

The SPI Overnight closed down -7 points.

The Week Ahead

Australia will see numbers for retail sales (March) and job ads (April) today and trade (March) on Thursday. The RBA will issue a quarterly Statement on Monetary Policy on Friday that will be like no other.

Services sector PMIs are due across the globe tomorrow.

China reports April trade numbers on Thursday.

The Bank of England holds a policy meeting on Thursday.

The US will see factory orders tonight, private sector jobs on Wednesday and non-farm payrolls on Friday, which may be confusing depending on how recipients of the US equivalent of JobKeeper are counted.

Westpac ((WBC)) officially reports earnings today and Transurban ((TCL)) holds an investor briefing.

Macquarie Group ((MQG)), Orica ((ORI)) and News Corp ((NWS)) report earnings on Friday.

A bunch of AGMs will be held on Thursday, including those of Rio Tinto ((RIO)) and QBE Insurance ((QBE)), with AMP ((AMP)) and InvoCare ((IVC)) following on Friday.

The Australian share market over the past thirty days…

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