Australian Market Preview 31 August

US markets continued their relentless charge higher on Friday as markets basked in the warm afterglow of the Fed's decision during the week to move to inflation targeting. 

On Thursday, Chairman Jerome Powell announced that the central bank would drop its previous rigid inflation target of 2% and instead aim for an average annual inflation rate of 2%. This means it is now far less likely that the Fed would pre-emptively hike rates to combat inflation.

Also helping investor sentiment, consumer spending and personal incomes rose at a better than expected rate in July (see Macro Economy).

The blue chip-laden Dow Jones Industrial Index rose 0.57%, the benchmark S&P500 gained 0.67%, and the tech-heavy NASDAQ closed up 0.60%.

Looking at other assets, the mood was generally risk on. Also, a sharp fall in the value of the US dollar helped a number of commodity prices rally.

London Metals Exchange (LME) prices were generally higher with only Lead missing out on gains.  Each of the other metals saw price gains of approximately 0.3-1.2%. Copper also saw a 1.06% gain in New York. 

Iron Ore prices were 1.99% higher on the Chinese Dalian Exchange, and were a more substantial 3.66% higher in the Singapore-based $US price.

Precious metals got in on the bullish action too. Spot Gold rose 1.95% to US$1964/oz, whilst Silver gained 2.1% to US$27.49/oz.

Energy commodities were somewhat more subdued however. West Texas Crude added 0.05% to US$42.96/barrel, Brent gained 0.46% to US$46.25/barrel, whilst Natural Gas was 1.21% lower.

In currency moves, the Australian Dollar surged 1.45% to 0.7365 as the US Dollar Index declined 0.68%.

Risk off bonds fell, with the yields on the US 10 year Treasury Notes rising 3.2bp to 0.72%.

So with a mainly risk on move in overnight leads, where did the ASX200 Share Price Index end up? Well, it had a relatively lacklustre session, closing at 6004 compared to an overnight session high of 6038 and a low of 5968.

That's a 69.8 point discount to yesterday's ASX 200 close of 6073.8, and predictive of approximately a 0.3%-0.5% fall at the open for the S&P ASX200. 

 

Buy now, pay later payment platform provider Sezzle delivered its first half results this morning. The company reported an after-tax loss of $8.2 million for the half year ended June 30, 2020, compared to $4.8 million for the prior comparative period.

Underlying merchant sales surged 338% compared to the previous corresponding period (PCP), whilst the number of active merchants referring customers improved 219%.

Active customers were up 243% on the PCP, and importantly, repeat usage by these customers improved just over 10%.

Net transaction loss (bad debts) decreased 80 basis points as net transaction margin (profit margin) improved 200 basis points to 1.7%.

Operating expenses were also up, by about 193% compared to the PCP as the company ramped up spending on marketing and personnel. The company did not provide guidance for the second half.

 

Also reporting this morning: Amaysim Australia (AYS), Cooper Energy (COE), Openpay Group (OPY), Sealink Travel Group (SLK) and Splitit Payments (SPT).

 

Boral	BLD	Jefferies raises Boral (BLD) price target from $5.00 to $5.10. Retains buy rating. Broker is impressed with improvement in margins, strong outlook. Sees limited downside risks to earnings and valuation.
City Chic Collective	CCX	EL&C Baillieu retains buy rating on City Chic Collective (CCX). Retains $3.70 price target. Broker believes co. will continue to deliver strong growth as it expands its operations.
Harvey Norman	HVN	Jefferies raises Harvey Norman (HVN) price target from $4.50 to $5.40.  Upgrades earnings forecasts on the back of FY20 results.
Harvey Norman	HVN	Citi raises Harvey Norman (HVN) price target from $4.80 to $5.00. Retains buy rating. Predicts sales growth momentum will continue to improve.
Nextdc	NXT	Jefferies raises Nextdc (NXT) price target from $13.66 to $13.84.
Orocobre	ORE	Citi lowers Orocobre (ORE) price target from $3.90 to $3.70.
Resolute Mining	RSG	Citi lowers Resolute Mining (RSG) price target from $1.700 to $1.650. Retains buy rating. Is concerned about operational stability in the medium term due to geopolitical risks. However, ramp up of Syama project by end of 2020 should assist.

 

Today, we'll see data on the Chinese manufacturing and services sectors with the release of the Manufacturing and Non-Manufacturing PMI's at 11am EST.

Below is a summary of the key macroeconomic data releases from Friday evening.
 

Personal spending rose 1.9% in July compared to the 5.6% gain experienced in June. Whilst relatively anaemic, the reading was better than the 1.5% increase economists were expecting.

US consumers spent more on clothing and footwear, health care, food services and accommodation.

Incomes rose 0.4% in July compared with a 1.1% decline in June. Note however, this was mainly due to US Government payments to businesses to keep workers employed.