Wall St lower, South Korea bans Apple & Google payments, Morgans' view on Fortescue: ASX to fall

Market Reports

by Melissa Darmawan

A mixed close around the globe as investors reacted to lower than expected economic data. Reporting season heats up in Asia while it's wrapping up back home. European markets ended August in the red.

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

Wall St closed lower for the day but ending August higher for a seventh month in a row. Investors held back after mulling on the Fed’s remarks from the weekend. This was also compounded by the news in Afghanistan as U.S. troops officially left, leaving Americans who wanted to leave behind.

Consumer confidence falls to the lowest level in 6 months

Investors also digested consumer confidence data for August. The index declined to the lowest point in 6 months at 113.8 points from a revised 125.1 reading in July, according to the Conference Board.

The reading came in lower than the expected weighed down by lingering concerns of the delta variant and to a lesser degree, rising gas and food prices. Consumers had a less favorable view of the current economic conditions and the prospect of short-term growth.

At the close, the Dow Jones lost 0.1 per cent to 35,361, the S&P 500 also fell 0.1 per cent to 4,523 while the Nasdaq just lost their gains at 0.04 per cent lower at 15,259.

Across the sectors on the S&P 500, the gains and losses were more on the milder side. Out of the four winners, Real estate added 0.6 per cent followed by consumer staples and discretionary along with communication services. Energy fell the most at 0.7 per cent followed by technology at 0.6 per cent.

The yield on the 10-year treasury bond edged higher at 1.31 per cent.

Let's take a look at some company news.

South Korea passes bill banning Apple & Google control over app store payments

Apple shares fell after moves from South Korea banned App store operators like Apple and Google from forcing developers to use their payment system. Lawmakers approved a bill making them the first country to implement such a measure. App developers usually need to pay a cut as high as 30 per cent for every transaction. Now they will be able to use other methods of payments. On the horizon, the E.U. are looking to propose a similar measure, while the U.S. senators also introduced a similar bill in August available here.

To give you a sense on what it could mean in terms of a hit to potential earnings if more countries follow, let's take a look at some numbers. Apple released figures that the App Store ecosystem facilitated US$643 billion in billings and sales during 2020, a 24 per cent year-over-year increase.

An independent study from economists said that the number of small developers globally grew by 40 per cent since 2015. They make up more than 90 per cent of App Store developers, defining small developers as those with fewer than 1 million downloads and less than US$1 million in earnings across all their apps in a given year.

So, if other countries follow, there could be a bit of revenue at risk.

European markets falls on inflation fears

Across the Atlantic, European markets closed lower on inflation fears and weak unemployment figures. Paris lost 0.1 per cent, Frankfurt shed 0.3 per cent and London’s FTSE lost 0.4 per cent, weighed down by the energy and banking stocks.

Miners in London trade fell. BHP lost 1.1 per cent while Rio Tinto shed 0.4 per cent.

Asian markets in a sea of green

Asian markets saw investors buy the dip, shrugging off the increasing number of Covid-19 cases and ongoing regulatory crackdown in China. Tokyo’s Nikkei added 1.1 per cent, Hong Kong’s Hang Seng gained 1.3 per cent and China’s Shanghai Composite closed 0.5 per cent higher.

ASX 200 wins for 11 months in a row, longest ever in history

Yesterday, the Australian sharemarket closed 0.4 per cent higher at 7,535 closing the month on a winning streak. This is the local bourse's 11th consecutive month of gains, the longest winning monthly streak in the market’s history. The XJO gained 26.5 per cent over the past 11 months.

Technology stocks was the clear winner at 1.9 per cent followed by Industrials and Real Estate. Energy came under pressure, down 1.4 per cent with Utilities declining by 1.2 per cent.

A couple of stocks that were in focus as the reporting season starts to wrap up.

Shares in Harvey Norman (ASX:HVN) dived by 3.2 per cent after posting a 63 per cent gain in profit before property revaluations to $743.1 million. Total sales surged 15.3 per cent collectively from stores around the globe as demand for office and home goods rose during the pandemic. The retail giant handed a $6 million cheque to the ATO to repay their Jobkeeper stimulus after much criticism last year. However, they are on a slow start this financial year with their Aussie franchises lagging over 19 per cent so far.

Mesoblast (ASX:MSB) tumbled by 15.9 per cent after handing down a US$98.8 million net loss for the year and almost a 80 per cent fall in sales. The biotech warned of more investor pain after they forecast rising operating losses for the “foreseeable future”.

This comes after additional clinical study would be needed before receiving full approval from the U.S. Food and Drug Administration.

