Wall St mixed, Biden's rebuff at Tesla on EV push, Why Pact is a hold: ASX to open higher


Major indexes around the globe saw a mixed finish as investors responded to the strong U.S jobs reports. Bond yields rose while gold fell on concerns the Fed may bring forward the tapering of their assets purchase program. Covid-19 remains the draw card amid corporate earnings guidance while M&A’s buoyed the ASX.

The Australian sharemarket is set to rise with the SPI futures pointing to a 0.4 per cent gain.

Upbeat July jobs report boost Wall St to new records

On Friday the Dow Jones and S&P 500 ended at record highs while the Nasdaq closed lower as investors cheered on the numbers from the July jobs report notching its seventh straight month of gains.

The unemployment rate fell to 5.4 per cent, down 0.5 per cent from June to touch the lowest level since the pandemic started in March last year. There were 945,000 jobs added to the economy surpassing economist’s expectations of 870,000 amid a rise in wages to entice new recruits.

Investors had a sigh of relief after seeing the positive numbers move in the right direction. Though at the back of their minds, the threat of the delta-variant of Covid-19 still remains around the impact it could have on consumer spending or future restrictions.

The results did only capture the growth prior to the climb in Covid-19 cases and before some local governments reimpose mask mandates and other restrictions.

Will the Fed bring forward the tapering of their asset purchases program?

Next month’s figures will capture some attention to see if this momentum continues. Despite this, investors gave a leg up to stocks rotating back into cyclicals and value names, resetting record highs for both the Dow and S&P 500.

Looking ahead, the Fed officials have one more jobs report prior to their next meeting in September. Speculation has been growing on the notion that if the pace of the job growth continues, they could begin to taper their US$120 billion asset purchases program.

S&P, Dow hits new high led by cyclicals, bond yield rises, gold falls

At the closing bell, the Nasdaq struggled out of the three benchmarks to close 0.4 per cent lower at 14,836, the S&P 500 just made it adding 0.2 per cent at 4,437 after the tech names dragged the index lower while the Dow Jones added 0.4 per cent at 35,209 by the prospect of the Fed tightening monetary policy.

The greenback and the US 10-year treasury yield rose at 1.29 per cent, up from 1.22 per cent while gold fell to its lowest point in over a month after the job figures from the Labor Department. For the week, US 10-year yields rose by 8 points.

Across the S&P 500 sectors, cyclicals led while growth and defensives underperformed. Financials added 2 per cent followed by Materials added 1.5 per cent then Energy and Industrials as the winners of the day. Consumer Discretionary fell 0.7 per cent followed by Real Estate with Technology, closed 0.1 per cent lower dragged down by Apple, Microsoft, Nvidia and other tech stocks on the back of the bond yield movement.

Biden’s EV plan snubs Tesla while Virgin Galatic takes-off

Meanwhile, Virgin Galactic shares closed 6 per cent higher after reopening bookings to fly to space at US$450,000 a seat.

Autovehicle makers Ford, General Motors and Stellantis’ shares rose after President Biden signed an executive order setting a target for electric vehicles to make up 50 per cent of new car sales by 2030, with representatives from each of those companies present at the White House. When asked why Tesla wasn’t invited, White House press secretary Jen Psaki said, “these are the three largest employers of the United Auto Workers, so I’ll let you draw your own conclusion.” Tesla shares closed 2.1 per cent lower.

Ride hailing giant Didi closed 0.2 per cent lower after climbing up 4 per cent on Friday after Bloomberg reported the firm may give up control of data to placate Chinese regulators.

Robinhood wrapped up its first week of trade 8 per cent higher after the online brokerage clarified they do not intend to sell existing stocks right away. News that the retail trading app would sell nearly 100 million shares added to their volatile swing last week. The company said that it’s part of a pre-existing contractual transaction which will happen over time, not straight away. The newly listed company is set to report earnings results this week after its lacklustre debut.

European markets clinched on gains to close almost higher

Across the Atlantic, European markets closed almost higher. Paris gained 0.5 per cent, Frankfurt closed 0.1 per cent higher and London’s FTSE closed 0.04 per cent higher, its best week since June thanks to strong company earnings and dovish central bank policies. Mining giants BHP and Rio Tinto added 0.1 per cent.

Bank of England governor Andrew Bailey said on Friday inflation might be cooler than the central bank’s forecast if the supply bottleneck eases. Elsewhere, British house prices rose in July as demand for bigger homes was driven by a tax incentive.

Asian markets worries over new Covid-19 cases

Asian markets closed mixed. Tokyo’s Nikkei added 0.3 per cent as the rise of Covid-19 cases eased, Hong Kong’s Hang Seng fell 0.1 per cent due to tightening government regulations and Shanghai Composite closed 0.2 per cent lower on Friday dragged lower by Healthcare, Consumer Staples and the Technology sector.

Education stocks continued their tumble following last month’s suspension on for profit-tutoring services, in a bid to ease the anxiety for Chinese parents wanting to dish out dough on good education for their children.

TAL Education has plummeted over 70 per cent in the month while New Oriental has tanked 66 per cent.

Tech giant, Tencent also known as the owner of WeChat, came under pressure after the government claimed that online gaming companies are not doing enough to protect young users after likening it to a drug. Stocks fell over 5 per cent for the week.

