The Monday Report – 30 August 2021

This story features WESFARMERS LIMITED, and other companies. For more info SHARE ANALYSIS: WES

The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

TGIF

The ASX200 fell -26 points from the open on Friday after Wall Street had played it cautiously overnight ahead of Jackson Hole. There were no substantial ex-dividends to distort the opening move.

The index was back to square by lunchtime before drifting to the close as exhausted analysts and investors looked forward to a nice rest over the weekend after the busiest week of the year, other than the equivalent week in February. There were far fewer companies reporting on Friday, and fewer major companies amongst them.

One biggie was nonetheless Wesfarmers ((WES)), which reportedly slightly missed market consensus but threw in a special dividend, and fell -2.8%. Consumer discretionary was the worst performing sector on the day (-1.6%).

Next worst was technology (-1.2%) as Appen ((APX)) continued to slide post result (-6.1%) and NextDC ((NXT)) gave a rather conservative looking forecast on top of increased investments (-5.4%).

The only reporting stock on the day to make it into the index top five leaders was Clinuvel Pharma ((CUV)) but it did so in style, rising 18.0%. Healthcare rose 0.6%.

The leaders’ board was otherwise filled with stocks kicking on from reporting the day before, including Atlas Arteria ((ALX)) up 6.8% and Blackmores ((BKL)) up 6.4%.

There were no notable train crashes on the day from reporting companies in the index, and the losers’ board was again filled with Thursday reporters, including Pilbara Minerals ((PLS)), down -6.5%, Appen, and Link Administration ((LNK)), down -3.8%. NextDC was the only Friday reporting stock on the board.

Industrials was the best performing sector (+1.1%), with some help from Atlas Arteria, and Qantas ((QAN)) kicking on (+2.2%) from Thursday.

A final read on July retail sales was a miss at -2.7%, but of no surprise given the lockdowns. NSW sales fell -8.9%. But we’re getting used to this. In last year’s initial national lockdown NSW sales fell -17.4%, Westpac’s economists point out, and Victorian sales fell -12.5% in its second wave lockdown.

In both cases, sales bounced back just as swiftly once lockdowns ended.

A flat close for the ASX200 was a sensible stance ahead of the Fed chair’s speech on Friday night, which as we will see proved to be just what the doctor ordered.

The futures closed up 13 points on Saturday morning but speaking of doctors, Sunday’s NSW case-count of over 1200 may provide some pause for thought today, or perhaps not.

All the Way with Jay

The US economy has made “substantial further progress” on inflation and employment goals, Fed chair Jerome Powell declared on Friday night, such that the Fed will likely begin to taper bond purchases by the end of the year.

However, “The timing and pace of the coming reduction in asset purchases will not be intended to carry a direct signal regarding the timing of interest rate lift-off, for which we have articulated a different and substantially more stringent test.”

He then went on to explain in great detail why he still believed the current inflation spike is transitory.

Economic data on the day showed July US PCE inflation running at 4.2%, up from 4.0% in June and marking the highest rate since Gulf War I in 1991.

The question must again be asked: For how long can inflation remain elevated and still be considered “transitory”? Measures of inflation are broken down into many segments hence while some may quickly retreat (eg US lumber prices have significantly fallen back post surge), others may linger. The supply shortage issue is not expected to ease until 2023.

The feedback from commentators regarding Powell’s speech is that he managed to flag the commencement of tapering while still remaining “defiantly dovish”, which in essence pleased both sides of the market (those calling out for tapering and those fearing rate hikes).

Thus the stock market reaction was widely positive, with a bias towards growth stocks but not an actual rotation.

The US ten-year bond rate meanwhile ticked back down -3 points to 1.31%, and the US dollar dipped -0.2%.

A “taper tantrum” has been avoided, for no one now will be surprised when the Fed more specifically flags tapering at its September meeting and actual commencement at its November meeting.

Thus little change to bullish views, with the caveat being stick to sectors and stocks that will benefit, or at least not be impeded, by lingering inflation. Avoid those who do not have “pricing power”, being businesses who cannot pass on higher wholesale costs to retail customers without losing sales.

Commodities

Bit of a shrug from base metals traders, but the iron ore rebound continues.

Gold was the clear beneficiary of no rate rise on the horizon.

Oil prices were up again due to the approach of Hurricane Ida, which over the weekend has forced evacuations in Louisiana, and a warning this one could be the worst since Katrina.

The Aussie shot up a full 1% to US$0.7310, into more familiar recent ground.

The SPI Overnight closed up 13 points on Saturday morning.

The Week Ahead

The last two days of August will see the last few companies reporting earnings.

Then attention turns to the economy, with the June quarter GDP result on Wednesday, which pre-dates delta lockdowns, so won’t much inform.

Today we’ll see corporate profits and inventory numbers and tomorrow the current account in the lead-up to Wednesday.

We’ll also see July building approvals and private sector credit tomorrow, August house prices on Wednesday and July housing finance and a final read on trade on Thursday.

China will report August PMIs tomorrow, while everyone else will report manufacturing PMIs on Wednesday and services PMIs on Friday.

The US will see consumer confidence tomorrow night, private sector jobs on Wednesday and non-farm payrolls on Friday.

The UK is closed tonight.

With the local earnings season all but over, the lagging ex-dividend season picks up pace this week.

Stocks going ex today include Ansell ((ANN)), Oil Search ((OSH)) and Woodside Petroleum ((WPL)).

Metcash ((MTS)) holds its AGM on Wednesday.

A reporting calendar and summaries of analyst responses to the day’s results are available on the FNArena Corporate Results Monitor.

The Australian share market over the past thirty days…

For more detail go to FNArena's Australian Broker Call Report, which is updated each morning, Mon-Fri.

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