The Monday Report – 01 June 2020

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            [3] => ((NHC))
            [4] => ((ASB))
            [5] => ((OML))
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This story features CSL LIMITED, and other companies.
For more info SHARE ANALYSIS: CSL
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

China Syndrome

Friday’s trade for the ASX200 reflected three factors: confirmation from Beijing of new security laws being imposed in Hong Kong; nervousness over what the US response would be, given the president had signalled a press conference on Friday night; and the fact it was the last day of what had been a strong month.

The month of May saw the index rally 4.2%, entirely due to a 4.7% gain in the last week, which was almost entirely driven by the banks. Thus it stood to reason, when positions were squared at month’s-end, the banks should lead Friday’s weakness (-3.6%).

Yet bank lending data from April will not have helped. Total private sector lending grew by a full 0% in the month, down from 3.6% growth in March. The main difference was business growth, up only 0.1% compared to 6.7% in March.

March saw a rush to borrow at low rates to shore up balance sheets, and with that achieved, April was the month to be frugal. Personal loan growth nevertheless slowed its decline to -3.0% in April from a panicked -9.3% in March.

Profit-taking in CSL ((CSL)) had been a month-long affair and did not end on Friday. Healthcare dropped -2.6% and CSL fell -10.7% over May, while remaining ahead for the year.

Consumer discretionary – much exposed to China – fell -1.7% on Friday on a risk-off rotation which saw staples the best performing sector on the day, up 0.7%. Industrials (-1.2%) and energy (-1.1%) also copped it, while for other sectors, it was a case of thanks for coming.

As it was, Trump’s reaction was not as harsh as feared, hence the the S&P500 managed a 0.5% gain on Friday night, yet our futures still closed down -24 points on Saturday morning.

Among individual stocks, Virgin Money UK ((VUK)) topped the losers’ list with a -10.2% fall, having followed the Aussie banks up all week. Westpac ((WBC)) took the bronze on -6.4%.

In between was coal miner New Hope Corp ((NHC)), down -8.2%. China can’t afford to stifle iron ore imports, but coal can be obtained elsewhere.

On the upside, shipbuilder Austal ((ASB)) provided a not-as-bad-as-feared update on April-May, leading to a 10.2% bounce. Volatile gold miners and pharma companies made up the top five winners.

We are now in the run-up to EOFY, and it will be interesting to see, given the major market correction year-to-date, to what extent a typical round of tax-selling is evident this month. Tax-selling is when an investor dumps the losers in order to crystallise tax credits against winning positions.

Could Have Been Worse

President Trump announced on Friday night the US would abandon WHO, given perceived “total control” of the organisation by China. He again referred to the “Wuhan virus”, which is akin to poking the bear.

The US will ban students and academics perceived to have links to the PLA from re-entering the country, will investigate the accounting practices of US-listed Chinese companies, and any partial ownership by the state, and begin to end Hong Kong’s special trading status.

What Trump did not do was announce any sanctions on Chinese officials or businesses, and more importantly, any change to the phase one trade deal. Indeed, Trump suggested if anyone is to tamper with that deal, it would only be China.

Trump can’t afford to kick the economy when its down in an election year.

It was this last possibility Wall Street was most worried about, thus what had been weak trading for most of the session up until the afternoon conference spun to the positive again. There was a clear split among indices, once again underscoring the power of the mega-caps.

The Dow closed down -0.1% while the Nasdaq gained 1.3%, with the S&P splitting the difference on 0.5%. Trump’s ongoing fight with Twitter hasn’t much bothered anyone, and outside of FAANMG, the press conference was a big relief for highly China-exposed US chipmakers.

In economic news, US personal spending plunged -13.6% in April but personal income rose 10.5%. The income number is misleading, simply reflecting PPP (equivalent of JobKeeper) cheques hitting bank accounts.

While US consumer spending is expected to remain muted for the time being, April is assumed to be the bottom. Michigan Uni’s fortnightly consumer sentiment survey showed a tick up to 72.3 from 71.8 – still very pessimistic on a 100-neutral scale, but easing.

Commodities

Iron ore finally hit a boundary in the nervous nineties on Friday, raised its bat and kissed the badge. As suggested, there is no fear of Chinese reprisals when it comes to iron ore.

The LME will have closed before traders learned of no change to the phase one deal.

Oil prices nevertheless reflected relief. WTI closed the month of May up 88%. No point in noting this is a record.

Gold is reflecting rising tensions.

The Aussie is up 0.4% at US$0.6663.

The SPI Overnight closed down -24 points or -0.4% on Saturday morning.

The Week Ahead

New Zealand is closed today, in case you were wondering.

Across the rest of the globe it's May manufacturing PMI day, followed by services PMIs on Wednesday.

In Australia it's GDP week – not that March quarter numbers will tell us much. We’ll see data for company profits and inventories and the current account in the lead-up to Wednesday’s release.

Monthly data this week include April building approvals on Wednesday and retail sales and trade numbers on Thursday, along with May house prices today.

The RBA meets tomorrow.

It’s jobs week in the US, with private sector numbers out for May on Wednesday and non-farm payrolls on Friday.

The ECB meets on Thursday.

It all now goes quiet on the local corporate front, in terms of scheduled meetings/releases. Unscheduled updates may begin to flow.

Ooh!media ((OML)) holds its AGM on Friday.

Note that Beijing released official May PMIs yesterday. Manufacturing came in at 50.6 and services at 53.5.

The Australian share market over the past thirty days…

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