The latest data from the Sydney Futures Exchange has contracts on the S&P/ASX 200 (INDEXASX: XJO) index showing a hefty jump at the start of trading this morning. Here’s what you need to know.
Overnight action
The ASX 200 caught up to Wall Street’s Friday falls, dropping another 2.2% on Monday, and taking the losing streak to three consecutive days. The weakness was driven by a combination of cyclicals and the financial sector, with energy down another 3.4% along with consumer discretionary.
Wesfarmers Ltd (ASX: WES) lead the sector lower falling 3.4%, whilst a Myer Holdings Ltd (ASX: MYR) announcement that KPMG had been engaged to advise the company was not well received. Myer shares fell 6%.
The losing streak, however, appears to be coming to an end as quickly as it started after all three US indices including the S&P500 managed to recoup initial falls of 2.5% to finish up between 0.6% and 1.4% overnight. The driver was the Federal Reserve’s follow-through on its pledge to buy US corporate bonds on the secondary market. The outlook is also improving in China with industrial production, down 4.4%, unemployment falling to 5.9% and retail sales down just 2.8% on the previous year in May. That compares to a drop of 7.5% in April. The slowing of falls bodes well for the Australian economy despite increasing trade rhetoric, so I expect BHP Group Ltd (ASX: BHP) shares to bounce today.
Volatility on the horizon?
In the UK the FTSE 100 couldn’t manage a similar recovery, falling 0.7%, as investors struggle to come to terms with one of the weakest economies in history — showing a 20% contraction on the previous month and 25% than the same time the previous year.
It was another busy day for the Australian companies seeking to navigate the post-COVID-19 malaise with Super Retail Group Ltd (ASX: SUL) announcing a $203 million capital raising at $7.19 to ‘support strategic initiatives’ for the business. Despite reporting a strong recovery in sales from its Rebel Sport and Super Cheap Auto franchises, up 26.5% in May, the company seems to be preparing for the end of the Job Keeper program like many others.
Building product supplier Boral Ltd (ASX: BLD) bucked the trend, adding 1.7% as the board announced Zlatko Todorsevski as its new CEO. Todorsevski brings a strong track record in charge of the financials of both Brambles Ltd (ASX: BXB) and Oil Search Ltd (ASX: OSH) in recent years. This is a positive move and may trigger a revaluation of the company as non-core business lines are demerged or sold to free up capital.
Is Private Equity getting ready to pounce?
BGH Capital strategy of capitalising on short-term weakness continued this week, announcing it will acquire the Primary Care, or the General Practice business of Healius Ltd (ASX: HLS) (previously known as Primary Healthcare), for close to $500 million.
City Chic Ltd (ASX: CCX), a specialist supplier of ‘plus-size’ ladies clothing, rallied close to 6% after management elected to close 14 of its 100 stores due to lack of progress in renegotiating new leases with its landlords. This move is a positive and a sign of the power once again moving to the tenant. CCX is a popular holding among small-cap fund managers including Pendal Group Ltd (ASX: PDL) and Wilson Asset Management.
Globally, energy and fuels business BP Plc (LON: BP) continues its transition to a lower carbon business under the new CEO, writing down the value of assets by some $17.5 billion and cutting its workforce by 14% or 10,000 people. It is a direct reaction to changing expectations for cleaner energy and fragile energy markets that may actually put the company in a stronger long-term position.
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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