ASX 200 (XJO) Monday report – Australian share market set to rise

The S&P/ASX 200 (INDEXASX: XJO) is set to rise when the market opens this morning. Here’s what’s making headlines as we head into a new week.

ASX delivers fifth-straight week of gains, IPO frenzy continues

The ASX 200 added 0.3% on Friday behind continued strength in the materials and financials sectors, sending the index to its fifth-straight weekly gain, albeit just 0.5%.

The standout by far was Sandfire Resources Ltd (ASX: SFR), which added 28.6% for the week as copper prices hit a seven-year high on an improving economic outlook. The commodity is a key input into electricity transmission and vehicle motors, which are benefitting from huge global fiscal stimulus focused around infrastructure and energy.

Friday may well be remembered for the record-breaking IPO frenzy, with all four companies listing delivering a ‘stag’ profit for investors. Investigative analytics and intelligence company Nuix Ltd (ASX: NXL) finished 50.9% higher for the day, with Macquarie Group Ltd (ASX: MQG) banking over $500 million and remaining a key shareholder.

Other new listings Maas Group Holdings Ltd (ASX: MGH) and Doctor Care Anywhere Ltd (ASX: DOC), which focus on construction outsourcing and e-health respectively, also overcame the market’s exhaustion with highly-priced e-commerce IPOs by offering investors something different.

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Home Consortium set to acquire, US markets push to record highs

It was a busy week for Home Consortium Ltd (ASX: HMC). After demerging its Daily Needs REIT, the company entered a trading halt to raise another $125 million for a series of acquisitions. This time management is focused on healthcare, childcare and long-term government leased properties. The offer is priced at a discount of just 2.6% and represents a new direction for the historically big box retail-focused team.

It was another positive week for US markets, with all three large-cap indices pushing to record highs on Friday: the Dow, S&P 500 and Nasdaq climbed 0.8%, 0.9% and 0.7% respectively; a rarity.

Looking across the week it was the energy companies, in general, adding most to returns, yet the Nasdaq (+2.1%) outperformed the S&P 500 (+1.0%) and Dow Jones (+1.7%) over the five days.

Despite the counterintuitive feeling, sharemarkets actually rose on the back of weaker than expected jobs data, where 245k workers were added, well below the 440k expected. The reason? Investors expect the bad news to force another US$900 billion fiscal stimulus out of the US government before Christmas. If delivered, this would be a boon for a Santa Claus rally. Unemployment in the US fell to 6.7% however was generally being driven by workers no longer seeking work rather than finding jobs.

Meanwhile, Airbnb, the famous travel booking app, is set to list before Christmas in an effort to raise US$2.5 billion despite facing the most difficult period imaginable for the company.

3 investor takeaways from the week

As per usual, here are my three key takeaways from the week that was:

Another commodity supercycle

The story of the week was the incredible strength of the commodity sector, but iron ore and copper in particular. Despite the backdrop of a worsening trade relationship with China, highlighted by this week’s attack on our wine industry, our commodity exports are going from strength to strength. The iron ore and copper price both reached record highs, not solely because of China, as key global suppliers struggle to ramp up production. Ultimately, the strength is great for the Australian Government coffers, but likely offers little for the economy in general.

AUD hurting economy

One major drawback has been the strength of the AUD, which reached 74.5 US cents last week and is now placing real pressure on Australian exporters. The combination of a worsening US economy and strong commodity demand is offsetting the RBA’s attempts to devalue our currency. The big risk, of course, is the two-speed economy we saw in the early 2010s as the commodity and housing sectors exploded but the rest of the economy struggled with no wage growth and higher unemployment.

Corporate activity will continue to ramp up

My final takeaway from the week is the sustained increase in corporate activity, with Downer EDI Limited (ASX: DOW), Macquarie Group Ltd (ASX: MQG) and Kogan.com Ltd (ASX: KGN) just three of the companies selling or buying businesses last week. The pandemic is offering strong and weaker businesses the chance to reset and focus on their ‘core’, supported by record low-interest rates. This is a trend I expect to continue throughout 2021.

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Disclosure: At the time of publishing, the author of this article does not have a financial or commercial interest in any of the companies mentioned.

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