Wall St gains, US$3.5 trillion reconciliation bill is next, Why NAB is an Outperform: ASX poised to dip


A mixed close across the major markets around the globe after an earnings showcase mixed with economic news kept investors cautious. The highly infectious delta variant of Covid-19 remains a concern.

The Australian sharemarket is set to edge lower with the SPI futures pointing to a 0.1 per cent dip.

S&P 500, Dow Jones ekes out a new record high

On Friday, the S&P 500 & Dow Jones eked out a new record high buoyed by stellar company earnings after investors shrugged off a drop in consumer sentiment. The trading session saw the major indexes struggle to find direction hovering near the flat line before eking out their gains. The S&P 500 posted its second-straight weekly increase.

Consumer confidence tumbles to lowest level in a decade

Investors digested a surprising low preliminary reading on the University of Michigan’s consumer sentiment index. It deteriorated to a level of 70.2 from a previous read of 81.2 in July and was described as a “stunning loss of confidence”. It’s the lowest level in a decade and is the biggest drop in sentiment since April last year, when the pandemic first hit. The biggest decline was seen in expected business conditions, however the softness was widespread.

The plunge in consumer confidence was largely due to concerns on the highly infectious delta-variant of Covid-19. If things got worse, it would add near-term headwinds to consumer spending, particularly for services.

Inflation heats up as used car sales price cools

Investors also digested inflation data where CPI rose by 0.3 per cent last month, down from 0.9 per cent in June, driven by a deceleration in used car sales price inflation. Investors grew more confident that inflationary pressures will abate, as supply chain bottlenecks and re-opening pressures ease.

Bipartisan infrastructure deal, US$3.5 trillion spend on the cards

Amid the economic news, there were also political moves that moved the market. Last Tuesday the Senate passed the US$1.2 trillion bipartisan infrastructure bill. The legislation is likely to have a US$250 billion deficit impact over 10 years. This marked the most significant bipartisan achievement for President Biden’s presidency so far. This saw the likes of heavy machinery maker Caterpillar jump 5.4 per cent over the week on the news.

However, the big win for Biden was hindered by the Democrats' separate proposal for a reconciliation bill of US$3.5 trillion with only a US$1.75 trillion deficit to be financed. This proposal would cover the missing pieces from the president's agenda. Despite the reconciliation process not requiring the Republicans, a debate rose between centrist House Democrats who wanted to pass the bipartisan bill before signing onto the reconciliation bill.

Wall St flashes green, 10-yr bond yield falls

At the close, the Dow Jones eked up 0.04 per cent to 35,515, the S&P 500 added 0.2 per cent to 4,468 while the Nasdaq also nudged 0.04 per cent higher at 14,823.

The yield on the 10-year treasury fell to 1.28 per cent from 1.36 per cent which bruised the Financial sector but boosted Tech names like NVIDIA and Microsoft, up over 1 per cent. For the week, US 10-year treasury yield dipped by 2 points.

Across the S&P 500 sectors, there were eight winners to four losers. Energy fell 1.3 per cent as oil prices declined followed by Financials, Industrials and Consumer Discretionary. The best performer with marginal gains was Consumer Staples, up 0.8 per cent followed by defensive Real Estate, Healthcare and Utilities.

Disney, AirBnB, Moderna & Pfizer close higher

Entertainment giant Disney rose over 1 per cent after reporting theme park revenue of US$4.3 billion compared to US$1.1 billion a year ago. Disney also doubled its Disney+ subscriptions to 116 million customers along with an uplift in earnings.

AirBnb rose over 1 per cent despite giving a warning that bookings could be threatened by the spread of the highly infectious delta variant of Covid-19.

Stocks in Modern and Pfizer rose after the FDA approved a third dose of their Covid-19 vaccines for immunocompromised people.

European markets rise modestly

Across the Atlantic, European markets closed higher. Paris gained 0.2 per cent, Frankfurt added 0.3 per cent while the London’s FTSE rose 0.4 per cent led by gains in consumer staple, travel and retail stocks.

Miners rose, Rio Tinto added 0.2 per cent while BHP added 1.5 per cent after expectations grew for the mining giant to reach a verdict on the future of its petroleum business

Across the oil stocks, BP shed 0.6 per cent while Shell fell 0.9 per cent after oil prices closed lower.