To put this in context, prior to Pfizer’s full approval last week, the U.S. watchdog allowed them to administer the Covid-19 vaccine for emergency use only until 6 months of data was available for the watchdog to review. Cards are on the table that Remestemcel-L could receive approval for emergency use, so the additional resources and funding to get it over the line could be substantial.

Local economic news

The Australian Bureau of Statistics is set to release June quarter GDP figures. In the March quarter, the economy grew 1.8 per cent reflecting the continued easing of Covid-19 restrictions.

In June last year, the economy contracted by 7 per cent as you can see here and has slowly recovered. In the March quarter it grew at 1.1 per cent compared to previous quarters of two percent to three per cent. The September quarter grew the most at 3.6 per cent.

The market forecast for GDP growth is expected to be at 0.5 per cent for June on the back of the export weakness and the start of the lockdowns.

The NSW Bondi outbreak started in mid-June which chipped away at activity in the second half of the month however, the impact to employment figures were not seen in the labour force numbers in June.

Meanwhile, CoreLogic is set to release national home value prices in August while AiGroup and IHS Markit have purchasing managers indexes slated for the same month.

Broker moves

Morgans rates Fortescue Metals (ASX:FMG) as a reduce with a price target of $19.20. The FY21 results from the single commodity player were in line with the broker’s expectations. However, they question whether being an early adopter would be a more efficient approach rather than be an innovator in renewables and green products.

Fortescue’s management believes that investing aggressively towards the goal of becoming the first green iron ore producer will attract a material premium for its products.

The broker is also digesting the miner’s direction around Fortescue Future Industries. They are contemplating an investment in Afghanistan and Indonesia and the broker is wondering how it would change the company's risk profile.

After adjusting for the FY21 result, the target price falls to $19.20 from $19.40. Shares in Fortescue Metals Group (ASX:FMG) closed 1.50 per cent lower at $21.00 yesterday
 
Ex-Dividends

Australian Ethical Investment (ASX:AEF) is paying 5 cents fully franked.
Ashley Services Group (ASX:ASH) is paying 2.4 cents fully franked.
Australian United Investment Company (ASX:AUI) is paying 19 cents fully franked.
Bega Cheese Ltd (ASX:BGA) is paying 5 cents fully franked.
Cardno Limited (ASX:CDD) is paying 4 cents unfranked.
CPT Global Limited (ASX:CGO) is paying 3 cents fully franked.
Diversified United (ASX: DUI) is paying 8.5 cents fully franked.
Endeavour (ASX:EDV) is paying 7 cents fully franked.
Fleetwood Ltd (ASX:FWD) is paying 10.5 cents fully franked.
Globe International (ASX:GLB) is paying 20 cents fully franked.
IRESS Limited (ASX:IRE) is paying 16 cents, 80 per cent franked.
Intega Group Limited (ASX:ITG) is paying 1.4 cents unfranked.
Kina Securities Ltd (ASX:KSL) is paying 2.55 cents unfranked.
Mount Gibson Iron (ASX:MGX) is paying 2 cents fully franked.
MNF Group Ltd (ASX:MNF) is paying 4.3 cents fully franked.
NB Global Corporate Income Trust (ASX:NBI) is paying 0.8049 cents unfranked.
Nickel Mines Limited (ASX:NIC) is paying 2 cents unfranked.
Propel Funeral (ASX:PFP) is paying 5.75 cents fully franked.
Qantm Intellectual (ASX:QIP) is paying 3.4 cents fully franked.
Ramelius Resources (ASX:RMS) is paying 2.5 cents fully franked.
Smartgroup Corporation (ASX:SIQ) is paying 17.5 cents fully franked.
Servcorp Limited (ASX:SRV) is paying 9 cents unfranked.
Southern Cross Media Group (ASX:SXL) is paying 5 cents fully franked.
Treasury Wine Estate (ASX:TWE) is paying 13 cents fully franked.
Wesfarmers Limited (ASX:WES) is paying 90 cents fully franked.

Commodities

Iron ore has lost 1.9 per cent to US$153.67. Their futures are pointing to 6.3 per cent fall.

Gold has gained $5.90 or 0.3 per cent to US$1,818 an ounce while silver was flat at US$24.01 an ounce.

Oil was down $0.71 or 1.03 per cent to US$68.50 a barrel.

Currencies

One Australian Dollar at 7:37 AM has weakened from yesterday buying 73.17 US cents, 53.20 Pence Sterling, 80.46 Yen and 61.95 Euro cents.

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