Weekly Market Update – 14 Dec 2020

Perhaps the Santa Claus share market rally has come early this year? The ASX200 was positive for its sixth consecutive week last week, rising +0.13%.

To give a little context, the ASX200 rose for six straight weeks throughout May and into June this year and then you have to go back to April 2018 for the last time.

It has certainly been a strong run and the Australian share market has iron ore and the miners to thank.

The iron ore price has now climbed +32% since the beginning of November to US $156/tonne driven by strong demand from China, a recent production downgrade from Brazilian powerhouse Vale and renewed optimism for 2021 demand for the commodity.

Steady demand has seen investment Bank UBS boost its iron ore price forecasts for next year by close to 20%. Admittedly their current price targets are materially below the current market price, however, the bank cited growth in Chinese steel output and a recovery in ex-China demand as the reason for the upgrade.

Understandably miners have been incredibly strong with the sector rising +2% last week and having climbed +17% since the beginning of November.

Fortescue (FMG) continued to surge higher on the back of this increased demand adding +11% as it celebrated the first delivery of ore at its Eliwana processing facility. BHP (BHP) advanced a further +3% and Rio Tinto (RIO) +2.5% despite an inquiry into its Juukan Gorge disaster likely to drag on into 2021.

Another strong performer last week was Link Administration Holdings (LNK) which rose +12% after receiving a second takeover offer from SS&C Technology at $5.65 per share. This was a 14% premium to LNKs previous closing price and 25c per share higher than the previous offer from Pacific Equity Partners.

Finally, Healius (HLS) climbed +8% to trade close to a 4-year high after announcing a $200m on-market share buy-back following the sale of its Medical Centres business for $483m. HLS remains a core holding in the Prime Australian Equity Growth SMA and has now materially de-geared its balance sheet.  

Business Confidence

Business conditions and confidence rose in November, continuing to suggest a rapid rebound in the economy as restrictions are eased and state borders open up.

Victoria continues to play a significant part in this renewed optimism, however surprisingly Victoria was one of only two states to report a deterioration in conditions for the month. We expect this to be short lived as the impact of severe lockdowns wear off.

Overall, both confidence and conditions are now above average and stronger than the pre-pandemic period.

Encouragingly, other lead indicators improved in the month: capacity utilisation saw a large gain and forward orders turned positive, the latter suggesting that the pipeline of work has begun to build. That said, there is some way to go before a full recovery is reached

Capacity utilisation remains below its long-run average, while the capex and employment indexes remain in negative territory.

Even with the significant improvement in trading conditions and profitability, businesses will likely need to see a sustained improvement in forward orders and a complete recovery in capacity utilisation before renewed hiring and investment plans are put in place.

Consumer confidence hits 10-year high

Adding to the positive news was consumer confidence data released on Wednesday.

For a fourth consecutive month consumer confidence climbed higher and is now at its highest level since October 2010.

The Consumer Sentiment Index climbed 4.1% in December following the news that Australia’s technical recession was over and on promising news that a COVID-19 vaccine was not far away.

Of the five key sub indices used to calculate the Consumer Sentiment Index four rose. The only category to fall was the ‘time to buy a dwelling’ index which demonstrates home buyers are starting to question whether it is the right time to jump into the market.

Perhaps the main reason for this hesitation is the knowledge that national property values have not fallen the 10-20% analysts and economists had forecasted throughout the height of the downturn.

US stimulus deadlock

Sometimes it really does feel like we go round and round in circles.

Having been unable for months to agree on a coronavirus stimulus package, only to make steady progress in the last two weeks and be on the verge of announcing a stimulus bill, US Congress are once again deadlocked over the quantum of the package.

The latest bipartisan stimulus proposal continues to stumble with House Democrats, Senate Republicans and the White House unable to come to terms.

Republican Senate leaders last week rejected a $908b aid package once again making the 18th December budget deadline look very unlikely.

Last week the Senate approved a one-week stopgap bill securing additional time for negotiators although looking at recent events it remains unlikely that lawmakers will be able to negotiate all the relevant and necessary laws in order to pass this bill in one week.

A resolution here is crucial because a number of government policies that are currently protecting Americans from the economic impact of the pandemic are set to expire in the coming weeks meaning up to 12 million workers could lose jobless benefits.

Vaccine

It seems international vaccines are the way forward for Australia’s response to COVID-19 immunisation, after news on Friday that CSL and the University of Queensland are halting development of their COVID-19 vaccine and will no longer progress to phase 2 and phase 3 clinical trials.

The news follows a CSL announcement on Friday that whilst the vaccine created a robust response to the virus and had a strong safety profile the antibodies it generated interfered with HIV diagnostic assays and created a false positive on certain HIV tests.

As a result of the Queensland candidate’s failure, Australia plans to increase its planned production and purchase of the AstraZeneca vaccine from 33.8 million to 53.8 million doses.

In other important vaccine news the US Food and Drug Administration (FDA) has approved emergency use of the coronavirus vaccine developed by Pfizer in conjunction with Germany’s BioNTech.

The first shots are expected to be administered within days and means the US will join Britain, Canada, Mexico, