The S&P/ASX 200 Index (ASX: XJO) is expected to finish on a disappointing note this week, with futures pointing to a weak opening on Friday.
Budget revealed: debt to hit $850 billion
Treasurer Frydenberg provided his long-awaited budget update yesterday, which was just that, an update. It offered little in the way of guidance into the future. The Government are predicting unemployment will peak at 9.25% across the country, with ballooning deficits adding $250 billion to the debt pile.
What was the reaction? Well, markets rallied, with the ASX 200 finishing up 0.3%, along with the Australian dollar, which moved to $0.71 US cents. The rally was driven by the property sector (+1.9%) and retailers (+1.3%) behind Scentre Group (ASX: SCG) and Wesfarmers Ltd (ASX: WES), which added 3.3% and 1.0% respectively.
Overseas markets were mixed, with the week’s tech gains lost in a single session as the Nasdaq fell 2.3% on the back of weakness in Amazon Inc (NASDAQ: AMZN) and Microsoft (NASDAQ: MSFT). Both companies were down around 4%, hit by an unexpected spike in unemployment benefits.
Meanwhile, European markets held onto gains, the Euro Stoxx adding 0.03%, behind a strong earnings report from consumer goods leader Unilever NV (AMS: UNA), as profit increased 3.8% on stronger hygiene sales.
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Coca-Cola Amatil pops
Coca-Cola Amatil Ltd (ASX: CCL) was one of the day’s leaders, adding 5.4% after announcing an improvement in sales in June. The loosening of restrictions saw the final quarter of the financial year down 23% on 2019 and a focus on the ‘disciplined management of costs’ going forward. Management also surprised with a potential $190 million write-down on its Indonesian business. Desperate operating in what should be a recession-proof business, CCL has barely recovered its losses from March and remains one to avoid given its challenged growth profile.
Newcrest Mining Limited (ASX: NCM) moved 1.9% higher after delivering a 7% increase in quarterly gold production, to 573k ounces. More importantly, it benefited from the US dollar gold price hitting a near-decade high of $1,875; that equates to $2,633 in Aussie dollars. With a mining cost of around $1,339, the company is making solid margins, hence the growing attractiveness of the mining sector for dividends.
No dividends from ASX banks in August?
Concerns abound for the impending economic cliff, with the Government’s JobKeeper and JobSeeker policies delaying the inevitable until at least next year. Whilst many experts are suggesting Australia’s stimulus of around ~16% of GDP is excessive, they seem to forget that our economy is one based on immigration and commodities, with limited expertise in the ‘new economy.
Growing vacancy rates in both commercial and residential properties are placing pressure on loan repayments, at the same time that hundreds of thousands of mortgages are on pause. The growing issue has some banking analysts, including Citi, suggesting the Commonwealth Bank of Australia (ASX: CBA) and Suncorp Group Ltd (ASX: SUN) may choose not to pay a dividend in August. It seems a reasonable time to be underweight banks given the uncertainty.
Ending on a positive note, market lightning rod Tesla Inc (NASDAQ: TSLA) may be nearing an entry into the S&P 500 index, adding 5% to its US$300 billion valuation this week after beating analyst estimates. It delivered a rare quarterly profit of US$105 million on revenue of US$5.15 billion; the share price is up close to 300% this year.
This article 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.