ASX 200 posts record high after Fri arvo surge as tech leads

On Friday, the Australian sharemarket closed 0.4 per cent higher at 7,538 or 1.9 per cent over the week, its best week since May posting a third straight record high following a late Friday afternoon surge.

Over the week, the XJO closed 1.9 per cent higher thanks to the takeover bid for Afterpay (ASX:APT) and strong earnings results. Newscorp (ASX:NSW) jumped 7.9 per cent after full-year results saw a 155 per cent surge in paid streaming subscribers year-over-year.

Afterpay mulled on Wall St 3-months ago

Buy-now-pay-later darling Afterpay added 5.5 per cent on Friday to close at $132.15, its highest point since its inflation selloff in February celebrating the $39 billion agreement with U.S. giant Square.

Just three months ago, Afterpay expressed interest in listing on Wall Street, in light of its shareholder base expanding globally. Their quarterly data indicated a 211 per cent increase in underlying sales in the U.S. As North American sales toppled Australia as the top revenue-generating market for Afterpay, the payment solutions provider told shareholders they started talks with Goldman Sachs on possible approaches to list on Wall St. This deal with Square could not have come at a better time.

To Friday’s best and worst performers, Technology was the clear winner adding 2.1 per cent while Materials was the worst, down 1 per cent as the dive in iron ore prices dragged on miners. Utilities lost 0.5 per cent while Communication Services skid 0.1 per cent while gains were seen across the board.

Local economic outlook

This week the economic data planner has taken a breather following the RBA taking the spotlight last week.

On Friday, the Reserve Bank echoed the same narrative of Federal Reserve Chair Powell around inflation hikes seen as 'transitory' in their August Statement of Monetary Policy. Their headline and core measures of inflation are forecast to fall below the RBA's target range of 2 to 3 per cent in 2022. This means that the RBA’s interest rate target is likely to remain steady for the meantime.

Looking forward, the highlights this week are the consumer and business confidence surveys.

Local reporting season

Today Aurizon Holdings (ASX:AZJ), Charter Hall Long WALE (ASX:CLW), Suncorp Group (ASX:SUN) and Transurban Group (ASX:TCL) are scheduled to release results today.

Also in the calendar this week is the Commonwealth Bank (ASX:CBA) set to report on Wednesday, while ANZ is due to release a quarterly update on Thursday.

As we move gears into reporting season, I will update you each morning on the companies slated to release earnings for the day.

International economic outlook - Inflation takes centre stage in the U.S. & China

The big ticket item this week is inflation. The U.S. consumer and producer price indexes are pencilled in on Wednesday and Thursday respectively. Today China has scheduled the same reports for today.

U.S reporting season

A few big names are pencilled in to report like eBay, Doordash, AirBnB and Disney. Investors are set to take a close look at the Disney+ subscriber growth, with the streaming space in focus on how those numbers will look.

Moreso on news of Scarlett Johansson’s lawsuit that was announced last week where she claims that her contract was breached when the media giant released the film “Black Widow'' on their streaming service.

In her contract, she alleged she was guaranteed an exclusive theatre release where her salary would be pegged to the revenue stream at the box office, not online. Investors will also keep their eyes out if there are any other actors in the same boat and what risk this opens up Disney.

Broker moves

Macquarie rates industrial supplies company Pact Group (ASX:PGH) as a neutral with a price target of $3.90. The broker expects the company to deliver 7 per cent earnings per share in the year ahead driven by solid growth in their core packaging and sustainability and materials handling business.

When the group reports on Wednesday 18 August, the broker has forecast an amount of $92 million of net profit. They have also raised earnings per share estimates for FY22 by 2 per cent and for FY23 by 1 per cent based on their contract manufacturing and demand jump from the lockdowns. The broker has raised Pact’s target price to $3.90 from $3.00. Shares in Pact Group Holdings (ASX:PGH) closed 1.04 per cent higher at $3.89 on Friday.

Ex-dividend

Finbar Group (ASX:FBI) is paying 2 cents fully franked.

Commodities

Iron ore prices added 0.6 per cent but fell over 5 per cent over the week to their lowest levels since April on speculation about China reducing steel demand. Its futures suggest a 3.4 per cent fall.

Gold has taken a hard hit, dropped $45.80 or 2.5 per cent to US$1,763 an ounce following the U.S. jobs numbers as mentioned earlier while silver fell $0.97 or 3.8 per cent US$24.33 an ounce.

Oil prices fell 1.2 per cent at US$68.28 a barrel to their steepest weekly loss in months as worries that travel restrictions will put a handbrake on the global recovery in energy demand, due to rising cases of Covid-19.

Currency

One Australian Dollar at 7:35 AM was buying 73.57 US cents, 53.03 Pence Sterling, 81.11 Yen and 62.58 Euro cents.

Investor event

Please join us at our next online investor event on Tuesday 24 August at 12.30pm with CEOs presenting from 5 different companies from resources to healthcare. Make your way to fnn.com.au to register for your free spot.

Are you a 708 sophisticated investor?

A sophisticated investor is defined under Section 708 of the Corporations Act (net assets of $2.5 million or annual incomes in excess of $250,000).

They are eligible to receive information regarding wholesale investment opportunities that are not available to regular or retail investors.

Please subscribe if you would like to be alerted to these types of opportunities.