The Overnight Report: Come What May

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World Overnight
SPI Overnight (Jun)	7265.00	+ 2.00	0.03%
S&P ASX 200	7260.10	+ 42.30	0.59%
S&P500	4192.85	– 15.27	– 0.36%
Nasdaq Comp	13614.51	– 141.82	– 1.03%
DJIA	34577.04	– 23.34	– 0.07%
S&P500 VIX	18.04	+ 0.56	3.20%
US 10-year yield	1.63	+ 0.03	2.14%
USD Index	90.50	+ 0.60	0.67%
FTSE100	7064.35	– 43.65	– 0.61%
DAX30	15632.67	+ 29.96	0.19%

By Greg Peel

Blue Sky

The ASX200 continued to surge further into blue sky yesterday although the index did close off its earlier high of up 64 points. While there have been clear fundamental factors evident in a near 2% rally from the intraday low on Tuesday it seems more of a technical/momentum trade than anything else.

Certainly there is no correlation with Wall Street, which has remained flat all week. And the index did not behave this way when Melbourne went into lockdown last year.

We may have seen some lockdown impact yesterday in a split of staples up 0.9% and discretionary down -1.1% to be the only losing sector on the day. Prior 2021 snap lockdowns in various states have ended as quickly as they began but this Melbourne round is the first to be extended.

Otherwise, energy again led the charge (+3.3%) and utilities tagged along (+2.1%) thanks to AGL Energy ((AGL)) on further oil price gains.

Financials were nonetheless the strongest driver in rising 1.0%. With bond yields doing little this does seem more of a momentum trade, notwithstanding some shuffling around in the wealth management sector.

National Bank’s ((NAB)) completion of the sale of its MLC wealth business to IOOF Holdings ((IFL)) this week has been a positive for both NAB and IOOF – the latter topping the index yesterday with a 7.9% gain. The Oddfellows now boast more advisers than (shrinking) rival AMP ((AMP)).

The lockdown is having little impact on industrials (+0.7%) and property (+0.7%), perhaps on the basis the Melbourne scare will pump up previously lacklustre vaccination rates.

Technology finally found some buyers (+1.6%) but perhaps prematurely as the Nasdaq is down -1% overnight.

Remaining sectors were largely wallflowers, so while this rally might be technical it’s not market-wide, which feeds more into a momentum play.

On that note, a 0.7% pop in the US dollar index overnight has weighed heavily on metals prices, with gold hardest hit, albeit iron ore is up again and the oils have been unaffected. This might be an excuse for the ASX200 to pull back a bit today – a Friday – with the S&P500 down -0.4%.

But the futures are up 2 points this morning. We have seen a full one cent plunge in the Aussie over 24 hours (thanks for the wake-up), on a stronger greenback, weaker metal prices and maybe the slight miss on April’s trade surplus announced yesterday; this is a positive offset to commodity weakness.

And a boon to offshore earners. Watch healthcare today, it might be back in favour.

The gift that keeps on giving

Having placed US$230m in new capital on Tuesday night, AMC Entertainment, following the stock’s doubling in price on Wednesday night, has announced further capital raising – this time of close to US$600m.

The stock is becoming so diluted AMC should move into homeopathy.

But this time, finally, shareholders understood the meaning, and the stock plunged -40%. But then it rebounded back to square. Then it fell -18%.

The good news is that unlike January, this recent meme frenzy has been well contained to a handful of stocks and has not notably impacted the wider market. A few shorters have been burned again and a few kiddies will be five minute millionaires, but that’s about it.

What it has done, however, is completely stuff up popular market indicators, such as daily share market volumes. AMC has not been flying around in thin air – this week’s daily volumes have been massive. So much so that CNBC has been temporarily forced to not bother with its usual daily up/down volume count, as it is just too distorted.

But it’s not the kiddies buying the shares. They’re buying short term call options, mostly well out-of-the-money, which requires the market-maker sellers of those options to buy stock as a hedge. Anyone who understands options will appreciate the gamma nightmare these market-makers have been facing, and why the buying has been feeding on itself.

The volume of call buying has ruined another popular market indicator – the put/call ratio – and will also be responsible for making the VIX – another popular indicator – more elevated than it otherwise would be.

But enough about AMC.

Wall Street did actually move last night. Maybe there was a little bit of meme influence in an early -260 point loss for the Dow, but that was recovered fairly swiftly before flatlining to the close.

The mega-cap tech names were being exited again, with Tesla down -5% on lower Chinese sales, to reinstate the sell-growth theme after a bit of a reprieve recently. The selling may simply be an act of caution ahead of tonight’s May jobs numbers.

As we saw in April, the US jobs number can come in anywhere. April’s number was miles below forecasts, which dampened inflation fears at least for a while. If May’s number were to come in hot, the reverse would be true, which would be bad for growth stocks.

We can but wait and see.

In somewhat of a primer, weekly new jobless claims fell to below 400,000 last week for the first time since March last year.

And while the ADP private sector reading is never a reliable indicator, it showed 978,000 new jobs in May when 680,000 were forecast.

Strap in.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1870.80	– 37.40	– 1.96%
Silver (oz)	27.44	– 0.72	– 2.56%
Copper (lb)	4.48	– 0.08	– 1.82%
Aluminium (lb)	1.08	– 0.00	– 0.22%
Lead (lb)	0.98	– 0.02	– 2.02%
Nickel (lb)	8.08	– 0.10	– 1.27%
Zinc (lb)	1.35	– 0.04	– 2.88%
West Texas Crude	68.81	– 0.02	– 0.03%
Brent Crude	71.35	+ 0.04	0.06%
Iron Ore (t)	211.20	+ 1.75	0.84%

The US dollar index has wallowed around the 89 level for a few days but last night jumped 0.7%, leading to selling in base metals.

Gold had grafted its way back above US$1900/oz but in one fell swoop was back down where it started.

The oils proved resilient, albeit maybe another potential rally was cut off.

And the Aussie is down a full -1.2% at US$0.7659.

Today

The SPI Overnight closed up 2 points.

Australia will await April housing finance numbers today.

US jobs tonight.

May the Fourth be with you.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
ADI	APN Industria Reit	Downgrade to Hold from Add	Morgans
CIP	Centuria Industrial Reit	Downgrade to Neutral from Buy	UBS
DXS	Dexus	Downgrade to Neutral from Outperform	Macquarie
EOS	ELECTRO OPTIC SYSTEMS	Upgrade to Buy from Neutral	Citi
NWS	News Corp	Downgrade to Neutral from Buy	UBS
SCG	Scentre Group	Upgrade to Neutral from Sell	UBS

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

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