The Monday Report – 13 July 2020

This story features TEMPLE & WEBSTER GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: TPW

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

World Overnight
SPI Overnight (Sep)	5971.00	+ 95.00	1.62%
S&P ASX 200	5919.20	– 36.30	– 0.61%
S&P500	3185.04	+ 32.99	1.05%
Nasdaq Comp	10617.44	+ 69.69	0.66%
DJIA	26075.30	+ 369.21	1.44%
S&P500 VIX	27.29	– 1.97	– 6.73%
US 10-year yield	0.63	+ 0.03	4.63%
USD Index	96.65	– 0.14	– 0.14%
FTSE100	6095.41	+ 45.79	0.76%
DAX30	12633.71	+ 144.25	1.15%

By Greg Peel

Rising Dread

Can a border stop a virus? That was the question investors were asking on Friday as worrying outbreaks emerged in Sydney. It was not a weekend to go home long. The ASX200 chopped up and down all morning, failing to push into the positive, before selling accelerated in the afternoon.

With 20 minutes to go the index was down -56, so there was a burst of late buying, even as the Dow futures showed down -200.

Energy was the worst performing sector, down -2.0% on weaker oil prices. Staples (+0.4%) and healthcare (+0.3%) were the only two sectors to close in the green, being go-to sectors in a lockdown.

All other sectors fell by uniform levels, indicating little discrimination.

Temple & Webster ((TPW)) topped the index with a 12.1% gain, given furnishings and homewares have proven a lockdown beneficiary. Traders cashed in on the moonshot that is Afterpay ((APT)) and switched into rival Zip Co ((Z1P)), up 8.1%, while last week’s positive funds flow data from Netwealth ((NWL)) had that stock up another 5.6%.

Corporate Travel Management ((CTD)) led the travel sector down once more, falling -7.0%. Analysts are generally keen on the coal sector, but funds are now shunning the dirtiest fuel in droves. Whitehaven Coal fell -4.6%.

I could go on, but Wall Street had another pop on Friday night, and hence our futures closed up 95 points on Saturday morning. Virus be damned.

Resurgent Hope

The Dow futures were suggesting a weak start on Wall Street on Friday night and so it came to pass, but not for long. News from drug maker Gilead swung sentiment in a flash.

Gilead disclosed findings from a new analysis of previously disclosed clinical trial data that found remdesivir can reduce the risk of mortality in patients by 62%, when compared to standard care. Gilead said the mortality data point is "an important finding that requires confirmation in prospective clinical trials."

In other words, the analysis is not from a randomised, placebo-controlled clinical trial as would be required by the FDA.

Medical experts have already criticised drug companies for releasing such information when confirmation remains some way off. Yet every now and again there is such news, and Wall Street always takes the ball and runs with it. The Nasdaq continued on its merry way on Friday night, but this time underperformed the other indices as cyclicals, or “reopening stocks”, once more took centre stage.

Meanwhile, the case-count just keeps growing, and there is concern that any new infections arising from July 4 long weekend gatherings are yet to show in the numbers.

The two sectors that always top the S&P when there is positive news on the health front are the banks and energy, as was the case on Friday night. The biggest underperformer among the big banks to date – Wells Fargo – jumped 6% after announcing it would lay off a few thousand workers.

Airlines and cruise lines were beneficiaries, albeit off a low base. Carnival Cruise Line, ultimate owner of the Ruby Princess, reported strong bookings for 2021, with 60% of those new customers rather than holders of previously cancelled tickets. It’s the new “extreme travel” option.

Over in China, the big weekly rally that began with the government telling state media to tell people to buy stocks ended after state funds took profits before warning state media of “over-exuberance”.

In other news, Beijing said that it would impose reciprocal sanctions against US officials after the US imposed sanctions on Chinese individuals and institutions for human rights abuses of Uighurs.

President Trump also killed off any hope of a trade deal moving into phase two in the foreseeable future, not that phase one has lived up to anything.

And not that any of it bothered Wall Street at all. JPMorgan, Goldman Sachs and Boeing led the Dow to outperformance, and while the Nasdaq had a quieter day it still hit another new high, as did the share prices of most of the usual suspects.

