S&P 500 notches best week since Feb, Why South32 is a buy: ASX to edge higher


The Australian sharemarket is poised to edge higher as the SPI futures point to a 0.1 per cent gain following S&P 500’s new record close on Friday as investors shrugged off high inflation figures. Wall St saw a nice boost on the back of the Biden infrastructure deal and Nike’s forecasting.

Banks boosted the S&P 500

US shares rallied despite the key inflation indicator numbers showing otherwise. It rose 0.4 per cent in May, up 3.9 per cent over the 12 months, well above the Fed’s 2 per cent target for annual target increases. This gauge is closely watched by the Federal Reserve as it's used to set policy.

The S&P 500 was helped by Financials, added 1.3 per cent as banks took charge. The index closed in its best five-day period since February, up 2.7 per cent. The worst performer was Utilities down 1.05 per cent and Technology, tripped 0.2 per cent lower.

Nike soared over 15.5 per cent to an all time high after the $243 billion sports shoemaker forecasted full-year sales figures ahead of Wall St’s estimates giving the Dow Jones a boost, up 0.7 per cent.

The tech heavy Nasdaq inched lower by 0.1 per cent amid a rise in bond yields. The 10-year treasury yield jumped 4 basis points to 1.52 per cent.

Bank of America rose over 1.9 per cent while Wells Fargo climbed 2.7 per cent after the Federal Reserve announced the big banks cleared the stress test. Market participants enjoyed the news as it meant banks will no longer face pandemic related restrictions on buying back stock and paying out dividends.

Richard Branson’s spaceship company Virgin Galactic launched over 38.9 per cent higher after receiving the tick of approval from the US aviation safety regulator to fly people into space.
In the reverse, FedEx fell over 3.6 per cent after the delivery services company missed 2022 earnings forecast due to labour shortages.

UK and Europe inched higher thanks to energy and financials stocks

Energy and mining stocks led the London FTSE which closed 0.4 per cent higher on Friday. Energy shares added over 0.9 per cent as BHP rose 2.1 per cent and Rio Tinto advanced 1 per cent. The consumer space saw a boost on the back of Nike’s upbeat forecast and UK retail sales numbers which jumped in June. JD Sports leapt 4.4 per cent.

Asian markets which advanced

Shanghai Composite gained 1.2 per cent, the Hang Seng rose 1.4 per cent while Japan’s Nikkei bumped up by 0.7 per cent. Car maker Mazda spiked over 6.2 per cent.

Iron ore was flat, while crude oil and gold rose

Oil added 0.9 per cent to US$74.05, gold advanced 0.3 per cent to US$1780.34, iron ore remained flat at US$213.75. Its futures are pointing to a 0.8 per cent gain.

ASX 200 - weekly wrap

On Friday, the Australian sharemarket closed 0.45 per cent higher at 7,308. Over the week, it shed 0.83 per cent, its worst performance in six weeks, as the rollercoaster of nerves based on the inflation outlook went for a ride. Amid rising Covid-19 cases, confidence was hindered as biotech CSL had a bad run clocking its worst close since March last year.

The best performing stock over the week was buy now pay later tech star Afterpay (ASX:APT) with a gain of 12.8 per cent, after news that users in the US can use their service at 13 big names which represents almost half of stateside’s ecommerce volume.

The worst performer over the week was retail supermarket giant Woolworths (ASX:WOW) dived 13.8 per cent as the drinks and pub operator Endeavour Group (ASX:EDV) made their debut on the ASX following their spin off.

Local economic outlook

The focus this week is the end of the financial year with Wednesday marking the 30th June. This might bring some volatility as last minute profit taking could be on the cards.

On the data front, with pockets of Covid-19 outbreaks across the country, expect ANZ and Roy Morgan sentiment levels to be dampened tomorrow. Elsewhere in the private sector credit space, Westpac group economists expect a 0.3 per cent lift in May on Wednesday while the RBA governor is set to speak on the same day.

On Thursday, it’s a big day of data. CoreLogic for June is expected to show a strong gain of 2 per cent with Sydney dwelling prices up to near 2.5 per cent. A widened surplus of around $10 to 10.5 billion is forecast by economists when the Australian Bureau of Statistics release the international trade data. They have also pencilled in the May quarter job vacancies. Also keep an eye out for the purchasing manager indexes for manufacturing from AI Group and IHS that day too.

On Friday, the ABS is set to issue May lending indicators data on new housing, personal and business loans which are expected to remain at record highs.

Earnings results/AGMs

Earnings figures are out for Metcash (ASX:MTS) today and Altium (ASX:ALU) on Wednesday. On the AGM front, Unibail Rodamco Westfield (ASX:URW) have their meeting scheduled on Tuesday.

International economic outlook

In the US, the focus will be on June jobs data which is due on Friday which is expected to show a 570,000 rise in payrolls and a fall in unemployment to 5.7 per cent from 5.8 per cent as per Trading Economics. Consumer confidence, home prices and sales are due this week along with construction spending, factory orders and the trade balance.

OPEC is due to meet on Thursday to discuss production quotas. While closer to home, China will report June PMIs on Wednesday.

Broker moves

Credit Suisse lifts its rating for South32 (ASX:S32) to a buy from hold, raising its target price to $3.60 from $3. It's anticipated the global aluminium market will head into extended deficits from next year with the $13.8 billion provider’s ESG friendly status as a big draw card for the metals company.

The broker believes aluminium will be in high demand for its role in electricity transmission, solar projects and light-weight and forecasts the price of aluminium to climb to US$1.20 a pound next year.

The analyst expects a free cashflow contribution from the company’s aluminium division of 44 per cent in 2022 or 62 per cent if the alumina refineries are included. Shares in South32 (ASX:S32) closed 0.7 per cent higher at $2.93.

IPOs

It’s a big week for companies pencilled in to make their debut on the ASX. Today, we have three companies set to ring the bell with Barton Gold (ASX:BGD), digital vehicle marketplace provider Camplify (ASX:CHL) and WAM Strategic Value (ASX:WAR) due.

On Tuesday Polymetals Resources (ASX:POL) and on Wednesday OZZ Resources (ASX:OZZ) are slated.

For the new financial year, six companies are scheduled on Friday. Resource Base (ASX:RBX), NexGen Energy (Canada) (ASX:NXG), Lode Resources (ASX:LDR), BlueBet Holdings (ASX:BBT), 29Metals (ASX:29M) and Silk Logistics (ASX:SLH).

Ex div

Eildon Capital Group (ASX:EDC) is paying 2.023 cents unfranked.

Currencies

One Australian Dollar at 7:30 AM was buying 75.77 US cents.

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