ASX set for a mixed start after bleak U.S. payrolls data

April 6, 2020 - 2 months ago
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The Australian index futures (SPI 200 futures) moved lower on Friday following a much larger-than-expected contraction of ‘Non-Farm Payrolls Number’, ending a record 113-month streak of job growth.

The Dow Jones Industrial Average fell -360.91 points or -1.69%, while the Standard & Poor’s 500 tumbled -38.25 points or -1.51% and the tech-heavy Nasdaq Composite slipped -114.23 points or -1.53%.

Meanwhile, the Australian index futures (SPI 200 futures) ended to a gain of +46 points, or +0.9% to 5,079, while the Australian Dollar, our local currency, is currently buying US$0.5998 (as of writing).

While the U.S. job number was worse than expected, it completely understates the number of job losses experienced in the U.S. in the last 2-weeks.

The U.S. economy lost 701,000 jobs in March, according to Friday’s report from the Labor Department, much more than the 100,000 decline economists had forecasted.

Given that the report only includes data through March 14, missing two weeks in which 10 million Americans filed for unemployment, many had thought the report wouldn’t be so bad.

The unemployment, meanwhile, rose from the previous months reading at 3.5% to 4.4%, crushing the 3.8% forecast; however, the average hourly earnings (m/m) came in better at 0.4% from the 0.2% forecast.

Looking ahead, markets will be focusing on a busy data week, however, what is uncertain is the outlook for oil after OPEC and Russia postponed a meeting set for Monday to discuss supply cuts and ending a harsh price war.

The meeting is now scheduled for April 8 (Sydney time), news sources reported on Saturday.

The meeting, which was called by Saudi Arabia, comes after President Trump suggested that massive production cuts could be on the way and Saudi Arabia called for an “urgent” effort to restore “balance” to the oil market.

Global markets rallied late last week when President Trump said he’d brokered a deal between Saudi Arabia and Russia.

Meanwhile, at the weekend, President Trump said he would impose tariffs on crude imports if he has to “protect” US energy workers from the oil price crash that has been exacerbated by a war between Russia and Saudi Arabia over market share.

Earlier this month talks collapse on a three-year deal to limit supply between the Organization of the Petroleum Exporting Countries (OPEC) and other producers led by Moscow.

So far, negotiations between the two producers and the United States have not changed their outlook.

Oil had its best two-days ever on Thursday posting a +21.6% gain which extended into Friday, with the New York session close posted a +19% rally.

Other key events this week are:
Monday: ANZ Bank’s job advertisement statistics for March. Sharp fall expected.
Tuesday: Reserve Bank of Australia (RBA) board meeting where they are expected to leave the cash rate at 0.25 per cent.
Wednesday: OPEC meeting.
Thursday: RBA Financial Stability Review.

At present, the short-term outlook is mixed for the S&P/ASX 200 Index after the last five-day choppy sessions have presently given a directionless call.

Daily outlook on the benchmark S&P/ASX 200

With another week of extreme swings of losses and gains, the ASX 200 wraps up the week back in the bearish trenches for a second consecutive session.

A shock jobless claims report in the U.S. dragged the local share market into the red after the U.S. Labor Department said a record 6.6 million people filed for unemployment benefits the week of March 27. That’s more than double the previous week’s total of 3.28 million.

The numbers weren’t necessarily a surprise, but a reminder of just how hard and fast the coronavirus disruption is hitting American workers.

At the close on Friday, the benchmark S&P/ASX 200 tumbled -86.8 points, or -1.7%, to 5,067.5, along with the additional -2% decline viewed on Thursday.

Most sectors finished lower, led by industrials and consumer discretionary, which both fell more than -4%.

Meanwhile, energy and materials managed to recapture its bullish charm, duly to the record surge in crude oil prices on Thursday triggered by a series of tweets from President Trump saying that he expected that Saudi Arabia and Russia would substantially cut their oil production to halt the collapse of prices.

In the tweet, President Trump said he spoke with Crown Prince Mohammed bin Salman, who had spoken with President Vladimir V. Putin.

“I expect & hope that they will be cutting back approximately 10 million barrels,” he said.
That figure represents about 10 per cent of normal world consumption. The president later said the cut could be as much as 15 million barrels.

Back home, in Financials, the “Fab Four” (banks) dropped sharply for a second day, undermined by continued uncertainty over the outlook for dividend payments.

The Commonwealth Bank slid -1.85% to $60.11, while Westpac Banking Corp shares fell -2.94% to $15.51, with the National Australia Bank sliding -2.38% to $15.62, and Australia and New Zealand Banking Group closed the session -2.23% lower to $15.79, while Macquarie also shed -4.3% to $84.30.

The materials sector helped offset the heaviest of Friday’s losses with Fortescue Metals jumping +5.7% to $10.56, while Titans, BHP and Rio Tinto also managed to buck the broader trend, gaining +1.6% and +1.8% respectively to close at $30.33 and $88.93.

Biotech giant CSL declined -1.35%, Cochlear slipped -4.2%, and Fisher and Paykel fell -1.49%.

Harvey Norman told investors on Thursday it was cancelling its interim dividend, although it did not provide any detail on how sales have been impacted. Its shares closed -1.8% higher at $2.81.

Wesfarmers slumped -3.4% to $34.67, Tabcorp dropped -6.42% to $2.48%, and JB Hi-Fi fell -8.17% to $29.12.

Elsewhere, Transurban and Scentre Group were walloped after dropping -6.3% and -5.6%, respectively to $11.10 and $1.61.

Kathmandu shares plummeted -22.45% to $0.76 after being reinstated to trade for the first time since Monday following a heavily discounted capital raise.

Webjet also returned to the boards this week after trade in its shares were halted on March 18 pending a fresh capital injection.

Webjet locked in an additional $346 million in equity, which was priced at $1.70 per share, or less than half of its last dividend-adjusted close. The travel company ended the week at $2.71, or -0.7% below its previous close two weeks ago.

On a brighter note, amongst other companies to secure fresh capital was IDP Education, which ended the week +16.55% higher at $13.82, and NEXTDC, which rose +16.31% to $9.20 over the five sessions.

Crown Resorts deferred a dividend that was to have been paid to shareholders on Friday while also scrapping franking credits that were to accompany the distribution.

With entertainment and gaming venues closed in Australia and overseas, Crown said the dividend was deferred for two weeks, but added it would be delayed further if necessary. The casino owner’s shares closed -3.7% lower on Friday at $7.49.

Crown’s peer, StarCity Entertainment, meantime, issued a dire warning to shareholders. The group said it has the capacity to last a few months in the current trading environment but added the impact of COVID-19 was not limited to short-term closures. Its shares fell -11.8% to $1.69.

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