Wall St mixed, US $1 trillion infrastructure bill, Why Suncorp's rating jumps: ASX to open higher

Market Reports

by Melissa Darmawan

Global markets closed almost higher across the board as oil prices bounced back helping commodity sectors advance. Growth stocks took a different direction ahead of inflation figures this week while investors listened to President Biden’s speech after the Senate passed the infrastructure bill.

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

Dow and S&P 500 post record highs

Another mixed closed on Wall St with the Dow Jones and S&P 500 recovered their footsteps to post new record highs, fuelled by the Senate passing the highly anticipated US$1.2 trillion infrastructure package.

What is the infrastructure bill?

The bill is set to provide the biggest infrastructure investment for roads, bridges, airports and waterways. President Biden pledged that there wouldn’t be a tax hike for any family earning below US$400,000 in his speech to fund the package and said that an additional 2 million new jobs will be generated to help boost the economy.

The budget focuses on traditional infrastructure which includes; US$110 billion in roads & bridges with a focus on climate change mitigation and safety measures, US$66 billion in expanding rail services, US$73 billion to upgrade the nation’s power grids and expand clean energy sources, US$55 billion to start the removal of lead pipes that contaminate water supplies and US$65 billion in broadband internet.

Also, a US$39 billion allocation to repair and expand public transport services and, US$7.5 billion in electric vehicles which is only half of what President Biden’s request, not enough to deliver on his campaign pledge in building 500,000 electric vehicle stations.

Over the past week, 22 different amendments were finalized before the bill was passed with broad bipartisan support. 

There is another bill of US$3.5 trln to be passed?

Next it will go to the House of Representatives where it might face some complications as there is a push by the Democrats for a US$3.5 trillion framework to boost four major buckets including families, climate, health care, and infrastructure and jobs.

Backflip performance across S&P 500 sectors

At the close, the Dow Jones added 0.5 per cent to 35,265, the S&P 500 gained 0.1 per cent to 4,437 while the Nasdaq closed 0.5 per cent lower at 14,788.

Across the S&P 500 sectors, a backflip from yesterday’s winners and losers. Energy was the best performer, up 1.7 per cent after oil prices rebounded 2.7 per cent. Materials added 1.5 per cent on news on the infrastructure spend, Industrials and Financials gained over 1 per cent while the losers were Real Estate, down 1.1 per cent, Technology lost 0.7 per cent followed by Healthcare, shed 0.2 per cent.

The yield on the 10-year treasury rose to 1.35 per cent from 1.31 per cent which helped bank stocks advance.

Caterpillar jumps while Tesla falls

Meanwhile, heavy machinery maker Caterpillar jumped 2.5 per cent on the news.

Tesla fell 0.5 per cent after major declines in shipments in China, down 69 per cent from July due to regulatory concerns and a recall of almost every vehicle the company has sold in the country.

European markets closes mixed as Flutter surges

Across the Atlantic, European markets closed higher. Paris gained 0.1 per cent, Frankfurt added 0.2 per cent while London’s FTSE rose 0.4 per cent with online betting group Flutter Entertainment surged over 7 percent as the best performer on the index thanks to a positive profit guidance.

Miners rose, Rio Tinto up 1.2 per cent while BHP gained 0.9 per cent.

Asian markets rise on steady commodities

Asian markets rose as commodities steadied after China’s local government announced a mass testing to suppress the wave of Covid-19 cases while commodities stabilized.

Testing was completed for 11.3 million people in under a week in Wuhan after new clusters of infections emerged when seven migrant workers at the Wuhan Economic and Technological Development Zone tested positive.

Equities rose in Japan by 0.2 per cent after they came back from holiday, Hong Kong’s Hang Seng gained 1.2 per cent and China’s Shanghai Composite closed over 1 per cent higher.

ASX bulls close at record high led by technology

Yesterday, the Australian sharemarket closed 0.3 per cent higher at 7,563 closing at a record high, shrugging off rising Covid-19 cases buoyed by company earnings results.

The local bourse flirted at a new peak within the first 20 minutes of trade boosted by Technology and Communication Services shares.

Only 4 sectors closed in the red with Industrials as the worst performer, down 1.1 per cent followed by Energy, Healthcare and Property.

Local economic news

Today Westpac and Melbourne Institute’s consumer confidence survey for August is slated. This comes after the consumer confidence index from ANZ Roy Morgan pushed lower by 3.2 to 98.6, below the neutral level of 100.

Sydney improved by 3.7 per cent while NSW rose 2.1 per cent. In Brisbane, it fell 7.5 per cent and 1.6 per cent in Melbourne following new restrictions.

Elsewhere, the NAB business confidence results saw a very sharp decline in July, down 19 points to -8 index points. Though the NAB’s economist note did serve as a reminder that the economy has snapped back quickly from previous lockdowns.

Reporting season

Today Commonwealth Bank (ASX:CBA), Insurance Australia Group (ASX:IAG) and Mineral Resources (ASX:MIN) are set to report today.

Broker moves

Credit Suisse upgrades Suncorp (ASX:SUN) to outperform with a raised price target of $14. The broker notes that the FY21 results were very strong and has maintained guidance for an FY23 return of 10-12 per cent and a costs-to-income ratio of 50 per cent for the bank.

Credit Suisse expects further growth in earnings and distributions, given the excess capital of around $400 million. The broker expects strong growth from FY22 onwards while benign bad debts should add further upside boosted by better mortgage processing times when compared to most major banks and a higher retention rate than the market average. Their rating is upgraded to outperform from neutral and the target raised to $14.00 from $12.20.

Shares in Suncorp Group (ASX:SUN) closed 0.1 per cent higher at $12.80 yesterday.

IPOs

Cobram Estate Olives (ASX:CBO) is set to make their debut on the ASX today.

Ex-dividend

Australian Foundation Investment Co (ASX:AFI) is paying 14 cents fully franked.
New Energy Solar (ASX:NEW) is paying 3 cents unfranked.

Commodities

Iron ore has lost 5.8 per cent to US$162.44. Its futures are pointing to 3.1 per cent gain.

Gold has added 0.3 per cent to US$1732 an ounce while silver has gained 0.5 per cent to US$23.39 an ounce.

Oil was up 2.7 per cent to US$68.29 a barrel on the recent infrastructure news and the likely boost in demand.

Currencies

One Australian Dollar at 7:45 AM has gained, buying 73.50 US cents, 53.12 Pence Sterling, 81.25 Yen and 62.71 Euro cents.

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