S&P 500 hits a record high, Energy leads: Why Reece is a sell: ASX to open higher


The Australian sharemarket is poised to open higher with the SPI futures pointing to a 0.4 per cent rise following Wall St starting the second half of the year on a rather positive note. US stocks firmed up continuing its momentum that helped the major indexes close out its best first half of the year since the dotcom bubble.

Jobless claims drops ahead of labour figures 

The blue chip S&P 500 rose 0.5 per cent to close at a record of 4,320, value-focused Dow Jones Industrial Average added 0.4 per cent to 34,633.53 while the tech-heavy Nasdaq edged 0.1 per cent higher to 14,522.

Investors have been optimistic by economic data which has shown the US economy growing at a rapid pace as they look ahead to the second-quarter earnings season coming up.

The latest weekly jobless claims dropped to its lowest number since the pandemic started to 364,000 last week from 415,000 the week before. The June manufacturing activity rose but at a slower pace compared to the month before as its registered gains for its 13th month in a row. 

For the meantime, investors have become comfortable with the Federal Reserve’s view as they keep rates low despite inflation figures showing otherwise as they wait for the labour figures due out tomorrow. This gauge is the Fed’s preferred indicator to determine monetary changes which is why it’s closely watched.

This helped boost cyclical stocks, these are stocks linked to the reopening of the economy and saw the reverse for growth names which you see in the technology space. Treasury yields remained almost unchanged at 1.46 per cent.

Over to the S&P 500 sectors which all closed in the black. Technology added the least at 0.1 per cent while Energy advanced the most, up 1.7 per cent.

Energy boosts Europe while Asia dips on manufacturing figures

Across the Atlantic, rising oil prices gave European markets a boost which helped the Energy sector in the US. Oil prices surged to US$75.23, up $1.76 to a near three year high ahead of OPEC’s decision on crude supply.

German DAX rallied 0.5 per cent higher to 15,604 on retail sales figures which rose 4.2 per cent month on month after a downward revised decline of 6.8 per cent in May. London’s FTSE added 1.3 per cent led by Energy and Industrials while Paris closed 0.7 per cent higher.

Travel stocks took off in London trade after Prime Minister Boris Johnson’s upbeat announcement. The Prime Minister said that “double jabs will be a liberator”. Amid this, Bank of England governor Andrew Bailey said that it’s “important not to overreact” to strong price rises which he reaffirmed that inflation will be temporary.

To Asian markets, Japan’s Nikkei dropped 0.3 per cent while China’s Shanghai Composited shed 0.1 per cent on China’s manufacturing data which dipped to a four month low in June due to a breakout in new cases disrupted the supply chain. Hong Kong markets were closed due to Special Administrative Region Establishment Day.

Gold rises on iron ore futures fall

Briefly on the commodity front, miners had a mixed finish on the FTSE. BHP added 0.6 per cent while Rio Tinto shed 0.3 per cent. Its futures are pointing to a fall of 1.1 per cent.

Safe haven gold is trading $5.20 higher at US$1776.80 an ounce while silver is trading $0.09 lower at US$26.10 an ounce.

ASX 200 - Thurs wrap-up

Yesterday, the Australian sharemarket closed 0.7 per cent lower at 7,266 as it clocked its worst close in two weeks with only a few pockets of big names ending in the black.

Gold had a strong run with the likes of Regis Resources (ASX:RRL) shined 8 per cent higher to $2.55 as the best performing stock of the session while Chalis Mining (ASX:CHN) fell 6 per cent to $6.98.

On the sector front, Materials performed the best, up 0.08 per cent while Consumer Discretionary dropped 1.3 per cent.

Local economic news

The Australian Bureau of Statistics is set to release lending indicators for May on new housing, personal and business loans which are expected to remain at record highs.

Broker moves

Macquarie downgrades Reece (ASX:REH) as sell from neutral with the price target of $19.40. The broker reviewed its investment thesis and downgraded its rating based on valuation. Macquarie suggests the stock has had a strong run and while the fundamentals are supportive, the valuation more than fully discounts any earnings upside if the trading environment stays stronger for longer.

Macquarie expects the FY21 result will feature strong trading, given positive market commentary from Australian and its US peers. Shares in Reece (ASX:REH) closed 3.01 per cent lower at $22.90 yesterday.

IPOs

There are six companies scheduled to arrive on the ASX today. 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-dividends

One company is going ex-dividend today. Thorn Group (ASX:TGA) is paying 1 cent fully franked.

Currencies

One Australian dollar at 7am this morning was buying 74.71 US cents, 54.29 Pence Sterling, 83.33 Yen and 63.05 Euro cents. 

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