Australian Market Preview 15 July


A snapshot of overnight moves and a look to the upcoming Australasian session for 15 July.



Market Moves

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Wrap
Things didn't get a whole lot better with respect to the US economic outlook on Tuesday, simply, they didn't get a whole lot worse. And when the market is being juiced by loads of cheap and easy Fed and Government stimulus (for "as long as it takes"), this was always going to be the perfect environment for rising stock prices! And rise they did. Overnight, US markets once again defied our own determined attempt at ignoring the new bull market.

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Well, they just don't make blue-chips anywhere in the world like they make 'em in the Good Old US of A. The blue-chip Dow Jones Industrial Index lead global markets higher with a 2.2% gain. The broader market saw more modest moves however. The benchmark S&P500 rose 1.3%, and the tech-heavy NASDAQ Composite was 0.9% higher. Importantly, the so-called 'fear gauge', the volatility index (VIX), retreated 8.3% from its 18.5% spike on Monday.
 
The LME closed before the gains in the US really cranked up, so metals prices were generally lower. Perhaps some healthy pullbacks after two extremely robust weeks was in order anyway. Lead (-1.9%), Zinc (-2.9%) paced the declines. In contrast, high grade copper on the New York based COMEX rose another 1.5%.
 
Iron ore prices continued their strong form. The September 62% grade contract rose 1.3% on the Chinese Dalian exchange, and 0.6% in the $US price.
 
Interestingly, despite the good mood in stocks, Gold still managed to close 0.3% higher. Spot gold is now trading at US$1807.90 an ounce.
 
Crude oil continued its rollercoaster ride, reclaiming the crucial $40 handle to close at $40.73, that's 2.7% higher on Monday's close. Brent Crude was up 2% and Natural Gas was up 1.4%.
 
The ASX200 Share Price Index closed the evening session at 5941, off a session-high of 5960. That's exactly square with the ASX 200 close from Monday. Given the 20-30 point discount the SPI has been trading at recently, this implies that the ASX 200 should trade 0.5-0.8% higher at the open.
 
 

AU Companies

 
Woodside Petroleum (WPL)

Energy major Woodside Petroleum (WPL) reported after market close yesterday that it would take a US$2.76b hit to the value of its oil and gas properties, and a US$1.16b hit to the value of its exploration and evaluation assets, as a result of lower prices and demand uncertainty resulting from the covid-19 pandemic.
 
Despite the significant write-downs to the value of its assets, Woodside CEO Peter Coleman said the company was in a "strong position to take advantage of opportunities which will inevitably arise" as a result of the crisis.
 
He further hinted at the likely coming opportunities for acquisitions of distressed assets by saying, "Woodside’s disciplined approach to financial management gives us options to pursue inorganic growth opportunities as and when they emerge"
 
In response, Citigroup reduced its price target for WPL by approximately 7%.
 
Rio Tinto (RIO)
 
Major investment bank Deutsche reaffirmed its "buy" rating on Rio Tinto in London trading.
 
Openpay (OPY)
 
Provided a trading update. Revenue in the fourth quarter of FY20 was up 45% yoy to $4.5m. The company had seen record growth in active plans, up 229%, and merchants +52%.
Total Transaction Value (TTV) surged 98% yoy to a record $192.8m for the full year. Q4 growth was 119%. The UK business in particular reported strong growth, with 109k active customers.
 
 

Macro Economy

On the economic data front, local markets will look to the release of the Westpac Consumer Sentiment Survey due at 10.30 Sydney time.
 
Below is a brief summary of the key macroeconomic data developments for the last 24 hours.
 
China
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China’s imports and exports both increased in June. Exports rose 0.5% year on year and imports rose 2.7%. Both series had been forecast decline. The trade surplus shrank from a record-high in May to US$46.4b.
 
The data shows that demand at both within China, and abroad, have continued their tentative recoveries, despite the shock to the global economy from the covid-19 pandemic
 
Perhaps unsurprisingly, shipments of masks and other medical supplies assisted the growth in exports, whilst imports were helped both by rising commodity prices and a domestic Chinese economic recovery.

 
USA
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US consumer inflation as measured by the Consumer Price Index (CPI) jumped 0.6% in June, ahead of the 0.5% increase expected by the market, and well up from a 0.1% decline in May. Stripping out the volatile food and energy components, "core" inflation was up are more modest 0.2%. This was marginally higher than the 0.1% print the market had expected.
 
Whilst higher than expected, the data is not enough to spook investors that prices are rising too rapidly - simply they're not. Also, with many states winding back covid-19 re-openings, it is unlikely we'll see a continuance of higher inflation data into the future.

 
Australia
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National Australia Bank's NAB.AX index of business conditions showed a sharp recovery in activity and confidence in June. The Business Confidence index rose to +1.5 in June, up from -20.3 in May and from -45.7 in April. This was its highest level this year.
 
NAB Group Chief economist Alan Oster noted, "While the rebound has been significant, conditions remain deeply negative and well below average - reflecting the fact that activity still has some way to go before a full recovery can be declared."
 
Mining and retail led the gains, with services still lagging due to continuing social distancing requirements and the tourism industry grinding to an almost standstill.
 
"The survey was conducted just prior to the reintroduction of lockdowns in Victoria – so we will be closely watching next month's survey to see how confidence and conditions are again impacted," cautioned Oster.



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