Between the Bells

The Aussie share market looks set to drop 0.6% at the open, as the rocky recovery continues.

Yesterday we saw the Aussie share market end flat, failing to follow Wall Street’s record rally. But now it is like the boy who cried wolf, traders might be wishing they followed those gains yesterday, as overnight U.S. equities headed South.  

Atlanta Federal Reserve said the U.S. economy recovery will be “bumpier” as COVID-19 cases continue to rise, with 2.93 million cases in the U.S.. 

 What to watch today: 

• Given the commodity rally, I’d be watching hard commodity miners and producers. On the iron ore front Fortescue (ASX:FMG) and BHP (ASX:BHP), have been reiterated as UBS buys. Citi also likes BHP and Goldman Sachs backs BHP as well, but sees the most upside in Rio Tinto (ASX:RIO). 

Local Trading ideas:

• UBS reiterated its buy rating on Imdex (ASX:IMD) with a price target of $1.30, after the cloud-drilling and extraction company snapped up AusSpec for $8.5 million. 
• Afterpay (ASX:APT) was given another big upgrade by Bell Potter, beefing up its buy rating and price target to $81.25. It comes as Afterpay announced it’s significantly de-risking the business, raising $800 million. They also have more than doubled its gross merchant value to $11.1 billion and customer numbers to 9.9 million, where the runway for further growth appears bright. Bell Potter upgraded revenue estimates by 3.8%, 5.6%, and 6.3% for FY20, FY21 and FY22 respectively. Bell Potter’s price target is $81.25 per share, while UBS overnight maintained its sell rating in the stock increasing its price target to $27. 
• UBS maintained its hold rating on Magellan (ASX:MFG) with a $62.32 price target, after the fund manager shares have gained about 11% so far this year. UBS also noted Magellan has generated performance fees for the group $15 million ahead of expectations. 

The ASX200 is set to strongly march forth today, after a positive session overnight. The Aussie futures are suggesting a 0.5% rebound, keeping in mind the Aussie market gained 2.6% last week and is now up 33% from its COVID-19 bear market bottom.

If you are looking for a massive trend to follow or invest in, consider the companies benefiting from the work from home shift across the globe. 

In other news, Warren Buffett announced his first significant acquisition since COVID-19 began, buying natural gas and storage assets from Dominion Energy for $10 billion. And on the economic front, the U.S. Service sector which contributes the bulk of steam to the nation’s economic growth tally, showed the sector surprisingly grew. 

What to watch today:

• The RBA meets today with interest rates to remain on hold at 0.25%, what the RBA says is it’s lower bound. But comments from the Governor will be closely watched as our economy seems to be picking up even before it’s entered a recession.
• From midnight tonight the NSW and Victorian border will be closed, for the second time in history. Agricultural transportation is not likely to be impacted as special permit holders and exemptions will be allowed to enter and exit.

Local trading ideas:

• Costume jewellery company Lovisa (ASX:LOV) stores are now opened. Bell Potter bumped up its buy rating and price target for Lovisa to $7.50 as its sales were 5% better than expectations with a strong balance sheet.
• UBS reiterated its hold rating on Mayne Pharma (ASX:MYX) after the pharmaceutical company entered into a long-term supply agreement with China based manufacturer for 13 new U.S. generic oral contraceptive products, including the five brand new products not previously marketed. UBS says the five new drugs, four with FDA approval have market sales of $500 million in the U.S., having the drugs made by China’s Novast will save Mayne Pharma US$3 - $5 million per year. UBS’s price target for Mayne Pharma is $0.44 and Bell Potter has them as a buy with a $0.55 target.
• UBS downgraded the ASX (ASX:ASX) from a hold to a sell with a $75 price target, saying although the landscape has changed and the ASX has been a beneficiary of market volatility, expect a round of second capital raising on the ASX. UBS is cautious the ASX’s other earnings streams are trending lower.

The ASX200 is expected to fall 0.6% at the open, keeping in mind the Aussie market gained 2.6% last week.

With Wall Street being closed on Friday for the 4th of July U.S. holiday, Aussie investors will be scouring around for news and leads. In this case, attention has been turned to Europe, where their stocks closed in negative territory on Friday. German car sales crumbled 40% lower in June to a 30 year low.

What to watch today:

• The Aussie Government announced $190 million in funding to boost our local recycling industry. The investment will go to new infrastructure to sort, process and re-manufacture materials such as mixed plastic, paper, tyres and glass. Some companies to keep an eye on are Sims Metal Management (ASX:SGI), Tox Free Solutions (ASX:TOX), Cleanaway Waste Management (ASX:CWY) and Bingo Industries (ASX:BIN).
• ANZ job ads are out today for June and are expected to show a 0.8% rise in June following a 0.5% lift in May. So if the gain is better than expected, keep an eye on consumer discretionary stocks like JB Hi-Fi (ASX:JBH), Afterpay (ASX:APT), Zip (ASX:Z1P), Harvey Norman (ASX:HVN) and Kogan (ASX:KGN).

