The S&P/ASX 200 (ASX: XJO) is expected to open relatively flat on Tuesday according to the latest SPI futures. Here’s what’s making headlines.
Blistering start slows, bond rates higher
After a blistering opening to the year in which the ASX 200 added 2.6%, attention once again turned to the economic outlook, sending the ASX 200 down 0.9% on Monday.
Every sector but energy weakened, with the IT sector the hardest hit falling 2.2%, Afterpay Ltd (ASX: APT) a key detractor down 2.9% in the session.
The bout of weakness was driven by a spike in interest rates, more specifically the 10-year government bond rate, in both the US and Australia over the last few days.
Despite the prevailing sentiment that interest rates are unlikely to move higher for the foreseeable future, markets are suggesting this may come sooner than expected. Government bond yields are the single most important input into the valuation of companies, as they represent the ‘risk-free’ alternative.
The IT sector has benefited most from lower interest rates, which support higher equity market valuations, and thus were among the weakest performers with Nearmap Ltd (ASX: NEA) also dropping 5.4%.
Retail sales in rude health, Shaver Shop upgrades guidance
Retail sales for November were released yesterday and they showed an economy recovering quickly from the pandemic. The combination of Melburnians being released from lockdown and Black Friday sales saw retail figures increase 7.1% for the month and an incredible 22.4% in Victoria alone. Clothing, footwear and accessories, up 26.7%, were the biggest beneficiaries with department stores, up 21.1%, not far behind.
Such was the strength the Shaver Shop Group Ltd (ASX: SSG) upgraded its guidance, flagging an 85% increase on FY20 profit levels as December quarterly sales were 12.4% higher. The strength was driven by a continued surge in online sales, which were 102% higher in the first half and now represent over 30% of total sales. The Shaver Shop share price finished 11.3% higher for the day.
Meanwhile, share trading platform SelfWealth Ltd (ASX: SWF) is clearly benefitting from the ‘Super Hero’ theme of millennials moving into share investing. Management released its second-quarter results, reporting a 208% increase in active traders, 377% increase in quarterly trades and most importantly, a 298% increase in revenue to $4.46 million. SelfWealth shares finished 1.0% lower.
US markets lower, Bitcoin tumbles 20%
US markets followed a similar trend overnight, the Nasdaq dropping 1.3% and the S&P 500 0.6% on the threat of higher bond rates; whether this is sustainable is another question.
The key driver was an announcement by President-Elect Joe Biden that he will be pushing forward with US$2,000 stimulus cheques along with a significant infrastructure spending spree as his first order of business; the USD also rallied.
Bitcoin remains the most volatile asset class in the world, falling 20% in just a few days after adding 300% in 2020. This followed a report by the UK Financial Regulator warning investors in the currency to ‘prepare to lose all your money’.
Elsewhere, Facebook (NASDAQ: FB) and Twitter (NASDAQ: TWTR) shares fell 4.0% and 6.4%, respectively, after banning President Trump’s account, once again raising questions around censorship and control.
