The Monday Report – 20 July 2020

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This story features SOUTH32 LIMITED, and other companies.
For more info SHARE ANALYSIS: S32
The company is included in ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

Support

The ASX200 opened up 32 points in the first ten minutes on Friday then immediately fell back -42 points to the 6000 level. From 11am till 3pm the index made multiple attempts to rise from 6000, failing every time until the final hour.

6000 had been solid resistance on the upside, so now its solid support on the downside.

Perhaps the most notable aspect to sector moves on Friday was that none exceeded 1%. Can’t remember when that last happened. All sectors closed in the green bar IT, which fell -0.1%. Upside moves ranged from 0.1% for discretionary to 0.8% for materials.

In the recent climate, it was largely a nothing day.

As for how long technical support at 6000 can hold will likely come down to whether the virus situation in Australia continues to worsen outside Melbourne, and particularly in NSW. Gladys seems fiercely determined not to put the state back into lockdown but the recommendations of what not to do, which basically suggest voluntary lockdown, are stepping up.

Much depends on Wall Street of course, which spent the week rotating out of growth and into value but remains resilient on a net basis, even as the case-count continues to run out of control. Much depends on the next round of fiscal stimulus, given round one ends in less than a fortnight.

The same is true in Australia, and perhaps we may see a quieter market up to Thursday when the government’s revised fiscal plans will be announced.

There was nothing much to write home about among individual stocks moves on Friday.

Office/storage REIT Abacus Property ((ABP)) topped the index winners with a 6.6% move after announcing an extension to its banking facility.

Miners were among the winners after reporting their quarterly sales and production numbers. Alumina Ltd ((AWC)) rose 4.3% after JV partner Alcoa reported earnings and South32 ((S32)) came in with 4.2% on its quarterly report. Rio Tinto’s ((RIO)) quarterly was worth 0.6%.

Ignoring highly volatile biotechs, Flight Centre’s ((FLT)) -2.8% loss was most notable, as travel-related stocks all went backwards once more, with Qantas ((QAN)) also falling and Helloworld ((HLO)) dropping -2.0% after a raising.

There was also minimal action on Wall Street on Friday night so as suggested, we may be in for a bit of quiet period. Our futures were up all of 2 points on Saturday morning.

Bring it on

That said, this is the biggest week in the US earnings season, so there will be tales to be told and potential reactions either way.

Wall Street spent all week rotating out of the Big Tech names and into some beaten-downs, likely taking profits in the big movers ahead of any sell-the-fact responses to results or, as in Netflix’s case, weak responses to weak results.

“Weak”, however, has to be considered in the context of “priced to perfection” valuations that suggest any slight disappointment will be harshly dealt with. But with investors having spent the week trimming positions, perhaps downside moves are now less of a risk.

The Nasdaq did manage to hold its ground against the S&P500 on Friday night, but for the week the Nasdaq closed down -1.1% and the S&P rose 1.3%.

The Dow underperformed on Friday night due largely to a pullback in Boeing, but the big banks JPMorgan and Goldman Sachs again found sellers after having jumped earlier in the week on better than expected earnings numbers.

In the S&P, utilities and REITs were the best performing sectors while technology, communication services and consumer discretionary were the losers. Of the Big Tech names, Apple was the only winner on the week, just, while Amazon was the worst performer, down -8%.

The US posted another record number of new cases on the Thursday, as reported on the Friday, but Florida did see a slight reduction in pace. While this may be encouraging, one health expert warned that the state may have reached peak testing capacity, which would cloud the picture.

The Michigan Uni consumer sentiment index fell to 73.2 in the first two weeks of July, down from 78.1 at end-June. Economists had expected a rise to 78.6, despite hotspot states moving to tighten up restrictions.

As is the case in Australia, much hinges on what the US government can agree upon as a second-round stimulus package. One thing is certain, this time PPP (JobKeeper) and other support measures will not be handed out indiscriminately as was the case in round one, but likely revenue-tested to ensure the needy are the recipients and not just any company larger or small.

Alongside earnings results, any decision will be Wall Street’s focus in the immediate term.

Commodities

The profit-taking in gold ended sharply on Friday night, with the US dollar index now slipping below 96.

Base metals remain mixed but the increased demand/constrained supply story for copper continues.

Greenback weakness has the Aussie up 0.2% at US$0.6988.

The SPI Overnight closed up 2 points on Saturday morning.

The Week Ahead

This week will be dominated by US corporate earnings results, with Australia’s first trickle of its earnings season beginning next week.

In Australia the focus will be on the Treasurer’s “mini” budget to be delivered on Thursday. The minutes of the July RBA meeting are out tomorrow and Philip Lowe will speak.

We’ll also see a preliminary report on June retail sales from the ABS on Wednesday.

Existing home sales on Wednesday and new home sales on Friday are the only real highlights in the US, outside of a global round of flash estimates of July manufacturing PMIs on Friday.

Quarterly production reports from the resource sectors dominate the Australian corporate calendar this week. Reporters include BHP Group ((BHP)) and Oil Search ((OSH)) tomorrow, OZ Minerals ((OZL)) on Wednesday and Evolution Mining ((EVN)), Newcrest Mining ((NCM)), Santos ((STO)) and Syrah Resources ((SYR)) on Thursday.

Sydney Airport ((SYD)) will provide a quarterly update today, and Megaport ((MP1)) on Thursday.

The Australian share market over the past thirty days…

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