Local Trading ideas

• Bell Potter initiated coverage of Macquarie Telecom (ASX:MAQ) saying the stock is a buy, with a $51.25 price target following its close on Friday at $45.30. 
• UBS released a research report showing Afterpay (ASX:APT) is producing better than expected growth numbers in the U.S. and UK, hitting 1 million customers in England. UBS maintained its sell sceptic rating, Bell Potter has Afterpay as a buy and Goldman Sachs has it as a hold. 
• On the smaller side of the market Bell Potter initiated coverage of Kazia Therapeutics (ASX:KZA), a company that’s aiming to treat Glioblastoma, a cancerous brain/spine tumour. Bell Potter has Kazia Therapeutics as speculative as it’s not producing earnings and is making a loss. 

In a recovering market, thematic trading seems to be all the hype, with the Tech sector and its darling stock Afterpay (ASX:APT), setting all-time highs. Plus, with the market continuing its recovery, the idea of making lemonade from lemons seems to have gripped investors...

In this week’s wrap, Jessica covers:

• (0:06) What's driving the market gains?
• (0:35) Tech sector sets the trend with a near 7% WTD rise
• (1:02) Afterpay (ASX:APT) rises 20% WTD, Citi expects online & in-store use to continue
• (2:12) Mapping out a strategy: The shift to online education
• (3:09) Buy low, sell high: Opportunities in crashes
• (4:07) Iron ore exports surge
• (5:00) Trading ideas: IDP Education (ASX:IEL), G8 Education (ASX:GEM), BHP (ASX:BHP) and Rio Tinto (ASX:RIO) for consideration 

The Aussie share market is tipped to rise 0.6% at the open. So far the ASX200 is on track to close off its best week in five weeks, after rising 2.2% Monday to Thursday.U.S. equities charged following a record rise in U.S. employment with 4.8 million jobs being added in June and the U.S. unemployment rate dropping to 11.1%, both significantly better numbers than expected.

What to watch today:

• U.S. markets will be shut on Friday for the 4th of July Holiday.
• Retail sales data is out for May with the market pricing in a 16.3% recovery following the 17.7% landslide in April.

Local Trading ideas:

• Bell Potter increased its price target for fund manager Janus Henderson (ASX:JHG) to $41.25, noting it's set to benefit from material mark-to-markets during the June quarter and from the ongoing share buyback the company has underway. Janus Henderson also has an attractive dividend with a 6.9% yield and is a buy for Bell Potter.
• Netwealth's (ASX:NWL) shares are already up 19% this year and given the market rallied over 16% in the June quarter, Netwealth's revenue and earnings are expected to be at the top of their guidance level as their assets would have increased. Bell Potter also upped Netwealth's buy rating and price target to $9.10.
• Webjet (ASX:WEB) was reiterated as a UBS buy following select destinations being open for leisure travel. UBS increased Webjet's price target to $5.35.

The ASX200 is eyeing a lift of 0.7% at the open.

The Aussie manufacturing industry surprisingly returned to growth phase for the first time in 8 months, bolstered by production and new order demand. 

Investors will be watching the balance of trade which is out today. Balance of trade is the difference between exports and imports. The market is pricing in that the surplus will swell to $9 billion in May, up from $8.8 billion in March. So keep an eye on Australia’s biggest exporters like BHP (ASX:BHP), Fortescue Metals (ASX:FMG), Rio Tinto (ASX:RIO) and CSL (ASX:CSL).

Local Trading ideas:

• Lendlease (ASX:LLC) looks like its turning a corner putting the weaker than expected 2020 profit behind it, which fell heavily short of market expectations. According to UBS, Lendlease’s balance sheet is ripe for a better financial year this year, but investors might have to be patient for the acceleration of its $100 billion+ development pipeline and earnings to come to fruition. UBS ramped up Lendlease's to a buy with a price target of $15.50. 
• Following fund manager Perpetual (ASX:PPT) snapping up Trillium, an Environment, Social & Governance (ESG) manager, catering for a growing market of investors who want to exclude investments such as fossil fuels from their portfolio, Bell Potter rose Perpetual (ASX:PPT) to a buy with a price target of $41.10.
• After Suncorp (ASX:SUN) announced an executive shake up, Bell Potter reiterated its buy for the QLD bank. Aside from that, 3% lower cash earnings across the horizon are expected, which is why Suncorp’s price target price dropped to $10.50.

