The S&P/ASX 200 (INDEXASX: XJO) is tipped to open slightly lower on Friday with the most popular Sydney Futures Exchange contract pointing to a 14-point decline from yesterday. Here’s what you need to know.
Foot off the pedal
The S&P 500 broke three straight days of gains overnight, falling 0.2% as investors became exhausted from an extended rally. This came despite unemployment benefits slowing and announced recoveries in domestic flights.
On Thursday, the ASX 200 gained 0.8% and is now nearing the 6,000 level on the back of a sustained rally in the banking sector — the index is now pushing towards its 6th consecutive weekly rise. To me, is clear that markets are and will remain supported by the cheap flow of capital coming from global central banks (another $500 billion from the ECB overnight). triggering the fear of missing out (FOMO) reaction from those investors who exited during the volatility in March.
In my view, the biggest risks to this sustained recovery are an unexpected second wave of COVID-19, with current protests threatening a large spike in cases, or an increase in political risk as the US election nears. In the meantime, investors best remain selective and enjoy the ride.
Cheap quality
CSL Limited (ASX: CSL) rallied 3.8% on Thursday after Paterson’s Securities upgraded their view suggesting the 10% fall this week represents a unique opportunity for investors to access a true global leader. Being a long-term shareholder of CSL shares I couldn’t agree more.
The Commonwealth Bank of Australia (ASX: CBA) led the banks higher, up 2.3%, yet the question of governance remains after Westpac Banking Corporation (ASX: WBC) blamed human error and technology issues for its 23 million AUSTRAC breaches.
In what may be a sign of cracks in the property development sector, a well-known commercial property developer announced he had cut rents by 50% to fill a new office building, likely sending valuations in the entire region down. This is the problem with property in the current environment: if one landlord decides to reduce their rent, all tenants will seek discounts and valuations will suffer.
On a separate note, retail sales disappeared in April, falling 17.7%, driven lower by falls in clothing (-56%), footwear (-50%) and restaurants (-53%).
Here’s some of the important research we published in the last 24 hours:
- Are ANZ, CBA & NAB shares still dirt cheap?
- Qantas (QAN) shares fly on flight resumption plan
- Simple & Effective investment rules to build long-term wealth
Can he fix it?
This week, Prime Minister Scott Morrison announced his Homebuilder Package, offering $25,000 cash grants for middle-income earners willing to renovate for at least $150,000 in total. This appears to be a stop-gap solution, with the Government appearing to support the building sector without committing too much funding.
The lower-than-expected stimulus sent shares of Boral Ltd (ASX: BLD) and Adelaide Brighton Ltd (ASX: ABC) lower.
The top performer for the day was small-cap automated ‘bricklayer’ Fast Brick Robotics Ltd (ASX: FBR). FBR shares bounced 110% after announcing its automated Hadrian AI machine was laying bricks at a commercial rate of 200 per hour.
And in a stunning turnaround we flagged to clients in mid-March, the AUD has approached 70 US cents this week, driven primarily by the losses of others, particularly Brazil, as skyrocketing COVID-19 deaths resulted in a spike in iron ore prices. This is not great news for our own recovery, with the RBA likely to intervene in the coming months should the strength continue.
This report was written by Drew Meredith, Financial Adviser and Director of Wattle Partners. To get in contact with Drew, click here to visit the Wattle Partners website.
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