The Monday Report – 27 July 2020

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This story features CSL LIMITED, and other companies.
For more info SHARE ANALYSIS: CSL
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

Breaking the Spell?

Friday saw the ASX200 close down -70 points to mark the fourteenth day in which no two consecutive sessions saw the index move in the same direction. The net result: up 12 points.

But wait! The futures were down -27 on Saturday morning. Could it be?

The ASX200 posted most of Friday's fall from the open, after Wall Street fell overnight on selling in Big Tech, increasing US-China tensions, and the ongoing failure of Congress to reach an agreement on further stimulus.

On Friday night Wall Street fell on selling in Big Tech, increasing US-China tensions, and the ongoing failure of Congress to reach an agreement on further stimulus.

After a flat morning the ASX200 dropped again at lunch time ahead of a flat afternoon. Likely "Friday selling", as a weekend is a long time in the current global climate. Domestically, the weekend brought the worst days of covid since covid began, yet Victorian authorities believe they are starting to get a handle on it.

Outside of IT (-2.1%), the big falls on Friday were in the big-cap sectors of financials (-1.5%) and healthcare (-1.6%). In healthcare's case, the strong Aussie dollar is weighing on CSL ((CSL)).

In the case of financials, Insurance Australia Group ((IAG)) issued a profit warning and announced a scrapping of its dividend. It fell -7.8% to be the worst performing index stock on the day. Bank of Queensland ((BOQ)) wasn't a long way away, falling -3.9% after reporting an increase in +90 day past-due loans to APRA.

For the big banks, this week's updated dividend policy due from APRA is keeping investors cautious.

Other sectors posted lesser but relatively even falls except for utilities (+0.8%), which seem to go up and down each day as much as the index does, and staples (+0.1%).

Gold was pushing towards the US$1900/oz mark (and got there on Friday night) yet Evolution Mining ((EVN)) fell -7.8%.

For gold miners it's all about (over)valuation, as far as analysts are concerned. Iron ore miners failed to be excited on Friday by preliminary data from the ABS showing Australia exports rose 8% in June, driven by iron ore. Imports rose 6%, driven by petroleum.

I noted on Friday morning that TPG Telecom ((TPG)) had just kept on falling since its merger, but it bounced back 4.7% during the session. Megaport ((MP1) provided a quarterly update, and fell -6.6%.

If the futures do fall -27 points this morning it will mean testing, yet again, 6000 support. The ASX200 first made it back to 6000 in early June.

Intel Inside

Having reported earnings after the bell on Thursday night, Intel (Dow) fell -16.5% in Friday night's session. The problem was not June quarter earnings but September quarter guidance. Chip rival Advanced Micro Devices reported in the morning, and rose 16.5%. Wonder what was going on there.

Intel was a big drag on the Dow on Friday night. The stock might be Big Tech, but sooo twentieth century, yet the more twenty-first century FANG and friends also had another weak session.

For the week, the Dow lost -0.8% — mostly Microsoft and Apple and the Nasdaq lost -1.3%. The S&P only lost -0.3%, highlighting rotation out of growth and into value/cyclicals.

Markets across Asia had fallen sharply on Friday after China ordered the US consulate in Chengdu, which happens to be up in Uighur territory, to be closed, in retaliation for Houston. As childish as these little tit-for-tats may seem, the bottom line is it appears an increasingly desperate Trump has decided going hard on China will be a vote-winner, along with attacking the BLM movement.

Wall Street is increasingly nervous. With regard the US-China trade deal that dominated the two years before covid, Trump said on Friday night it "means less to me now than it did when I made it".

Senate Republicans abandoned a proposed bill on Friday night with regard round two unemployment support to follow the July expiry of round one, citing not differences with the Democrats, but differences among themselves. It is increasingly clear there will be no round two stimulus by the end of this week.

It still boggles my mind that the House of Review can itself propose legislation, counter to the Legislature. No wonder nothing ever gets done.

And still the virus rages on. The US added 69,900 more cases on Thursday, with the past fortnight seeing case-count increases in 40 states. Florida remains the worst affected, but has now been joined by new player Louisiana.

Major League Baseball re-commenced on Friday night, with Dr Fauci throwing the ceremonial opening pitch. Bet that went down well at the White House.

Commodities

Gold, gold, gold! Although for Australia, the Aussie is proving a bit of a drag.

Nickel's moment in the sun proved short-lived on Friday night, with almost all industrial metals lower despite the relentlessly falling US dollar.

The oils appear to be snoozing for the moment.

The Aussie is up 0.1% at US$0.7104.

The SPI Overnight closed down -27 points or -0.5%.

The Week Ahead

US durable goods orders data for June due tonight will be a bit old, being pre re-lockdowns, as will personal income & spending data on Friday. Consumer confidence for July, tomorrow, will be more telling.

The Fed meets this week, with a statement due on Wednesday night.

The eurozone reports a first estimate of June quarter GDP on Thursday.

China reports June industrial profits today and July PMIs on Friday.

The highlight for Australia, economically, will be June quarter CPI on Wednesday, which is likely to be negative.

On the stock market it's a busy week, featuring the last of the resource sector production reports merging with the first of the season's earnings reports.

Iluka Resources' ((ILU)) production report is due tomorrow followed by IGO on Wednesday, Fortescue Metals ((FMG)) and Sandfire Resources ((SFR)) on Thursday, and Infigen Energy ((IFN)) on Friday.

Emeco Holdings ((EHL)) and GUD Holdings ((GUD)) report earnings today, Credit Corp ((CCP)) on Tuesday, Janus Henderson ((JHG)) and Rio Tinto ((RIO)) on Wednesday, and Cimic ((CIM)) and UR Westfield ((URW)) on Thursday.

There are also a handful of AGMs this week, including Macquarie Group ((MQG)) on Thursday.

The Australian share market over the past thirty days

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