Wall St closes mixed, RBA expected to delay taper, Why De Grey Mining is a buy: ASX to dip

Market Reports

by Melissa Darmawan

The Australian sharemarket is set to dip with the SPI futures pointing to a 0.3 per cent drop.

The new month saw major indexes around the globe close mainly higher with mergers and acquisitions taking the spotlight. In Asia, Chinese authorities moved to calm investors after a panic sell-off last week following regulatory clampdown actions.

U.S. treasury yields trip, senate pushes ahead with infrastructure bill

Wall St’s first day of trade for August closed mixed after the S&P 500 notched a 6th straight month of gains in July.

Investors' sentiment appeared to be optimistic on the news that the U.S. senators have introduced a US$1 trillion bipartisan infrastructure bill over the weekend. However on Wall St, concerns have crept back in due to the spread of the delta variant across the country with companies either enforcing a vaccine mandate or delaying the return to the office, as seen by the 6 basis point dip in the 10-year treasury yield at 1.18 per cent.

Supply chain continues to disrupt construction & manufacturing sectors

A raft of economic data on the manufacturing and construction sectors broke today as supply chain disruptions and raw materials prices take headlines.

The July purchasers managing index from IHS Markit jumped to 63.4 in July, up from 62.1 in June attributed to increased output, new orders and employment. Though material shortages and supply chain problems continue to pressure on demand.

While the ISM manufacturing index fell from 60.6 to 59.5 in July, painting a similar picture as manufacturing in the U.S. increased at a slower pace compared to June. ISM Chair said the increased employment within the sector could be a positive sign that supply chain issues and labour shortages would ease.

Now to construction, U.S spending on construction rose by 0.1 per cent in June as building companies try to stock up on materials like lumber, though high material prices have put a handbrake on home sales after last week’s numbers showed a 14-month low.

Wall St mixed closed as defensives lead

The Dow Jones fell 0.3 per cent to 34,838, the Nasdaq added 0.1 per cent to 14,681 while the S&P 500 lost 0.2 per cent to 4387.

Across the S&P 500 sectors, there were more losers than winners with defensives gaining. Consumer discretionary added 0.3 per cent, Healthcare rose 0.2 per cent followed by Utilities and Real Estate. Materials performed the worst, down 1.2 per cent followed by Energy, down 0.7 per cent as oil prices slid over 3 per cent. Technology closed 0.4 per cent lower.

Square climbs, Pfizer & Moderna hike prices of vaccine to Europe

U.S. payment giant Square climbed 10.2 per cent on news about their monster splurge on Afterpay. The payment giant released results on Sunday with revenue up 143 per cent from this time last year.

Pharmaceutical giants, Pfizer shares rose 2.6 per cent after it raised prices for its Covid-19 vaccines in Europe. Moderna shares fell 2 per cent on the same news as they both battled supply chain disruptions and worries about side effects from rival products.

European markets see M&A deals take spotlight

Across the Atlantic, Paris gained almost 1 per cent, Frankfurt closed 0.2 per cent higher while London’s FTSE added 0.7 per cent as miners gained with several deals announced. Rio Tinto rose by 1.9 per cent and BHP shares lifted by 1.1 per cent.

British aerospace company Meggitt catapulted 56.7 per cent after they received a $10.1 billion (£6.3b) takeover offer from US industrial firm Parker-Hannifin.

Energy company SSE jumps 1.3 per cent after agreeing to sell its 33 per cent stake in Scotia Gas Networks for $2.7 billion (£1.7b).

Asian markets ignores fall in factory activity growth and bounces back

Asian shares bounced back as investors snapped up battered stocks after state-run media released articles in a bid to calm nerves about the regulatory crackdown on offshore listed Chinese companies.

The gains ignored the slip in China's factory activity growth which dropped to a 15 month low in July on contracted demand amid jitters in a surge of new coronavirus cases.

Tokyo’s Nikkei edged off 7-month lows adding 1.8 per cent, Hong Kong’s Hang Seng advanced 1.1 per cent after touching its lowest point since early November last week and China’s Shanghai Composite gained almost 2 per cent after capping its biggest monthly decline since October 2018 last week following a string of regulatory moves in the education, tech and property space.

ASX 200 flirts at 7,500 mark before posting a record high

Yesterday, the Australian sharemarket closed 1.3 per cent higher at 7,491 accelerated by technology shares as buy-now-pay-later star Afterpay received a $39 billion offer from U.S. payment giant Square.

The local bourse flirted at the 7,500 mark for a short while before ending the day with a new record high with all sectors flashing green.

Technology was the clear winner, up 6.5 per cent helped by Afterpay propelled 18.8 per cent higher. Materials gained the least, up 0.1 per cent after iron ore prices fell 7.4 per cent. Financials was next best after Technology with major banks performing near the 2 per cent range.

Local economic news

Today we have the Reserve Bank taking the spotlight at 2.30pm (AEST) with investors looking at the central bank’s response to the recent outbreak of the delta-driven variant.

Economists are expecting the RBA to defer the tapering of their bond buying program from September to the November board meeting with a commitment to increase stimulus, to support the economy through the slowdown.

This morning, ANZ and Roy Morgan weekly consumer confidence is slated while Australian Bureau of Statistics has scheduled building approvals and lending indicators for June.

Reporting season

On the earnings side, Credit Corp is set to release full year results today.

Stock watch

Our weekly stock to watch this week is De Grey Mining (ASX:DEG). David Thang, Senior Private Wealth Adviser at Sequoia (ASX:SEQ) rates De Grey Mining as a buy. From a technical angle, De Grey Mining is bullish for several reasons.

A confluence of support was respected at the $1.13 level in mid-July, as shown by the orange arrow. This level is made up of the 61.8 and 78.6 per cent Fibonacci retracement levels respectively as seen by the horizontal green line.

A bullish doji had formed, signalling a rotational shift of demand favouring buyers. Upward momentum has gathered traction over the course of July and early August, therefore increasing the probability of further upside ahead over the medium term. Should this bull case evolve, then a retest of the April all-time high of $1.67 could potentially be in the making.

Lastly, with reference to the Williams %R momentum oscillator seen on the purple line on the lower pane. This oscillator has moved out from oversold territory, which signals a strengthening of upward momentum. Shares in De Grey Mining (ASX:DEG) closed 4.4 per cent higher at $1.32 yesterday.



Broker moves

Morgans upgrades NAB (ASX:NAB) to an add with a price target of $27.50. The broker upgrades its rating in light of recent share price weakness and its on-market buyback offer of up to $2.5 billion of shares. The broker sees potential for further capital management, especially after management said it “will continue to assess various options to return capital to shareholders.” Morgan believes this could boost investor confidence in the bank’s balance sheet along with the outlook ahead. Shares in National Australia Bank (ASX:NAB) closed 2.4 per cent higher at $26.55 yesterday.

Ex-Dividend

CVC Limited (ASX:CVC) is paying 5 cents fully franked.
Kkr Credit Income Fund (ASX:KKC) is paying 1 cent unfranked.

Commodities

Iron Ore has gained 1.6 per cent to US$184.42.
Iron Ore futures are pointing to 1.8 per cent gain.
Gold has gained $5.00 to US$1822 an ounce.
Silver has added $0.03 to US$25.58 an ounce.
Oil was down $2.69 to US$71.26 a barrel.

Currencies

One Australian Dollar at 7:45 AM has gained from yesterday buying 73.65 US cents, 53.06 Pence Sterling, 80.50 Yen and 62.05 Euro cents.

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