Wall St mixed, China’s move and drop in iron ore price, Why Whitehaven is a buy: ASX to fall

A mixed market across the major indexes around the globe on disappointing jobs data in the U.S. Commodity prices fell while materials and energy stocks rose on the local bourse.

The Australian sharemarket is set to fall ahead of the RBA meeting with the SPI futures pointing to a dip of 0.3 per cent.

Mixed market as Covid-19 dominates amid political moves

A big week of news last week with the highly anticipated jobs report in the U.S coming in weaker-than-expected. In Asia, China’s services sector suffered a blow for the first time since the pandemic. In Japan, Prime Minister Yoshihide Sugaback is set to resign which sent the Nikkei surging. Back home, we saw our GDP rise mildly in four quarters by 0.7 per cent. Amid all these numbers is a wave of coronavirus infections, the wild card to the pace of the pandemic rebound.

Yields rise yet bank stocks fall on jobs data

Wall St closed mixed on Friday after market participants digested the 235,000 jobs added in the economy as per the Labor Department. This fell well below the figure of 750,000 that economists expected. Their unemployment rate declined by 0.2 percentage points to 5.2 per cent.

The August jobs growth compared to the increase of 1.1 million in July and 962,000 in June left investors cautious of a potential reversal from the positive momentum so far.

To put this in perspective, the Fed wants to see “substantial further progress” around Americans being employed before slowing down the pace of their bond purchases program. We have seen equity markets hit record highs along with home prices surging amid ultra-low interest rates.

They’ve signalled that if the data shows the country has found its footing, they will start to prepare for an eventual interest rate rise. With the August jobs number, it may delay these plans, which is good news for investors for the meantime.

Nasdaq hits fresh high while S&P 500 retreats

At the close, the Dow Jones lost 0.2 per cent to close at 35,369 and dipped lower by 0.2 per cent for the week, S&P 500 marginally fell 0.03 per cent from its record high to 4,535 but rose 0.6 per cent for the week while the Nasdaq hit a fresh record high rising 0.2 per cent higher at 15,364, adding 1.5 per cent for the week.

The yield on the 10-year treasury note rose to 1.33 per cent along with gold and silver.

Across the sectors on the S&P 500, the tech rally helped limit losses. Technology added 0.4 per cent while materials edged in front by 0.6 per cent. Healthcare and communications services both closed 0.11 per cent higher. Utilities fared the worst, down by 0.8 per cent followed by industrials, financials and energy. The other sectors closed mixed.

European markets react to jobs & business activity growth

Across the Atlantic, European markets closed lower as investors reacted to the U.S jobs
data after rates on business activity growth contracted for August.

Paris fell 1.1 per cent, Frankfurt closed 0.4 per cent lower and London’s FTSE lost 0.4 per cent.

Heavyweight miners advanced. BHP rose 0.6 per cent while Rio Tinto eked out a 0.04 per cent gain.

Asian markets reacts as Japan jumps while China slips

Asian markets closed mixed. China and Hong Kong shares closed lower after China’s services sector contracted l, while brokerage stocks charged ahead after President Xi Jinping said that the country would set up a stock exchange in Beijing to support small and medium-sized firms. Meanwhile, Japan’s Prime Minister said he will not be running in the next leadership election after one year in the role.

This saw Tokyo’s Nikkei jump 2.1 per cent to a 30-year high, Hong Kong’s Hang Seng dip 0.7 per cent and China’s Shanghai Composite closed 0.4 per cent lower on Friday.

ASX 200 continues to recover from 3-week low

On Friday, the Australian share market closed 0.5 per cent higher at 7,523, thanks to a rally in material and energy stocks despite a fall in commodity prices. The ASX 200 modestly added 0.5 per cent over the week lifting from its three week low.

Rio Tinto (ASX:RIO) climbed 2.5 per cent at $111.37 while Fortescue Metals (ASX:FMG) added 0.7 per cent at $20.85. BHP jumped 1 per cent at $42.35 from their nine month low. Woodside Petroleum (ASX:WPL) closed 0.8 per cent higher at $19.90.

We also saw a surge in lithium stocks with the likes of Orocobre (ASX:ORE) lept 7 per cent at $9.79. Elsewhere, Whitehaven Coal (ASX:WHC) soared 6.8 per cent at $2.80.

Across the sectors, technology lagged 0.8 per cent with Afterpay (ASX:APT) as the main drag and tanked 2.8 per cent at $130.71, followed by consumer staples, while energy and utilities added 0.8 per cent after materials gained 1.2 per cent.

Iron ore price forecast to tumble to US$55 per tonne

The highlight for the week was the GDP figures which came in better-than-expected at 0.7 per cent over the June quarter thanks to a boom in commodity prices, in particular iron ore.

