The Monday Report – 07 September 2020

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

By Greg Peel

Wall Street sneezes, Australia loses the plot

Well I had some faith on Friday morning that Australian investors would see through a pullback overnight on Wall Street which wiped out a week’s worth of parabolic gains for half a dozen Big Tech stocks. What a fool am I.

Of course it stands to reason that -4-10% falls in a US smart device manufacturer, an online retail platform, a social media platform, a search engine, a producer of operating systems for PCs, a video conferencing company and a EV manufacturer, all globally influential, should lead to an equivalent response in Australia’s similar companies.

If we had any.

Apparently there was a law written at some time that if the S&P500 falls -3.5% the ASX200 is obliged to fall by the same amount, whatever the cause

To put things into perspective, Coles ((COL)) fell -3.4% on Friday, on the day its promotion into the ASX top 20 was announced. If someone could point me to the connection, I’d be pleased to learn it.

Another point of perspective: On Thursday Apple dropped an amount in valuation greater than the entire valuation of McDonalds.

Even the fact the Ausdaq fell -5.6% on Friday because the Nasdaq fell -5.0% is largely unjustifiable. And Zip Co ((Z1P)) will enter the ASX200 next week, it was announced.

Australian retail sales rose 3.2% in July – greater than June’s 2.7% — to be up 12% year on year. That’s much more than any pre-covid number.

Consumer discretionary fell -2.9%, staples -3.3%.

Every sector fell, in range from -1.6% (utilities) to -5.6% (IT). The banks fell -3.0%. Healthcare fell -3.8%.

From the beginning of August up to Thursday last, the ASX200 rallied 3.1% and on Friday fell -3.4%. In the same period up to Wednesday night on Wall Street, the S&P500 rallied 9.4% and on Thursday night fell -3.5%.

I’m not going to bother highlighting individual stock moves. Let’s just say four of the top five losers were tech stocks.

Faith shattered, I was at least hoping the smart money may have let the lunatics run the asylum on Friday and today we would see some dip-buying. But no, the futures closed down another -0.6% on Saturday morning to the S&P’s -0.8%.

And that’s before Dan Andrews extended the Victorian lockdowns. That, my friends, is a real Australian story. Not the fiction playing out on Friday.

Second Wave

The US added 1.37m jobs in August, beating 1.32m expectations. The bulk of the gains were in government positions, as well as education, health and some retail.

The unemployment rate fell to 8.4% from 10.4% in July, smashing expectations of 9.8%.

I won’t again go into how these numbers are distorted by the PPP (US JobKeeper), but it is widely agreed America should enjoy it while it lasts. These were the “easy” re-hirings of furloughed workers. The unemployment rate is not expected to meaningfully fall again for a long time.

Whether or not there was always going to be an opening bounce after Thursday night’s crunch, the jobs news had the Dow up 250 points from the open. In cricket parlance you’d say “the ball sat up and smiled”, as two hours later the Dow was down over -600 points as those too slow to move on Thursday night leapt into action. The Nasdaq fell another -5%.

The US ten-year yield jumped 10 basis points to 0.72%.

But at 11.30 the S&P500 briefly fell through its prior February high. That was enough. With half an hour to go the Dow was back to square.

It all began to fall apart again in the last half hour, but only because it’s a long weekend in the US and traders never like to hold positions over a long weekend, let alone in the current climate.

Still, Apple closed up 0.07%. My bet is that provided nothing untoward happens over that weekend, and so far it hasn’t, Wall Street will be primed for bargain hunting on Tuesday night.

The Labor Day long weekend unofficially signals the end of the summer break. One inevitable feature of the extraordinary rally on Wall Street in the past couple of months, and the drop in the last couple of sessions, has been traditional summer-light volumes. From Tuesday night it’s “back to work” for most – in whatever form that may be — and volumes will begin to pick up again.

Commodities

The US dollar did initially rally on the jobs numbers, but then fell back again as Wall Street turned. It closed down slightly, but the Aussie is up 0.3% at US$0.7292.

Base metal price gains are attributed to the latest LME warehouse data, suggesting low levels.

The fall in oil prices has been put down to the generally weak sentiment reflected in the stock market.

As for iron ore, it always does its own thing.

Gold is clearly now in a period of consolidation after its brief foray above US$2000/oz, so was little impacted by the big move up in US yields.

The SPI Overnight closed down -36 points or -0.6%.

The Week Ahead

US markets closed tonight.

The US will see August PPI on Thursday and CPI on Friday.

China will report August trade numbers today and inflation on Wednesday.

The ECB holds a policy meeting on Thursday.

Australia will see ANZ job ads today, NAB business confidence tomorrow and Westpac consumer confidence on Wednesday, along with housing finance.

Just when you though results season was finally over, Myer ((MYR)) reports today and Sigma Healthcare ((SIG)) on Thursday.

There’s a big list of stocks going ex-dividend this week.

Regarding those S&P/ASX index changes, Coles and Fortescue Metals ((FMG)) move into the ASX20 this Friday at the expense of Scentre Group ((SCG)) and Suncorp ((SUN)).

Zip Co will be joined in the ASX200 by Auckland International Airport ((AIA)), AUB Group ((AUB)), Ramelius Resources ((RMS)) and Westgold Resources ((WGX)).

Out go McMillan Shakespeare ((MMS)), New Hope Corp ((NHC)), Orocobre ((ORE)), oOh!media ((OML)) and Southern Cross Media ((SXL)).

The Australian share market over the past thirty days…

For more detail go to FNArena's Australian Broker Call Report, which is updated each morning, Mon-Fri.

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