Australian Market Preview 9 July

Based upon the dreary way Australian shares traded yesterday, one could easily have assumed impending doom on US markets. Certainly there are some local factors in play, for example the new covid-19 lockdowns in Australia's second largest city, but there are similar winding backs of covid-19 openings in the US - and probably on a larger scale.
 
We've also had fantastic leads from economic data, from Chinese stocks, and from rising metals prices, including key commodities like gold, copper, and iron ore. Yet, over the last four sessions, the S&P ASX 200 has failed to fire.
 
The technical picture remains constructive for gains, but at some point, the Australian market needs to convert - and get these gains on the board - if it wants to really shake off the March lows and once again target the February highs.
 
Overnight on US markets, instead of doom, gains. The tech-heavy Nasdaq was 1.4% higher, whilst the benchmark S&P500 rose 0.8%, and the Dow Jones Industrial Index rose 0.7%. This shows that riskier stocks continue to outperform larger blue chips, and importantly, the so-called 'fear gauge' the volatility index (VIX), fell 4.6%.
 
There was little economic or company news for US investors to focus on, and they certainly didn't mind that daily new confirmed cases of covid-19 in the US spiked to their worst level on record of over 57k per day.


 
Simply, prices rose because the path of least resistance at the moment is up. There will be bumps along the way as markets climb that seemingly never-ending wall of worry, but in the short term at least, US shares just want to rally!
 
Locally, hopefully our materials and gold sectors can leverage off strong metals prices overnight. On the LME, all metals were higher, Aluminium (+1.8%) and Zinc (+2.8%) were the best.
 
Iron ore prices continued their recent return to form, up 2.2% on the Chinese Dalian exchange, and up 2.5% in the $US price.
 
Gold smashed through key technical resistance at $1802 to close 0.8% higher. Spot gold is now trading at US$1809.23 an ounce.
 
Even crude oil got in on the bullish action, rising 1.4%. Brent crude was 0.8% higher, whilst Natural Gas missed out, falling 3.5%.
 
With pretty much everything going the right way for Aussie shares overnight, one would have expected the ASX200 Share Price Index to do very well. However, the 50 point (0.8%) gain to close the evening session at 5941 will fall well short of yesterday's losses.
 
This is a slim 21 point premium to yesterday's ASX 200 close of 5920, and predicts an open of roughly +0.5-1% at the open.

Today, investors will focus on an upgrade in the rating for buy now, pay later segment leader Afterpay from Morgan Stanley from equal-weight to overweight. MS also increased the target price for APT from $36 to $101.
 

Investors will also focus on a trading update from Treasury Wine Estate (TWE). TWE expects EBIT between $530m-$540m, reflecting the impact of the COVID-19 pandemic. This has had a "significant impact" on TWE’s trading performance in H2 FY20.
 
The company said that cost management throughout this period has seen reductions in costs of doing business, but this would not prevent a decline of approximately 21% in FY20 EBIT.
 
In terms of outlook, TWE’s Chief Executive Officer Tim Ford said, "I strongly believe that TWE is very well positioned to manage through and beyond the currently impacted trading environment."
 

Netwealth (NWL) also released a trading update. They reported funds under management grew 35% for FY20, and also record growth in net inflows. Importantly, the June quarter showed a big bounce back in inflows following March's covid-19 pandemic affected results.
 
The company said it expects its FY20 performance to "slightly exceed" the previous guidance of revenue between $116-$120m, and underlying EBITDA between $58-62m. Also, that despite the uncertainty around covid-19, the current pipeline of business "continues to be positive".