S&P 500, Nasdaq eked up on tech rally, Why Metcash is a buy: ASX to rise


The Australian sharemarket is set to rise following Wall St’s choppy session, all three indexes edged higher ahead of the job figures on Friday. Technology stocks ended on a high note though in early trade, value stocks did rebound before giving up their gains.

Tech shares rose in choppy session

The S&P 500 was almost 1 per cent lower in afternoon trade after it hit an all-time high in the morning. The blue-chip index did see a rise across the board as banks and Utilities offset gains in the Technology sector before it just clinched up 0.03 per cent to 4,292 to its 4th straight record close. Yields on the 10-year treasury bonds jumped to 1.51 per cent before it closed almost unchanged at 1.48 per cent.

On the sector front, Healthcare followed Technology with a modest rise of 0.6 per cent followed by Consumer Discretionary added 0.3 per cent with the rest of the sectors in negative territory. The growth-focused Nasdaq added 0.2 per cent to reset its record high at 14,528 while the value-driven Dow Jones eked up 0.03 per cent to 34,292.

What helped drive the rally was a few pieces of economic data that came out.

Boost in consumer confidence & house prices

The US consumer confidence index rose in June to its highest level since the Covid-19 pandemic started. The survey showed that consumers’ optimism was lifted by improving business conditions and potential income increases in the near future.

Also, the US single-family home prices raced higher in April to its highest pace in over 15 years. This survey measures average home prices in major metropolitan areas across the US. The index rose 14.6 per cent in April, up from a 13.3 per cent annual rate in March.

Semiconductor stocks climbs

With the news, tech stars shined with Apple rose 1.1 per cent, Microsoft added 0.6 per cent while semiconductor stocks climbed with the likes of Advanced Micro Devices up 2.8 per cent. On the banking front, Morgan Stanley rose 3.4 per cent after it announced it will double its quarterly dividend and launched a buyback offer.

Economic sentiment rallies to 21-year high

European markets closed higher after economic sentiment rallied to a 21-year high in June as economies reopen due to the vaccine roll-out. London's FTSE closed 0.2 per cent higher. Paris added 0.1 per cent while Frankfurt gained 0.9 per cent.

Iron ore fell as miners rise

Heavyweight miners Rio Tinto and BHP both closed 0.4 per cent which helped the FTSE’s gain. Iron ore fell 2.7 per cent to US$214.10.

Fears in rising Covid-19 cases in Tokyo

Japan's Nikkei closed 0.8 per cent lower on the back of fears of a possible fifth wave of infections, a month before the city hosts the Olympics. Hong Kong's Hang Seng and China's Shanghai Composite closed 0.9 per cent lower.

Gold falls while crude oil gains

Precious metal gold is trading $17.10 lower at US$1763.60 an ounce. Silver is trading 35 cents lower at US$25.90 an ounce while crude oil is trading $0.07 higher at US$72.98 a barrel.

ASX futures

Taking all of this into the equation, the SPI futures are pointing to a 33 point or 0.5 per cent rise.

ASX 200 – Tues wrap

Yesterday, the Australian sharemarket closed 0.1 per cent lower to 7,301 extending its losses for a second day. Despite closing in the red, the local bourse did bounce back from lows of 0.9 per cent in early afternoon.

Technology shares were the biggest winners, added 0.7 per cent along with Healthcare which helped offset losses by Utilities, down 1.3 per cent as the worst performer. It was a big day on the real estate stocks front with a number of companies going ex-dividend which didn’t help the Property sector which shed 0.5 per cent.

The best-performing stock was Metcash (ASX:MTS), jumped 5.7 per cent higher at $3.90 after investors digested their positive full-year results yesterday amid buy broker recommendations.

On Monday, the $6 billion company reported a 9.9 per cent increase in revenue to $14.3 billion and a 27.1 per cent jump in underlying profit after tax to $252.7 million.This allowed the wholesale distributor to increase its full year fully franked dividend by 40 per cent to 17.5 cents per share along with a $175 million share buyback.

The worst-performing stock was KFC and Taco Bells owner Collins Foods (ASX:CKF), sunk 5.7 per cent lower at $11.98 after investors digested their full-year results. The fast-food operator’s revenue rose 12.4 per cent to $1.07 billion which was largely driven by its KFC Australia business.

It reported a 13.8 per cent increase in revenue to $900.4 million thanks to new store openings and same store sales growth of 12.9 per cent. Collin’s net profit after tax from continuing operations rose 18.2 per cent to $56.9 million. They also bumped up their fully franked final dividend payment by 15 per cent.

Despite the strong earnings growth, the $1.5 billion food chain didn’t fare well amid market participants during the session.

Local economic news

Today the Reserve Bank is set to release the private sector credit figures for May. Westpac group economists expect a 0.3 per cent lift. Also the RBA governor is due to speak in a panel discussion at the Australian Banking Association conference today.

Broker moves

Credit Suisse rates Metcash (ASX:MTS) as a buy following the company’s full year results. The broker highlights a material shift in the earnings composition of the $6 billion company with less than 50 per cent of earnings from Food for the first time.

The broker also notes increased confidence in the operating environment which was seen by their 40 per cent boost to their dividend payout ratio and announcement of their off-market buyback. The broker also highlights their hardware segment of considerable valuation discount to peers and raises their target price from $4.08 to $4.16.

Shares in Metcash (ASX:MTS) closed 5.7 per cent higher at $3.90 yesterday.

Currencies

One Australian dollar at 7am was buying 75.15 US cents, 54.30 Pence Sterling, 83.05 Yen and 63.17 Euro cents.
 

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