Netflix had not been among the big movers more recently, having seen its big gains early on in the lockdowns, but it jumped 8% on Friday night on a broker target price increase. Indeed, many of the Big Tech names have been enjoying target price increases from analysts, for the simple reason their targets had fallen so far behind they were beginning to look like idiots.

Tesla jumped another 10%. Each 10% move is bigger in dollars than the one before, yet still no stopping it.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1798.60	– 3.90	– 0.22%
Silver (oz)	18.68	+ 0.04	0.21%
Copper (lb)	2.86	+ 0.02	0.59%
Aluminium (lb)	0.75	+ 0.01	1.55%
Lead (lb)	0.84	+ 0.01	1.15%
Nickel (lb)	6.09	+ 0.10	1.71%
Zinc (lb)	0.98	+ 0.02	1.58%
West Texas Crude	40.55	+ 0.96	2.42%
Brent Crude	43.24	+ 0.90	2.13%
Iron Ore (t) futures	107.05	0.00	0.00%

The resurgence in base metal prices continues, albeit commentators make note of the lower than average trading volumes as a lot of industry remains shut down. As does a lot of mining, particularly in the case of copper.

Iron ore had a breather, as did gold.

The remdesivir news had oil prices back up again.

The Aussie is a tad lower at US$0.6956.

The SPI Overnight closed up 95 points or 1.6% on Saturday morning.

The Week Ahead

The US will see numbers for inflation tomorrow, industrial production on Wednesday, retail sales on Thursday, along with housing market sentiment, and consumer sentiment on Friday. The week will also bring the Fed Beige Book and Empire State and Philadelphia Fed activity indices.

China reports June quarter GDP on Thursday, along with month of June industrial production, retail sales and fixed asset investment numbers.

The Bank of Japan meets on Wednesday and the ECB on Thursday.

Australia’s June jobs numbers are out on Thursday, preceded by the NAB business confidence survey tomorrow and Westpac consumer confidence on Wednesday.

Whitehaven Coal is an early starter tomorrow in the quarterly production reporting season for the resources sectors, followed by South32 ((S32)) and Woodside Petroleum ((WPL)) on Thursday and Rio Tinto ((RIO)) on Friday.

Cimic ((CIM)) is the very early starter in the upcoming corporate results season, reporting on Friday.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
AGL	AGL Energy	Downgrade to Underperform from Neutral	Macquarie
APT	Afterpay	Upgrade to Overweight from Equal-weight	Morgan Stanley
		Downgrade to Neutral from Outperform	Macquarie
AWC	Alumina	Downgrade to Neutral from Buy	Citi
CCL	Coca-Cola Amatil	Downgrade to Neutral from Outperform	Credit Suisse
CGR	CML Group	Upgrade to Add from Hold	Morgans
DMP	Domino's Pizza	Downgrade to Neutral from Outperform	Macquarie
EVN	Evolution Mining	Downgrade to Sell from Neutral	Citi
GMG	Goodman Grp	Downgrade to Neutral from Buy	Citi
JBH	JB Hi-Fi	Downgrade to Neutral from Outperform	Macquarie
MFG	Magellan Financial Group	Downgrade to Neutral from Buy	Citi
NCM	Newcrest Mining	Downgrade to Neutral from Buy	Citi
PPC	Peet & Company	Downgrade to Neutral from Outperform	Macquarie
PRU	Perseus Mining	Downgrade to Neutral from Buy	Citi
SAR	Saracen Mineral	Downgrade to Neutral from Buy	Citi
		Downgrade to Underperform from Neutral	Macquarie
		Downgrade to Neutral from Buy	UBS
TWE	Treasury Wine Estates	Upgrade to Neutral from Underperform	Macquarie
		Downgrade to Lighten from Hold	Ord Minnett
		Downgrade to Neutral from Buy	UBS
VOC	Vocus Group	Upgrade to Buy from Neutral	UBS
WAF	West African Resources	Upgrade to Neutral from Underperform	Macquarie
WES	Wesfarmers	Downgrade to Neutral from Outperform	Macquarie
WTC	Wisetech Global	Downgrade to Lighten from Hold	Ord Minnett

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