ASX 200 and All Ords set to open higher – your Thursday morning report

The Australian share market, including the S&P/ASX 200 (XJO) and All Ordinaries (XAO) is tipped to open higher on Thursday. Here’s what you missed.

Market rally as dangerous as ever

The ASX 200 joined the global sharemarket rally, adding 1.9%, after healthcare US biotech company Moderna Inc. (NASDAQ: MRNA) announced positive results from its Phase 1 trial of a potential COVID-19 treatment. Markets reacted swiftly sending the stock up 4.5% and some 400% for 2020, despite the likes of Hamish Douglass of Magellan Financial Group Ltd (ASX: MFG) suggesting even if a vaccine is actually found (and there is no guarantee), then the sheer logistics of distributing the treatment would be immense.

Once again, the ASX mining sector led markets higher, with BHP Group Ltd (ASX: BHP) and Rio Tinto Ltd (ASX: RIO) adding 2.5% and 3.7% respectively. This came as imports of iron ore by the Chinese increased 35% in June from 2019 and 17% from May.

The S&P 500 moved above a month high, gaining 0.9% with cyclical companies like Royal Caribbean Cruises (NYSE: RCL) and American Airlines Group (NASDAQ: AAL) up 21% and 16% respectively, driven primarily by hope.

The Euro Stoxx similarly added 1.8%, with drug maker Astra Zeneca (NYSE: AZN) jumping 5% ahead of its own report. It’s clear these rallies are driven by emotion and fear rather than underlying fundamentals, making them as dangerous as ever for inexperienced traders.

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Lower interest rates here to stay

The Bank of Japan held their monthly meeting and with a steady as she goes approach, the cash rate maintained at -0.1%. The bank guaranteed continued support through market purchases and ultimately announced a downgrade in GDP expectations to a contraction of between 4.5% and 5.7%. This came with one major caveat: it assumed that no second wave impacts the economy.

The Nikkei 225 reacted positively to the news, up 1.6%, with the all-important car exports companies, including Nissan Motor (TYO: 7201) up 7.2%, rising on hopes of a China-led export recovery.

Low interest rates don’t seem to be helping struggling developer Lendlease Group (ASX: LLC) who has reportedly cancelled the sale of two shopping malls it was hoping to move to fund some $1.3 billion in redemptions. It’s a tough environment for property owners and I continue to expect extensive devaluations before 2020 is out; hence I continue to avoid the sector.

Following the recent lead of Woodside Petroleum (ASX: WPL) and Oil Search (ASX: OSH), Origin Energy Ltd (ASX: ORG) announced a $1.2 billion write-down of its oil and gas assets, halving expected earnings for the year.

Zip breaks records

Apple Inc. (NASDAQ: AAPL) rallied strongly, up 0.7%, after the European General Court ruled that the European Commission’s demand for some EUR$13 billion in ‘undue tax advantages’ were legal; a positive for both Apple and Ireland. The company remains one of the top performers in 2020.

In fact, Apple is among a small group of companies that have contributed to almost 60% of the 2020 rally, centred around software, media and healthcare companies or the so-called ‘new economy’. Key beneficiaries of the strategy highlighted in the AFR yesterday have been the Franklin Global Growth Fund and GQG Global Equity Fund, both among the top 20 performers.

Afterpay’s ‘little brother’ Zip Co Ltd (ASX: Z1P) offered a quarterly update to investors, announcing record quarterly revenue of $46.4 million, a 72% increase, and 91% for the year to $161 million. With bad debts hitting just 2.2%, Z1P offers a less eye-watering valuation than its big brother.

Finally, investment bank Goldman Sachs (NYSE: GS) posted a 93% increase in revenue in its trading and capital markets business, beating all estimates, which bodes well for Macquarie Group Ltd (ASX: MQG).

This report was written by Drew Meredith, Financial Adviser and Director of Wattle Partners. To get in contact with Drew, click here to visit the Wattle Partners website.

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