The Monday Report – 22 June 2020

This story features NICK SCALI LIMITED, and other companies. For more info SHARE ANALYSIS: NCK

The company is included in ASX200, ASX300 and ALL-ORDS

By Greg Peel

If you’re not online…

The ASX200 shot out of the blocks again on Friday morning before stumbling its way to a 70 point gain by midday. As this took the index above 6000 once more, sellers appeared. Profit-taking ahead of the weekend then wiped out all those gains in the afternoon.

Squaring up ahead of the weekend can’t be a foolish move in these times. We now have Victoria re-tightening restrictions as Essendon gets sick, and a poor turn-out to Trump’s first election rally. Whatever you think of Trump, Biden’s promise to roll back the Trump tax cuts will not sit well with Wall Street.

Not all stocks saw profit-taking in the afternoon, given the story of the morning held fast. According to preliminary ABS data, Australian retail sales jumped a record 16.4% in May. Over three months sales have jumped 13.0% in March (hoarding), fallen -17.7% in April (lockdown) and jumped 16.3% in May (reopening).

We might note that while JobKeeper/Seeker policies were announced in March, some recipients were still waiting until May for the cheques in the mail.

What did we all buy? Furniture of course. Maybe long hours of sitting on the old couch wore it out. ANZ Bank economists note furniture sales growth has continued into June, up 44% year on year in the week to June 12, and electronics up 55%. The month of May saw a 30% jump in dining out, but that’s still -30% down year on year.

The furniture numbers were confirmed by Nick Scali ((NCK)) and Adairs ((ADH)), both of which provided strong trading updates on Friday and rose 19.7% and 10.9% respectively. The particular takeaway was a 92% increase in online sales for Adairs. Neither are in the index, but Friday’s index chart-topper was car dealer AP Eagers ((APE)), up 9.9% and another discretionary stock.

If we’re buying online where aren’t we buying? Shopping mall landlords Scentre Group ((SCG)) and Vicinity Centres ((VCX)) were the worst index performers, each falling -4.7%.

The consumer discretionary sector starred on the day with a 1.8% gain, compared to -0.4% for staples. A 1.8% gain was also posted by the Ausdaq, with all of WiseTech Global ((WTC)), Altium ((ALU)), Afterpay ((APT)) and Xero ((XRO)) having strong sessions.

The main offset were materials, down -1.1% on a lower iron ore price. Other sector moves were mixed.

Just to reinforce the online theme, Apple announced on Friday night it will re-close physical stores in the current US virus hotspot states. This news was the main driver of weakness on Wall Street, and as such our futures were down -78 points on Saturday morning.

New and Dangerous

The poor turn-out at Trump’s rally could be put down to various factors. For one, he chose to hold it in Arizona – a current virus hotspot – and in the city of Tulsa – the site of the 1921 race massacre – and had initially planned it for “Juneteenth” before pushing it back a day. Potential supporters may have been put off by the virus threat and/or BLM protest threat.

A new twist has emerged in that thousands of TikTok users and K-Pop fans claim to have registered en masse without ever having any intention of showing up. A prank to deliberately ruin the event.

Or it is a reflection of Trump’s latest approval rating, down to 37% from 44% pre-virus.

It will be interesting to see if this has an effect on Wall Street tonight.

On Friday night, the Dow was initially up 370 points on news China is planning to accelerate purchases of American farm goods to comply with the phase one trade deal signed in January. Beijing intends to step up buying of everything from soybeans to corn and ethanol as the economic disruption caused by the pandemic has meant China has only reached 13% of the 2020 target under the deal in the first four months of the year, Dow Jones reports.

Trump has been accused of pleading with Xi to buy more agricultural products to beef up his election chances, pardon the pun, and clearly Beijing wants to keep its puppet in place.

Then Apple announced its re-closures of stores in the Carolinas, Florida and Arizona. Its only 11 of some 270 US stores, but the significance was not lost on Wall Street.

WHO also chimed in around the same time, warning the pandemic has now entered a “new and dangerous phase”.

And the suspension of cruise ships sailing out of US ports, originally set to expire on July 24, was on Friday night extended to September 15, thus missing all of summer. Cruise line stocks which had featured heavily in the Lazarus bounce-back were sold off once again.

Yet it was also the quarterly expiry of stock and index options, futures and futures options (quadruple witching) and an S&P500 rebalance, both of which typically increase volumes and add to volatility. The S&P500 spent the afternoon bouncing around the crowded 3100 strike price, before succumbing to late selling ahead of the weekend.

Australia will get a first look at how this will all add up for tonight’s trading when the US futures hot up today.

Commodities

The “new and dangerous threat” is having its impact on gold.

One would have expected oil prices to waver on the cruise line news, but this is being overridden by OPEC-Plus turning the screws on members who have not kept up with production cut quotas. On Friday night both Iraq and Kazakhstan submitted “compensation schedules”, implying they’ll catch up by further cutting production, while other members have until today to submit their new targets.

Not a lot happened in metal land, with iron ore indeed flat.

The Aussie fell -0.4% to US$0.6825.

The SPI Overnight closed down -78 points or -1.3% on Saturday morning.

The Week Ahead

Flash estimates of June manufacturing PMIs from across the globe will be a highlight tomorrow.

In the US, existing home sales for May tonight and new home sales tomorrow will be closely watched along with May new durable goods orders on Thursday and personal income & spending and consumer sentiment on Friday.

The RBNZ holds a policy meeting on Wednesday.

Locally, the RBA governor will speak today and the ABS will release preliminary May trade data tomorrow.

Metcash ((MTS)) reports earnings today and Transurban ((TCL)) provides a quarterly update, while CSR ((CSR)) holds its AGM on Wednesday.

The Australian share market over the past thirty days…

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