Wall St was mixed at the close of last week’s trading with the Dow Jones at a record high, but NASDAQ finishing in the red. Despite the rollercoaster ride, the ASX is expected to start the last week of October on a high.
Here’s what we saw:
- The Aussie dollar eased from highs near US75.10 cents to lows near US74.55 cents and was near US74.65 cents at the US close.
- Global oil prices climbed approximately 1.5% on Friday but ended off highs for the session. According to Commsec’s Craig James, “World leaders warned that COVID-19 cases may be active in the northern hemisphere winter. But global oil supplies still remain very tight.”
- The Brent crude price rose by US92 cents or 1.1% to US$85.53 a barrel.
- The US Nymex crude price rose by US$1.26 or 1.5% to US$83.76 a barrel. Over the week Brent rose for the seventh week, up by US67 cents or 0.8%. Nymex rose for the ninth week, up by US$1.48 or 1.8%.
- Base metal prices were mixed on Friday. Lead, zinc and tin rose up to 1.4% while other metals fell by as much as 2.2%.
- Over the week metals were also mixed with aluminium down 9.4% and zinc down 9% while lead rose 2.7% and tin rose 0.9%.
- The gold futures price rose by US$14.40 or 0.8% to U$1,796.30 an ounce.
- Spot gold was trading near US$1,792 an ounce at the US close. Over the week gold rose by US$28 an ounce or 1.6%.
- Iron ore rose by US$2.85 or 2.4% to US$120.35 a tonne. Over the week iron ore fell by US$5.10 a tonne or 4.1%.
Australian market
The ASX should rise this morning after commodities rebounded in London and New York.
ASX futures were up 30 points or 0.4% to 7,416.
The best performing sectors last week were Financials up over 2% followed by Information Technology up over 1% and Utilities, which is up just under 1%. The worst performing sectors were Energy down over 2% followed by Communication Services down over 1% and Consumer Staples down just under 1%.
The best performers in the S&P/ASX top 100 stocks included IGO Ltd, Worley Ltd, Lynas and Magellan Financial Group Ltd (ASX:MFG), which were all up over 7% followed by a2 Milk Company Ltd up over 6%. The worst-performing stocks include the Star Entertainment Group Ltd down over 6% followed by Alumina Limited (ASX:AWC), Tabcorp Holdings Limited and Mineral Resources Limited (ASX:MIN), which are all down over 5%.
What's next for the Australian share market?
As we do each week, we asked for Wealth Within founder and analyst Dale Gillham’s take on what’s next for the market.
“While the Australian stock market traded up last week, it is still exhibiting indecision. Two of the four days last week closed almost at the same price they opened.
“I have indicated that the reason why our market was not really moving was because the Materials and Financial sectors were trending in opposite directions. Although the tables are now turning, as Financials was up over 2% while Materials traded just in the red.
“For the market to rise or fall in a sustained move, the Financials and Materials sectors both need to travel in the same direction. Given the sustained indecision, and the fact our market has been up for three weeks, I suspect we may now see a down week either this week or next week, which will indicate whether the last two months of this year will be bullish or bearish.
“While there are some great purchasing opportunities in the market right now, it will pay to be a little more cautious than usual.”
In the news
Telstra and Federal Government acquire Digicel
Telstra, in partnership with the Australian Government, will acquire the Pacific operations of telecommunications firm Digicel – the largest mobile phone carrier in the Pacific – for US$1.6 billion and an additional US$250 million, subject to business performance over the next three years.
Telstra will put it US$270 million in equity, while the Federal Government will provide the remaining US$1.33 billion.
Digicel was founded by Irish billionaire Denis O'Brien and has operations in Papua New Guinea, Fiji, Samoa, Vanuatu and Tahiti.
The move is said to have political ramifications as the government looks to block the regional influence of China.
Completion should occur within the next two quarters.
"Digicel Pacific is a commercially attractive asset and critical to telecommunications in the region. The Australian Government is strongly committed to supporting quality private sector investment infrastructure in the Pacific region," Telstra CEO Andy Penn said.
"We previously said that if Telstra were to proceed with a transaction it would be with financial and strategic risk management support from the Government.
"We also said that in addition to a government funding and support package, any investment would also have to be within certain financial parameters with Telstra’s equity investment being the minor portion of the overall transaction.
"I am pleased that we have been able to achieve both of those outcomes."
LNG will continue to surge
Morgan Stanley (NYSE:MS) has upped its price target for Australia’s LNG producers amid surging demand.
The US bank predicts LNG demand will rise 50% by 2030 and has increased its targets for Beach, Karoon, Oil Search, Origin and Santos by 11-22%.
"We have assessed the demand outlook for major Asian importing countries of LNG," Morgan Stanley analysts reported.
"We think Asia will consume significantly more natural gas in the early phases of the energy transition (to green energy).
"This will lead to higher LNG prices and better project returns, improving investor sentiment towards these projects.
"We expect the recent strength in commodity prices to bode well for Australian Energy
companies.
"M&A will likely be a key driver of value for Australian Energy as companies look to divest equity ownership in LNG projects and prepare for expansion."
Speaking of Santos specifically, the bank said, "Balance sheet concerns and merger impacts have weighed on investor sentiment and trading multiples, however, we think the balance sheet of Santos and carbon intensity of Barossa is in better shape than the market realises.
"Santos is also beneficiary of higher spot gas prices, particularly given 85% of Barossa's production is contract-linked to JKM."
Australian indices
- ASX 200 rose 0.0013% to 7,415.50.
- ASX24 futures was up 0.4% to 7,416.
- S&P/ASX Small Ordinaries fell 0.014% to 3,550.00.
- All Ordinaries fell 0.022%% to 7,726.80.
US markets
It’s a big week for US company earnings reports, with the likes of Facebook, Microsoft, Google (Alphabet), Visa (NYSE:V), GE, Coca-Cola, McDonald's, GM and many more to deliver their quarterlies.
Positive positions could provide the markets with a major boost.
Inflation will also be a talking point.
According to Joseph Palmer & Sons director Alex Moffatt, “Wednesday brings the local inflation report for which economists are generally forecasting a rise of 0.8% for the September quarter.
“On Thursday evening we get the preliminary report for American GDP for the September quarter which is expected to show some return to normality with economists forecasting an annual gain of 2.8% down from the pandemic bounce-back inspired mega gain of 6.7% in the June quarter.”
US investors pulled back a little on Friday after Federal Reserve Chairman Jerome Powell hinted that asset buy tapering is on track.
“The risks are clearly now to longer and more persistent bottlenecks, and thus to higher inflation,” Powell told a virtual panel discussion hosted by the South African Reserve Bank.
Fed policymakers will next meet in early November.
US indices
- Dow Jones rose 0.2% 35,677.02.
- S&P 500 fell 0.1% to 4,544.9.
- Nasdaq fell 0.8% to 15,090.20.
European markets
Markets closed firmer on Friday.
News that Chinese property developer Evergrande made a bond payment to avert default was well regarded.
In London trade shares in Rio Tinto rose 0.5% and BHP rose 0.7%.
According to Moffatt, “Retail sales in the UK fell 0.2% in September surprising economists who had generally forecast a rise of 0.5%.
“The value of monthly retail sales in the UK over the past twelve months has been volatile, either side of about GBP40 billion per month. The fall was blamed on people spending on entertainment rather than going into shops.”
European indices
- STOXX 600 rose 0.46% to 471.88.
- German Dax rose 0.5% to 15,542.98.
- UK FTSE rose 0.2% to 7,204.55.