The Australian share market, including the S&P/ASX 200 (ASX: XJO) and All Ordinaries (ASX: XAO), is set to bounce back today when the market opens.
What you missed
The ASX 200 finished 1.5% lower yesterday following a spike in COVID-19 cases in Melbourne, which has resulted in an extended six-week lockdown. The weakness was exacerbated by record numbers in the US, where a daily record of 60,000 cases was reached.
Every sector in the ASX fell, except consumer staples with Woolworths Group Ltd (ASX: WOW) adding 1.1%. In fact, just 28 stocks added positive returns. Telstra Corporation Ltd (ASX: TLS) also continued its strong recent run, adding 0.6%, with investors seemingly appreciating its important and ongoing role in a lockdown environment.
US markets recovered once again overnight, the S&P 500 improving 0.8% and the Nasdaq 1.4%, with Twitter (NASDAQ: TWTR) a standout jumping 7% after announcing a subscription platform.
The FTSE 100 and Eurostoxx 50 both fell, hit by HSBC falling 3%, as the US announced an effort to ramp up pressure on Chinese controlled currency regime.
Mortgage holiday extension
The Australian Banking Association announced that each of the major banks would be extended the current six-month mortgage repayment holdings, used by some 800,000 families, a further four months into 2021. Whilst an important step for those people struggling in this difficult environment, it is ultimately delaying the inevitable rise in mortgage defaults.
In my view, the ASX banking sector is more challenged than ever, with return on equity falling into single digits, price-to-book ratios unlikely to recover and record low bad debts part of history. The result, as we have already seen, is a rebasing of dividends at lower levels, the need for more capital to invest in technology and likely weaker than historic returns. ANZ Banking Group Ltd (ASX: ANZ) and National Australia Bank Ltd (ASX: NAB) were both down 2%.
Meanwhile, the ASX mining sector continues to lead the way, benefitting from a weaker currency and interrupted supply. The latest result came from gold miner Northern Star Resources Ltd (ASX: NST), which reinstated its dividend despite reporting production below expectations. Northern Star Resources shares were up 6.5% yesterday.
On the more positive side, two US solar companies agreed to merge, with Sunrun (NYSE: SUN) acquiring Vivint(NYSE: VVNT) for $3.2 billion in an all-equity deal. The consolidation was a positive result for both companies, up 22% and 38% respectively, in what is an incredibly competitive and low margin sector.
Electrolux (STO: ELUX-B) owners of Westinghouse and Kelvinator, added 1% in Europe after reporting 3% growth in June sales compared to 2019 and successful cost-cutting strategies.
Once again, Solomon Lew’s Premier Investments Limited (ASX: PMV) is on the front foot, announcing all metropolitan stores would close and that he would no longer be paying rent. This places further pressure on the likes of Scentre Group (ASX: SCG), which we raised yesterday.
Despite a recent run of volatility, it seems the days of markets moving up or down 5% may be gone for the time being, the same can’t be said for individual investors. Stay safe and invest carefully.
Drew is one of the founders of Wattle Partners. He is an experienced financial and investment adviser with expertise in self-managed superannuation funds, superannuation strategies, investment analysis and portfolio construction. Drew is a Partner at Wattle Partners.