ASX 200 (XJO) morning report – overseas markets provide negative lead

The S&P/ASX 200 (ASX: XJO) is set to rise at the open this morning according to the Sydney Futures Exchange. Here’s what ASX investors need to know.

ASX share market recap

Thankfully I’m not an economist, with my prediction that unemployment figures would be worse than the 7.7% expected proven wrong on Thursday. The unemployment rate unexpectedly fell from 7.5% to 6.8% in August with around 111,000 jobs gained, a large portion in part-time or gig economy roles. With most experts expecting unemployment to peak above 9%, there is likely to be further pain ahead, particularly given hours worked increased just 0.1% over the same period.

The result wasn’t enough to offset a weak global lead, the ASX 200 falling 1.2% on Thursday, with most pressure coming from a 3.3% fall in the iron ore price. Rio Tinto Limited (ASX: RIO) fell 3.4% and Fortescue Metals Group Limited(ASX: FMG) down 6.4% were the biggest detractors.

National Australia Bank Ltd (ASX: NAB) was one of the few winners, leading the banks, finishing 0.9% higher on signs the economic slowdown may not be as bad as initially expected.

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A-REITs venture down different paths

Shopping centre owners Unibail-Rodamco-Westfield (ASX: URW) and Scentre Group (ASX: SCG) management have chosen two very different options as they seek to reposition and recapitalise their businesses in a difficult operating environment.

Scentre unexpectedly opted to issue a $3 billion subordinated note, being part debt, part equity, at an interest rate of 4.75% and 5.12% respectively. Management is replacing expensive equity with more expensive debt, as they seek to avoid a more heavily discounted capital raising. The net tangible asset value remains stubbornly high, at $3.66 per share, with the market price of $2.30 suggesting there is more weakness to come. That said, Scentre shares finished 2.2% higher on the news.

In Europe, URW opted for the more traditional route, announcing a $3.5 billion discounted capital raising as part of their RESET strategy, combined with $4 billion in asset sales to offer more breathing room. URW shares finished 5.3% lower.

Clearly management of both companies remain hopeful of a return to normal, yet with retail in the doldrums even before COVID, I’m not as optimistic.

Negative rates in the UK?

Profit-taking continued in the US technology sector, the Nasdaq 100 falling 1.3% overnight and the S&P 500 similarly down 0.8% after the Federal Reserve offered little commentary on its bond-buying policy; markets are waiting with bated breath for more fiscal stimulus.

Tik Tok and Oracle Inc. (NASDAQ: ORCL) appear to have agreed on updated terms from the White House for the sale of their US assets.

US employment data remains stronger than expected with jobless claims falling 33,000 in the week, supporting the consumer sector.

Elsewhere, the Bank of England surprised investors by suggesting it may consider negative interest rates at future meetings, with its cash rate stuck at 0.1% and concerns about labour market weakness; this despite official data reporting unemployment of just 4.1%. The news sent European financials including Barclays (LON: BARC) and HSBC (LON: HSBA) down over 2%.

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.

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