The Monday Report – 11 May 2020

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

By Greg Peel

That Easing Feeling

The ASX200 shot out of the blocks on Friday and hit a peak of up over 60 points at 11am. It was all downhill from there to a more modest gain.

How much of this was a “Friday” phenomenon – selling to square up against what might transpire over the weekend – is unclear, but the index clearly did take a leg down on the release of the RBA’s Statement on Monetary Policy at 11.30.

The SoMP didn’t really reveal much more than the monthly policy statement had suggested earlier in the week, but an expectation of a “significant” but uncertain contraction in the first half, and an ultimate -10% fall from peak to trough, is sobering. Contractions in many other economies are expected to be “at least” as large.

JPMorgan is now forecasting -40% for US June quarter GDP (year on year).

The RBA is also clearly in the “U”, as opposed to “V” recovery camp, suggesting that while an initial easing of restrictions will start soon (and now has), a full recovery will take time.

The federal government’s announcement of a three-stage easing plan was undoubtedly behind Friday’s gains, as evident in a market-leading 2.2% rise for the consumer discretionary sector, with next best utilities on 1.0%. Consumer staples, which have now had their day in the sun, fell -0.3%.

It would appear a lot of the discretionary stock buying was funded by taking profits in healthcare, as that sector fell a standout -1.7% when all other sectors, bar staples, posted fairly uniform gain.

Macquarie Group ((MQG)) reported an -8.4% drop in full year profit and a -50% dividend cut and rallied 5.7%. Clearly this was not as bad as feared – the dividend could have been deferred for example – noting Macquarie has a significant presence in global oil market trading.

Meanwhile, the Australian Banking Association noted a further 100,000 loans were deferred over the past week, half of which were home loans. That takes the total value of loans deferred to at least $200 billion, across 643,000 loans. Three of the Big Four saw share price falls on the day, with Commonwealth Bank ((CBA)) hanging in there. The sector rose 0.7%.

BNPL company Zip Co ((Z1P)) reported an 86% year on year increase in monthly revenue, noting early May already looks much stronger relative to April. That stock jumped 14.3% to top the index, with consumer payments related Tyro Payments ((TYR)) joining in with 11.2%.

Elsewhere the light at the end of the tunnel theme was evident in gains for the likes of car dealer AP Eagers ((APE)), up 9.9%, Webjet ((WEB)) up 9.3%, Flight Centre ((FLT)) up 8.1%, Harvey Norman ((HVN)) up 6.7%, Super Retail ((SUL)) up 6.6%, and Retail Food Group ((RFG)) up 13.2%.

Are we getting ahead of ourselves?

Well, I would note that any bounce-back in travel can only be domestic for the foreseeable future, and ten punters in a pub? I doubt the overheads would be covered by ten schooners at a time, and how will pubs police it? Take a ticket and wait your turn?

I doubt many restaurants could justify only ten covers against overheads either, except maybe small, family-run BYOs.

But, markets are forward-looking, and currently we are looking forward in both senses of the expression.

We’ll need to see how things go.

What’s in a Number?

In April, 20.5 million Americans lost their jobs. Unemployment rose to 14.7% (GFC peak -10%). Hours worked fell by -49%.

No one was surprised, other than -22m had been forecast, but numbers this big aren’t worth quibbling over.

The result has to be taken into context. That 20.5m does not include workers who were “furloughed”, and will be receiving the US equivalent of JobKeeper. They would take the unemployment rate to almost 20%. But of the 20.5m, 18m reported they had been temporarily laid off, and expected to be rehired when the dust cleared.

That suggests “only” 2.5m Americans actually lost their jobs.

Much has been made of this being the worst level of unemployment since the Great Depression. Statistics weren’t actually kept in 1933, so an assumption of 25% unemployment is just a guess, and back then there was no unemployment benefit. That was established as a result of the Depression.

On the subject of welfare, it was interesting to hear one large US hotel has decided to remain closed for the time being despite the lifting of restrictions, because many of its staff actually earn less at work than they are now getting from the government to not work.

President Trump did throw a bit of a dampener on proceedings nonetheless, suggesting further fiscal stimulus is not being currently considered.

The gradual easing of restrictions across the country clearly supported a strong week for Wall Street, and a solid Friday night close at the highs. Add in the Fed backstop, and investors feel confident.

Mostly notably on Friday, the Nasdaq did not outperform, as it had done all week. There was not much in it, and FANG and friends still had solid sessions (particularly Apple, which announced rolling store re-openings in China), but gains across sectors were broader this time, with the likes of industrials, materials and financials joining in.

Easing of tensions with China was apparent, on news the US trade negotiator and Treasury Secretary had agreed in a phone call with Chinese counterparts to strengthen macroeconomic and public health cooperation. This is in contrast to Trump’s new tariff threat.

Another notable development on Friday night was an -11% fall in the VIX volatility index to below 30 for the first time since late February. The US ten-year bond yield rose another 5 basis points to 0.68%.

Commodities

The gold price fell on rising bond yields.

The LME was closed on Friday night, but iron ore saw a sudden boost.

Oil prices continue their clawback.

The Aussie is up 0.5% at US$6527, possibly because the SoMP didn’t terrify anyone.

The SPI Overnight closed up 3 points.

The Week Ahead

We will see our own April jobs numbers on Thursday. We’ll also see the NAB business confidence survey tomorrow, along with March housing finance, and the Westpac consumer confidence on Wednesday.

China will report April inflation numbers tomorrow and industrial production, retail sales and fixed asset investment on Friday.

The US will also report inflation numbers, while the UK and eurozone both report March quarter GDPs.

The RBNZ meets on Wednesday.

There are quite a few out-of-cycle corporate earnings reports out this week, which I will highlight on a daily basis. Today sees Cimic Group ((CIM)), Graincorp ((GNC)) and Pendal Group ((PDL)).

Commonwealth Bank will provide a quarterly update on Wednesday to wrap up the local bank reporting season, while more AGMs are due this week, starting with GPT Group ((GPT)) and Sigma Healthcare ((SIG)) on Wednesday.

The Australian share market over the past thirty days…

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