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S&P/ASX 200 morning report – APT, Z1P & QBE shares in focus

The S&P/ASX 200 (ASX: XJO) is set to follow a positive lead from US markets and open higher on Wednesday. Here’s what’s making headlines.

August gains lost in a day

With reporting season complete, markets are once again turning to economic data and vaccine hopes. It wasn’t a great start to spring, with the ASX 200 falling 1.8% and giving back nearly all the gains achieved in August.

The ASX tech sector was the biggest detractor, with Afterpay Ltd (ASX: APT) and Zip Co Ltd (ASX: Z1P) down 8% and 11% respectively following global giant PayPal Inc. (NASDAQ: PYPL) announcing it was entering the Buy Now Pay Later market. Analysts are suggesting the entry could see margins hit as merchant fees reduce in light of more competition, yet with PayPal currently charging similar rates to Afterpay, I’d suggest the market is big enough to share, at least for a few years.

The other laggard was QBE Insurance Group Ltd (ASX: QBE), which looks to be suffering a culture crisis of its own following the resignation of a second CEO under a cloud of behavioural complaints from staff; shares fell 6.5% for the day; this is one to avoid.

Featured video: ASX results recap – APT, Z1P, FXL & more

RBA leaves interest rates on hold

The Reserve Bank of Australia announced their latest interest rate decision, maintaining the near-zero cash rate for the foreseeable future but unexpectedly doubling the $100 billion Term Funding Facility, offering banks access to capital at a cost of just 0.25% per annum.

Most attention was paid to the Governor’s quote indicating that “The Board will maintain highly accommodative settings as long as is required and continues to consider how further monetary measures could support the recovery.”

This could mean any number of things, from negative interest rates to more active involvement in Government bond issues; whatever it means it was sufficient to lift the market off its lows and in my view, is a positive for the continued support of the economy.

Despite the negative outlook for those stuck in lockdown in Melbourne, the economy appears to be improving, with building approvals up 12% in July, far better than the forecasted 2%, some positive news ahead of a historically bad GDP result tomorrow. Lendlease Ltd (ASX: LLC) rallied 2.2% on the back of the announcement after indicating it would be ramping up construction in 2021 and beyond.

Zooming in

It was a mixed night for overseas markets, with the US S&P 500 and Nasdaq both ending higher, 1.4% and 0.6% respectively, as the tech rally continues unabated.

This time it was the relative newcomer Zoom Video Communications Inc (NASDAQ: ZM), the app that has become ubiquitous with the pandemic, leading the charge. The company finished 40% (yes 40%!) higher after reporting sales of US$663 million in the July quarter, up from US$146 million in the prior year, and a profit of US$186 million compared to expectations of just US$134 million. The company’s performance has been exceptional and continues embarrass those suggesting this is a tech bubble, with record amounts of cash on the sidelines it is set to continue.

European markets were weaker following signs of deflation, Euro Area prices falling 0.2% in the quarter. Meanwhile, JP Morgan researchers have suggested that President Trump may still be capable of winning a second term despite poor polling, which they believe would be a positive for the economy. Australian GDP results are due at 11:30 this morning.

This article 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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Information warning: The information on this website is published by The Rask Group Pty Ltd (ABN: 36 622 810 995) is limited to factual information or (at most) general financial advice only. That means, the information and advice does not take into account your objectives, financial situation or needs. It is not specific to you, your needs, goals or objectives. Because of that, you should consider if the advice is appropriate to you and your needs, before acting on the information. If you don’t know what your needs are, you should consult a trusted and licensed financial adviser who can provide you with personal financial product advice. In addition, you should obtain and read the product disclosure statement (PDS) before making a decision to acquire a financial product. Please read our Terms and Conditions and Financial Services Guide before using this website. The Rask Group Pty Ltd is a Corporate Authorised Representative (#1280930) of AFSL #383169.

Disclosure: At the time of publishing, Drew owns shares of Zip Co.

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Wattle Partners is a financial advice firm, servicing clients around Australia, specialising in retirement planning (pre and post retirement). 

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