Australian Market Preview 12 August

 

In terms of the technicals, Tuesday's move on the benchmark S&P500 is was a nasty one. US markets were broadly higher on the open and built on their gains until the last hour of trading. Then, just when it looked like US shares would set a new record trading high, sellers swept in and thumped prices into the close.

Early in the session, US investors were feeling bullish as Russia announced that they would move into production on their covid-19 vaccine candidate, and daily confirmed cases in the US remained below 50k for the second day in a row. Also, markets continued to bask in the afterglow of President Trump's executive order to continue unemployment relief and to provide concessions on payroll tax.

The party ended abruptly around 3pm when sellers (as sellers like to do), hit the bids and sold into the strength. The "bearish engulfing pattern", where the current trading session's range is greater than the previous session's range and the close is at or near the lows of the session, is generally a reliable sign of a short term market top.

Typically, local markets reflect the close of trading in the US, not the open - so expect a tough day on the ASX today. Perhaps though, the move in the US does explain our own failure to hang on to our highs yesterday.

Looking to other market moves, European equities and LME metals are probably not much to go on. This is because risk on assets were mainly in favour in Europe when those markets closed (a couple of hours before the US close). Given the finish in the US, European stocks and LME metals are likely to see pullbacks - at least at the open of Wednesday's trading session, later today our time.

Other assets that trade 24/7 reflected the US close. Risk on assets like West Texas Crude lost 0.74% to US$41.66/barrel, Brent fell 0.92%, and Natural was 0.51% lower.

Risk off precious metals, rallied off their lows, but this was not enough to prevent a 5.88% plunge in the gold price. Spot Gold is now trading at US$1927/oz, whilst Silver lost 5.5% to US$25.65/oz.

In currency moves, the Australian Dollar retreated from its highs around 0.7189 and is now trading at 0.7147.

Risk off bonds rose fell sharply, spiking the yields on the US 10 year Treasury Notes to 0.644%. This is the highest they've been this month, and well off the 0.502% low set on August 4.

So with that big, bearish reversal in the US stock market, where did the ASX200 Share Price Index end up? Well, it was lower, but off its lows. It closed at 6103 compared to an overnight session high of 6153 and a low of 6078.

That's a 36 point discount to yesterday's ASX 200 close of 6139, and predictive of approximately a 0.2%-0.3% fall at the open for the S&P ASX200. 

 

The company reported today an 11.3% fall in profit to $7.3 billion. This was below market expectations for a profit of $7.4b. CBA declared a dividend of $0.98, well down from the $2.31 paid in the previous corresponding period (pcp).

Looking forward, Chief Executive Matt Comyn said, "We anticipate that lower credit growth and low interest rates will continue to put pressure on our revenue, requiring focus on performance, efficiency and capital allocation".
 

Transurban Group (TCL), Downer Edi Limited (DOW), Mg Unit Trust (MGF), and Seek Limited (SEK).
 

Adairs Limited	ADH	EL&C Baillieu raises Adairs Limited (ADH) price target from $2.20 to $3.20. Retains hold rating. Cites increases in consumer spending, strong online sales.
James Hardie Industries	JHX	Jefferies raises James Hardie Industries (JHX) price target from $27.20 to $31.10. Retains hold rating. Expects low mortgage rates, work from home ability and low housing inventory to bolster housing construction.
Saracen Mineral Holdings	SAR	Citi lowers Saracen Mineral Holdings Limited (SAR) price target from $6.20 to $6.10. Retains neutral rating.
Sigma Healthcare Limited	SIG	Citi raises Sigma Healthcare Limited (SIG) price target from $0.75 to $0.80. Retains buy rating.
Sydney Airport	SYD	Jefferies lowers Sydney Airport (SYD) price target from $6.18 to $6.07.  Notes challenges, but capital raising is a positive as will enable pay down of debt - reducing interest costs.
Wisetech Global Limited	WTC	Citi downgrades Wisetech Global Limited (WTC) rating from neutral to sell. Lowers price target from $22.60 to $18.40. Blames challenging economic conditions. Sees downside risk to earnings.

 

Macro Economy

Today, at 10.30am EST we'll see data from Westpac on Australian consumer sentiment, and an hour later on local wages growth.

This evening, markets will watch for data on industrial production in Europe, and on inflation in the US.