Iron ore exports were up 3.5 per cent to $19.1 billion from June, on a seasonally adjusted basis, and 66 per cent higher from the year before.

The price of iron ore has fallen around 40 per cent since May on concerns about demand from China as they diversify iron-ore supply and curb carbon emissions.

The Australian government predicts that the price of iron ore will tumble US$55 a tonne by March next year.

Local & international economic outlook

The Reserve Bank is set to take the focus this week as the board looks to review their monetary policy on the backdrop of a raft of economic data which point to a slowing down of our recovery.

As discussed with the moves in the U.S., we have had a somewhat similar momentum in our labour market.

Our jobless rate fell to a 12-year low of 4.6 per cent in July, however with the lockdown weighing on the economy, economists are expecting the number of Aussies who are unemployed to rise. At the same time, wages growth grew at a weak pace at 1.7 per cent in the June quarter.

To gauge where things are at, we have two pulse check reports to gauge the state of our labour market.

The Australian Bureau of Statistics has pencilled in their payroll jobs report for the fortnight ending August 14 on Thursday. We will also see the labour account report for June on Wednesday.

It kicks off today with the Melbourne Institute set to issue the monthly inflation gauge for August. Also ANZ has pencilled in the release of their jobs advertisements for August also.

In the U.S., the calendar looks quiet after last week. Wall St is closed on their Monday for the Labor day holiday. However in Asia, Chinese’s inflation figures and international trade will attract some attention while in Europe, their central bank is slated to meet.

On a side note, Quarterly rebalance is set to take place with companies now swapped out of the ASX 200 and replaced with others. Lifestyle Communities (ASX:LIC) and Tyro Payments Ltd (ASX:TYR) is set to replace G8 Education Ltd (ASX:GEM) and Nuix (ASX:NXL) on 20 September plus a number of companies.

Broker moves

Macquarie rates Whitehaven Coal (ASX:WHC) as an outperform with a price target of $3.

The broker believes the outlook for coal continues to be positive, even after thermal and met-coal prices have more than doubled this year. Met-coal exposure is preferred to thermal coal over the medium term.

Macquarie notes equities have lagged the increase in coal prices and predicts material upside. A preference is maintained for Coronado Global Resources (ASX:CRN) over Whitehaven Coal due to greater leverage to met coal prices.

The broker lifts its target price to $3 from $2.70.

Shares in Whitehaven Coal (ASX:WHC) closed 6.8 per cent higher at $2.84.

IPO

HealthCo Healthcare and Wellness REIT (ASX:HCW) is set to make their debut today. They own and managing a portfolio of commercial health and wellness real estate assets.

Ex-div

The ex-dividend party continues. Fortescue Metals (ASX:FMG) is set to go ex-dividend with a pay out of almost double than last year, around 10 per cent of its share price.

Australian Finance Group (ASX:AFG) is paying 7.4 cents fully franked.
Altium Limited (ASX:ALU) is paying 21 cents 15 per cent franked.
ASX Limited (ASX:ASX) is paying 111.2 cents fully franked.
Ellerston Asian Investments (ASX:EAI) is paying 3 cents fully franked.
Engenco Limited (ASX:EGN) is paying 1.5 cents fully franked.
EQT Holdings (ASX:EQT) is paying 47 cents fully franked.
Fortescue Metals Group (ASX:FMG) is paying 211 cents fully franked.
Mader Group Limited (ASX:MAD) is paying 1.5 cents fully franked.
Northern Star (ASX:NST) is paying 9.5 cents fully franked.
Orora Limited (ASX:ORA) is paying 7.5 cents unfranked.
Ramsay Health Care (ASX:RHC) is paying 103 cents fully franked.
Sandfire Resources (ASX:SFR) is paying 26 cents fully franked.
Summerset Group Holdings (ASX:SNZ) is paying 8.0403 cents unfranked.
Viva Energy Group (ASX:VEA) is paying 4.1 cents fully franked.
Veem Ltd (ASX:VEE) is paying 0.45 cents unfranked.

Commodities

Iron Ore has added 1.2 per cent to US$144.71. Over the week, it fell by US$14.00 a tonne or 8.8 per cent. Their futures suggest a 0.2 per cent fall.

Gold added $22.20 or 1.2 per cent to US$1834 an ounce while silver gained $0.88 or 3.7 per cent US$24.80 an ounce.

Oil has lost $0.70 or 1.00 per cent to US$69.29 a barrel as the oil production in the Gulf of Mexico remained shut after Hurricane Ida.

Currencies

One Australian Dollar at 7:35 AM has strengthened buying 74.54 US cents, the highest mark in almost two months, 53.87 Pence Sterling, 81.72 Yen and 62.70 Euro cents.

 
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