Asian markets decline after China’s government unveils new plan

Stocks in Asian markets closed weaker on Friday following the government's unveiling of a policy document on Wednesday. The move comes as part of Beijing’s latest push to strengthen their position in sectors such as technology and healthcare. They quoted that the plan is "to meet people's ever-growing demands for a good life".

The plan’s release followed a series of regulatory tightening that have spooked investors in Chinese business. This has already seen big knocks against the valuations of some of the country’s biggest tech groups.

Hong Kong’s Hang Seng lost 0.5 per cent, China’s Shanghai Composite shed 0.2 per cent while Tokyo's Nikkei skid 0.1 per cent.

Tech stocks fall while semiconductor stocks clinches on gains

Tech giant Tencent fell 2.5 per cent on the Hang Seng as investors continue to mull on the impact of their fine from their Chinese government. The internet giant was ordered to cease all exclusive music streaming rights and licensing deals with record labels globally.

Chinese battery giant Contemporary Amperex Technology clinched onto their gains after a morning surge of over 5 per cent. Tesla’s battery supplier said it was planning a private share placement to raise up to $12.1 million (58.2 billion yuan) to boost its production capacity of lithium-ion batteries across six projects.

ASX 200 tips new record high boosted by CSL and banks

On Friday, the Australian share market tipped a new record high closing 0.5 per cent higher at 7,629 for the seventh time in 10 days. The local bourse took home gold after a clutch of earnings, gains across almost every major bank and a strong performance from CSL to close the week with a 1.2 per cent gain. Biotech CSL surged 2.37 per cent to $297.53 ahead of their full-year earnings results this week. The major banks advanced except the Commonwealth Bank (ASX:CBA) after investors continued to trim their positions following their full-year earnings.

All sectors advanced except for Materials which finished flat. Iron ore makers pressured the sector lower on the back of the dive in the iron ore price.

Local and international economic outlook

The week kicks off today with China’s monthly activity data for industrial production, retail sales, fixed asset investment and unemployment figures. In Japan their June quarter GDP figures are due.

On the monetary policy front, the Federal Reserve and Reserve Bank of Australia have slated policy meeting minutes this week. Investors will pay close attention for any clues around when tapering their bond asset purchase program and accommodative monetary stance.

While in local economic news, the June quarter wage price index and July jobs numbers are slated along with the regular weekly consumer confidence report.

Reporting season

Argo Investments (ASX:ARG), Beach Energy (ASX:BPT), Bendigo & Adelaide Bank (ASX:BEN), Bluescope Steel (ASX:BSL), Carsales (ASX:CAR), GPT Group (ASX:GPT), GWA Group (ASX:GWA), JB HiFi (ASX:JBH) and LendLease (ASX:LLC) are pencilled in today.

Broker moves

Credit Suisse rates National Australia Bank (ASX:NAB) as outperform with a price target of $28.50. After the third quarter update Credit Suisse increases its FY21 forecasts by 1 per cent driven by lower bad debts, which is partially offset by lower treasury market income. FY22 and FY23 earnings forecasts remain unchanged however, raising the target price to $28.50 from $27.50. The broker sees the bank as a key beneficiary of the second phase of the Covid-19 recovery, driven by business reinvestment. Shares in National Australia Bank (ASX:NAB) closed 1.6 per cent higher at $27.70 on Friday.

Ex-Dividends

Plato Income Maximiser Ltd (ASX:PL8) is paying 0.45 cents fully franked.
QV Equities Limited (ASX:QVE) is paying 1.1 cents fully franked.

Commodities

Iron Ore has lost 0.5 per cent to US$162.07. Its futures are pointing to 2.5 per cent gain.

Gold has gained $26.40 or 1.5 per cent to US$1,778 an ounce while silver has added $0.66 or 2.9 per cent to US$23.78 an ounce.

Oil was down $0.65 or 0.9 per cent to US$68.44 a barrel.

Currencies

One Australian Dollar at 7:45 AM is a touch higher from Friday buying 73.69 US cents, 53.19 Pence Sterling, 80.81 Yen and 62.47 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.