The Monday Report – 17 August 2020

This story features COMPUTERSHARE LIMITED, and other companies. For more info SHARE ANALYSIS: CPU

By Greg Peel

A New Battle

The ASX200 appeared to finally leave 6000 behind last week, where it had been stuck since early June, pushing on to attempt to conquer the 6100 level. Impetus has been provided by the S&P500 reaching the all-time high and the case-count trending down in Victoria, amidst early individual earnings results.

Earnings results will become ever more critical this week and next as the season hits its busiest period. We note that with Wall Street as good as flat on Friday night, our futures were down -58 points on Saturday morning, which would take the index back below 6100 once more.

Friday’s trade saw the ASX200 rally from the bell, dip, and rally again to be up almost 50 points at lunchtime, before a fade to the close. In between China released its July numbers.

Chinese industrial production rose 4.8% year on year in July when 5.1% was forecast. More important to Beijing is domestic consumption, which has continued to underwhelm despite China’s apparent victory over the virus. Sales fell -1.1% in July after falling -1.8% in June, when a 0.1% rise was forecast. This despite auto sales leaping 12.3% after having fallen -8.2% in June.

Fixed asset investment fell -1.6% year to date as expected, having fallen -3.1% in June.

The star performing sector on Friday was IT, up 4.2% because the Nasdaq had rallied on Thursday night after a run of underperformance, and because sector heavyweight Computershare ((CPU)) jumped 7.8%.

Computershare reported earnings on Wednesday and disappointed with its guidance, so perhaps we can point to rising US bond rates in the meantime as the impetus after a fall on the result release. Afterpay ((APT)) chimed in with a 6.3% gain because it is the Nasdaq proxy.

The standout index stock on the day was Mesoblast ((MSB)), which has rocked and rolled its way through the past month or so as it awaited approval from the FDA for its remestemcel drug, conceived to prevent bone marrow transplant rejection in children but also found to potentially fight the virus in children. Just when it looked like the FDA thumbs were turning down, they turned up. Mesoblast rose 39%.

The healthcare sector rose 0.9%, pipped by consumer discretionary (+1.1%) and industrials (+1.1%) which are winners if Victoria truly is winning the battle.

National Bank ((NAB)) provided headline June quarter earnings that pleased the market, leading to a 1.2% gain. The bank also extensively outlined the state of play for its loan deferral program, and the numbers are rather worrying. The financial sector rose 0.2%.

The bounce in the gold price had Evolution Mining ((EVN)) up 6.5% but Newcrest Mining ((NCM)) did not join in (-0.9%), disappointing with its earnings result that the market believed should have been better given the gold price run. Materials only managed 0.4%.

It is unclear exactly why the futures were down a full -58 points on Saturday morning but no doubt today’s earnings results will have their impact from the bell, as they will every day for the rest of the month.

In Limbo

US retail sales rose 1.2% in July to mark the third straight month of gains. June numbers were also revised upward. But Wall Street was disappointed, given a 2.0% gain in July was forecast.

Industrial production rose 3.0%, beating a 2.7% forecast, and in absolute terms very impressive. In relative terms however, it’s a very long way back from the virus depths.

Data aside, Wall Street continues to take a glass half full approach to its number one global status as virus loser by a disproportionate amount on the basis the trend is continuing downward. One figure of note is clearly glass half empty. The Minnesota Fed president has called for the country to go back into lockdown to defeat the virus more definitively.

Wall Street remains also none to fussed about the fact Congress cannot agree on a second stimulus package, appears nowhere near agreement, and is currently on a break until next month. The market believes a deal will be reached, simply because a deal must be reached.

Just like a trade deal. Remember that? Trade negotiations between Beijing and Washington had been scheduled to resume last night, virtually, but have been postponed indefinitely.

And with the Fed on its side, Wall Street spent Friday doing not much, with no great impetus to push through the all-time high but no real reason to sell.

Commodities

While China’s industrial production may not have grown as much as expected, it did grow, which is good for base metals, copper in particular.

And iron ore.

Gold looks set for a period of consolidation under the US$2000/oz mark having run there so fast.

The US dollar is down again and the Aussie is up 0.4% at US$0.7178.

The SPI Overnight closed down -58 points or -1% on Saturday morning.

The Week Ahead

Japan reports June quarter GDP today.

The minutes of the August RBA meeting are out tomorrow and the ABS will provide preliminary July retail sales numbers on Wednesday.

Friday is flash manufacturing PMI day for August across the globe.

The US will see data across the week for housing sentiment, housing starts and existing home sales, and the Empire State and Philadelphia Fed activity indices. The minutes of the last Fed meeting are due on Wednesday night.

Earnings season ramps up considerably from today, and don’t even mention Wednesday and Thursday.

Today’s reporters include BlueScope Steel ((BSL)), Bendigo & Adelaide Bank ((BEN)), Flight Centre ((FLT)), JB Hi-Fi ((JBH)) Lendlease ((LLC)) and Sydney Airport ((SYD)), among many others.

The Australian share market over the past thirty days…

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