The Monday Report – 05 October 2020

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This story features MESOBLAST LIMITED.
For more info SHARE ANALYSIS: MSB
The company is included in ASX200, ASX300 and ALL-ORDS

By Greg Peel

Instant Karma

The ASX200 opened down -70 points on Friday morning, suggesting the computers were more worried about no progress on US fiscal stimulus than Wall Street was, but by 2.50pm the index had chopped its way back up to only a -20 point loss. Energy was the hardest hit sector on a drop in oil prices.

It was at 2.50pm news came through the president has got it.

In the remaining hour and ten minutes the index fell to be down -81 at the close. Headline-sensitive algos would have led the charge while humans stood back.

There’s little point going too much into the detail of Friday afternoon given Wall Street did not collapse on Friday night as might have been expected, hence our futures closed up 67 points on Saturday morning, which would take us back to where we were when the news broke.

For the record, all sectors closed in the red but with little uniformity, suggesting it was not a market-wide sell-off. Falls ranged from energy (-4.0%) to consumer staples (-0.2%). Beyond energy, the banks (-1.3%), healthcare (-1.7%) and materials (-2.1%) provided most of the downside, with materials impacted by a sharp fall in the copper price.

Industrials also fell -1.7% but other moves were less impactful.

Looking at the 67 point bounce in the futures, we note the leading sectors on Wall Street on Friday night were financials, industrials, materials and energy.

There were only two individual stocks moves worth a mention.

Global fund manager Janus Henderson ((JHG)) closed up 9.4% after Trian Fund Management, owned by US billionaire Nelson Peltz, took a 10% stake. Janus was up 16% before 2.50pm.

On the flipside, biotech Mesoblast ((MSB)) plunged -37% after the FDA failed to approve its drug. That’s the binary world of biotech for you – you’d have to be on drugs.

The late afternoon plunge was, of course, led down by the US futures, but the opening drop on Wall Street did not last long.

A stitch in time?

On Friday night the president was said to have “mild” symptoms while Melania was actually “feeling good”, much like all those other virus victims across the world who have been surprised at how good covid makes them feel.

The newsflow over the weekend has been ambiguous at best, particularly given the White House doctor would not say just when the president actually tested positive, bringing into question whether he proceeded with campaign events when ill. Those attending the ceremony at the White House for the Supreme Court nominee are now dropping like flies. Not Amy Coney Barrett however – she’s already had it.

As late as this morning the suggestion form the White House is the president could be back at home by tomorrow. We are reminded that Boris Johnson continued working for the first few days after diagnosis but after five days went downhill fast. Obviously a severe bout of covid would not bode well for a president on a “who can you trust” basis heading into the election.

The worst that can happen, one presumes, is Mike Pence takes over the ticket.

If the president is out of action, it does throw further confusion over the Supreme Court nomination process and progress on any stimulus agreement between the Democrats and the White House. And on that note, there was an interesting development on Friday night.

Before the opening bell, it was revealed the US added 661,000 jobs in September and the unemployment rate fell to 7.9% from 8.4%. But the forecast was for 800,000 jobs and the monthly drop in unemployment is not that significant when you consider that number was 14.7% in April.

The Dow futures were already down before the open on the virus news, and the jobs number was not going to help. Or was it?

The Dow opened down over -400 points but with one hour left in the session, was back to almost square. Might it be that this disappointing jobs number, and the further uncertainty created by the president’s condition, could just prove to be the kick in the backside the two parties need to make concessions and reach a stimulus agreement?

How many of those out of work are from Trump’s blue collar base? How will it look if the Republicans continue to refuse them more than minimal support and the “nothing to worry about” virus scuttles the campaign?

Then there’s the airlines. To date the Republicans have offered a second support package to the airlines to prevent them laying off thousands of workers and the Democrats have been in complete agreement. However, the Democrats want airline support to be part of a full stimulus package and not just a side issue that singles airlines out from other desperate industries. With no progress to date, the airlines are set to commence lay-offs.

Which is why on Friday night Pelosi pleaded with them not to do so just yet, as an airline deal is “imminent”. On that suggestion, airline stocks shot up half way through Friday night’s session.

Not sure where “imminent” comes from, but we’ll see. The airlines, bleeding cash, have effectively given Congress three weeks.

So, more uncertainty for Wall Street. But then there was already enough uncertainty to go round to which equity markets had already responded. That’s one reason given Wall Street did not completely tank.

The Nasdaq bore the brunt, because if there’s going to be some sort of October crash then the most overvalued stocks are the ones to be jettisoned first. But as noted above, it was a solid session for cyclicals, namely banks, energy, materials and industrials. This, I would suggest, is a reflection of the now more urgent need to reach a stimulus agreement.

Commodities

Ironically, Trump’s diagnosis has been cited as the reason oil prices fell, another -4% on Friday night, which stock market investors ignored.

Copper bounced back, but nickel fell. When China is on holiday, volatility typically picks up on the LME due to thin volume. The opposite is true in Singapore, where iron ore trading as good as shuts down.

A sick president did not manage to much upset gold and currency markets, with the Aussie down a tad at US$0.7174.

The SPI Overnight closed up 67 points or 1.2% on Saturday morning.

The Week Ahead

If the White House epidemic is not enough, the RBA meets tomorrow and Josh struts his stuff tomorrow night. It’s the most anticipated budget in many a moon. While the RBA remains tipped to cut to 0.10% from 0.25%, wisdom suggests it will first wait to see what the budget brings.

The local market will probably adjust this morning and then go quiet until Wednesday, notwithstanding possible news out of Washington.

Today is services PMI day across the globe, while China is closed through to Thursday.

It’s a quieter week for US economic data, although the Fed minutes are due on Wednesday night.

Locally we’ll see housing finance numbers on Friday.

The AGM calendar begins to increase in number from tomorrow, which I’ll highlight on a daily basis.

Note that it’s a public holiday in NSW today, hence volumes will be down. FNArena will provide an abridged service given a dearth of research being published.

Also note that as of tomorrow morning, the NYSE closes at 7am Sydney time.

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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