ASX 200 Bounces Back After Trump’s Release From Hospital
The ASX 200 (ASX: XJO) bounced hard, up 150 points Monday reversing the damage we saw on Friday afternoon after it was announced Trump would be back at his desk following a brief visit to Walter Reed National Military Medical Centre.
Volume was low with many states and China on holiday.
Tuesday saw a second day of gains with the market up 21 points.
- RBA and budget in focus.
- The RBA left rates on hold as expected, though left the door open for a November rate cut.
- Federal budget announced after the bell delivered on many of the elements people expected, a large focus on jobs, not surprisingly the key focus. Tax cuts, cash handouts, investment in manufacturing, wage subsidies for apprentices and infrastructure spending some of the key measures.
- NAB forecasting “a quicker recovery to pre-covid levels by H2 2021 and for the unemployment rate to be back towards 6.5% in the June quarter of 2022,” following the release.
Risk-on enthusiasm slowed Wednesday after Trump called an end to stimulus negotiations.
- Tweeting, “I have instructed my representatives to stop negotiating until after the election when, immediately after I win, we will pass a major Stimulus Bill that focuses on hardworking Americans and Small Business.” The declaration presumably difficult for Fed chair Jerome Powell to digest who once again pressed for fiscal support to help the US economy.
- The polls in the US are pointing to a clear Biden lead with Wall Street seemingly less concerned with a Biden victory and policy implications. The market more enthusiastic about the possibility of a clear and decisive win. The worst-case scenario is a close result and off to the courts we go.
In the commodities space, oil has found a short-term bottom, up ~7.5% supported by global supply disruptions. Energy companies in the Gulf of Mexico shut offshore oil operations as Hurricane Delta strengthened to a Category 2 storm.
Iron ore unchanged for the week with China observing the Mid-Autumn Festival. Back online Friday.
Restrictions in the US and Europe tightening as cases increase.
This is one of the more serious potential market negatives – a halt in the global economic recovery trajectory/timetable. Continued commentary about a Winter Wave. All the more reason for the equity market to inch along rather than charge along.
Looking ahead, the RBA is set to release its Financial Stability Review on Friday, which may provide more insight into to a November rate cut. Home loan data also due.
Overseas, FOMC minutes the main event, out tomorrow. The UK has a BoE FPC Statement Thursday, as well as Balance of Trade and GDP on Friday. TCL has traffic data out Thursday, SRG and BXB hold AGMs. HVN trading ex-dividend Friday.
Main Stock Stories:
Northern Star Resources (ASX: NST) (we hold in the MT Growth Portfolio) and Saracen Mineral Holdings (ASX: SAR) – To merge and form a new $16bn gold miner, with ownership of the Kalgoorlie super pit consolidated under a single owner. SAR shareholders to receive 0.3763 NST shares for each SAR share they hold and will also receive a special, fully franked dividend of 3.8c/share. NST shareholders will own 64% of the combined entity and SAR shareholders will own the remaining 36%. The deal is expected to unlock $1.5-2.0bn in pre-tax valuation synergies over 10 years.
Baby Bunting (ASX: BBN) – Reported comparable store sales growth of 17.0% for Q1. Excluding Melbourne metropolitan stores, comparable store sales growth was up 28.5%. Online sales (inc. click & collect) up 126% during Q1 FY21, excluding Victoria, online sales growth was up 92%. Gross margin improved 90 basis points to 37.5% to the end of Q1 FY21. Expects to open 4 to 6 new stores in FY21. Macquarie expects gains will be sustainable and also notes the business is taking market share. While the shares have re-rated strongly, there are a number of growth levers that remain attractive according to the broker.
ARB Corp. (ASX ARB) – Reported Q1 unaudited sales revenue growth of 17.7% vs year ago. Q1 unaudited PBT $29.7m, excluding non-recurring government benefits of $9.7m related to the quarter. Noted excellent growth was achieved in export markets, while domestic Australian sales growth was moderate and, as expected, original equipment manufacturing (OEM) sales decreased compared with the same period last year. The level of outstanding orders remains high and work is being done to overcome logistical difficulties and to increase production to reduce the order bank and better service customers. In the absence of a significant change in the economic environment, export sales are expected to remain strong and the OEM order book is growing.
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