The Aussie share market is eyeing a muted start with the futures suggesting a 0.1% fall at the open to kick off the new financial year and quarter. Yesterday the ASX200 ended the second quarter of the year up 16.7%, the best quarterly rise since 2009. 

Wall Street wrapped up the June quarter on a high with the Dow Jones gaining 17.8%, the best quarterly gain since 1987.

What to watch today:

• Manufacturing data for June is out with the sector set to remain in contractionary phase. Building approvals are out and expected to fall 10% given the numbers are from May.
• COVID-19 restrictions ease heavily today in NSW with pubs and cafes to allow max capacity, weddings and public gatherings can have up to 20 people, funerals can have up to 50 people and community sport can kick off. So watch companies like Coca-Cola Amatil (ASX:CCL), Woolworths (ASX:WOW) and Coles (ASX:COL) with food and beverage demand to tick up.
• Alot of ETFs go ex-dividends today, including (ASX:VGS) a popular global investment, and (ASX:VAS) which invests in the ASX300.

Local Trading ideas:

• UBS rated KFC franchisee Colins Foods (ASX:CKF) as a buy following its stronger than expected results in this challenging environment. UBS upgraded its outlook suggesting its price will grow to $10.65.
• UBS reiterated IDP Education (ASX:IEL) as a long term growth stock with a $18.20 target.
• After Telstra (ASX:TLS) lifted mobile prices, UBS also reiterated the telco giant as a buy with a $3.70 target.

The Aussie futures are eyeing a 1.2% lift at the open. Today is the end of financial year, so it could be a volatile day. Wall Street clawed back half of its prior day’s losses on stronger than expected economic data. 

After close of trade, Bank of America, Citi, and Goldman announced they’ll keep their dividends the same, following the Fed’s new stress test, while Wells Fargo will have to cut its quarterly dividends.

What to watch today:

• Private sector credit data is out.
• Colins Food (ASX:CKF) reports its full year results.
• There is lot of ex-dividends today, including tech ETFs (ASX:TECH), (ASX:FANG), (ASX:ROBO) and the biotech (ASX:CURE).

Local Trading ideas:

• UBS rated Brickworks (ASX:BKW) as a buy, initiating coverage of the Brickmaker, expecting its shares to grow to $17.10.
• Citi reiterated Coca-Cola Amatil (ASX:CCL) as a buy expecting 15% share price growth as drink consumption begins to fizz up.
• After Fisher & Paykel Healthcare (ASX:FPH) reported a 30% rise in net profit after tax, its highest growth rate in at least a decade. It also provided stronger than expected FY21 profit guidance levels 2% above consensus, given continued level of COVID-19 related demand. Citi reiterated the stock as a sell, however Fisher & Paykel Healthcare trades at 25 times earnings. 

The Aussie futures are suggesting a fall of 1.6% at the open, with the U.S. futures currently down 0.5%.

There’s just one more sleep until the end of the financial year, with ASX portfolio adjustments to continue today and tomorrow. Local traders and investors will also be factoring in the poor finish in the U.S. on Friday. The overarching concern is COVID-19 cases are spiking with fears of mandated shut downs and concerns that the market rally was too soon.

What to watch today:

• A survey of U.S. Fund managers has found that they are holding 10% cash, that’s double the long term average. The fund managers also said they are investing in defensives, and technology for growth.
• Ampol (ASX:ALD) appointed Matthew Halliday as Managing Director and CEO.
• Fisher & Paykel (ASX:FPH) reports full year results.

Local Trading ideas:

• Air traffic and management Adacel Technology (ASX:ADA) was reiterated as a Bell Potter buy after the U.S. Army purchased over 60 Adacel simulators valued at US$2.8 million.
• Credit Suisse increased Qantas' (ASX:QAN) share price target to $3.00 after it fell about 13% last week after announcing $15 billion in cost savings over the next three idle years and then $1 billion a year in savings from FY23. 
• GUD (ASX:GUD) was reiterated by Citi and Bell Potter as a buy given the rise in spare parts demand. GUD is also paying a fully franked dividend yield and is well above market average.

As major developed countries see debt-to-GDP soar 24% in just two months, the true impact of COVID-19 it seems is finally becoming clear. It's not all doom and gloom however, as opportunities are presenting themselves in the seemingly most unlikely of places - Tech.

In this month's wrap, Jessica covers:

• The economic snapshot reflects the grim reality of COVID-19 - (0:11) 
• Sectors: Tech uncharacteristically healthy during economic woes - (1:03) 
• Spotlight stock: Afterpay (ASX:APT) ^133%, claiming market leader - (2:07) 
• Key themes: Tax loss selling, record spike in debt vs. eco growth & confession season kicks off - (2:33) 
• Key analysts' top picks for the new financial year - (5:49)