The Australian share market, including the S&P/ASX 200 (ASX: XJO) and All Ordinaries (ASX: XAO), is expected to edge higher at the open on Friday. Here’s what ASX investors need to know as we head into the weekend.
Stock market recap
The ‘Vaccine’ rally was short-lived with a swathe of economic data sending the ASX 200 0.7% lower on Thursday. The ASX healthcare sector was hardest hit, tumbling 1.5% as CSL Limited (ASX: CSL) fell 2.1% without any specific news.
While the US-China trade discussions have slowed, geopolitical risk has increased with travel bans applied to both US and Chinese Communist Party officials in a growing war of words. Despite this, the Chinese economy avoided a recession, growing 3.2% in the June quarter, but showing weaker than expected retail sales (-1.8%). The weaker than expected result saw the Shanghai Composite fall close to 5% in a single session.
Looking globally, both the US and Europe weakened on the escalation, placing pressure on the global economy and outlook for retail stocks. Richement SA (SWX: CFR), which owns Cartier among other, brands fell 4.6%. All three US indices closed lower, the S&P 500 down 0.4% and Dow Jones 0.5%, providing a negative lead for the ASX today.
Nearly 1 million Aussies out of work
Australian unemployment data was released yesterday, increasing from 7.1% to 7.4%, the highest since 1998. There are now 992,000 people officially unemployed. The majority of jobs added during the month were part-time, suggesting a gradual recovery was underway, at least until Victorian’s second round of lockdowns. It’s estimated that unemployment is nearer to 13% when the impacts of JobKeeper are removed, suggesting a tough period ahead for all Australians.
Of greater concern to the Australian economy on Thursday were comments from the Chinese relating to anti-dumping complaints made by BlueScope Steel Limited (ASX: BSL), suggesting further complaints may see tariffs placed on our iron ore exporters. Iron ore majors BHP Group Ltd (ASX: BHP) and Rio Tinto Limited (ASX:RIO) fell 0.6% and 1.4% respectively.
On the positive side, Seek Limited (ASX:SEK) reported a 41% increase in job ads, with the majority in the hospitality and trade sectors. In my view, SEK’s important role in the recovery and retraining of the economy makes it a solid business.
Looking beyond the headlines
Headlines continue to drive daily share price movements, with smaller company Michael Hill International Ltd (ASX: MHJ) jumping 6.6% after announcing a 193% increase in online sales in 2020. Looking more closely though, online sales made up just 4.6% of the total, meaning it had little impact on profitability. With e-commerce the word of the day, investors need to pay close attention to the fine print and look beyond the share price.
US retail sales continued their recovery, improving 7.5% in June, allowing Johnson & Johnson (NYSE: JNJ) to buck the market despite reporting an 11% fall in quarterly sales to US$18.34 billion and a 35% drop in profit to US$3.63 billion.
Australian-led bank Morgan Stanley (NYSE: MS) was one of the few to deliver profit growth in 2019, growing US$3.2 billion versus US$2.2 billion in the year prior. Such was the strength that CEO James Gorman suggested the bank could actually increase its dividend if it was legally allowed to. Morgan Stanley appears to be the National Australia Bank Ltd (ASX: NAB) of our Big Four, after Standard and Poor’s rated the company as being best placed to manage a prolonged downturn.
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.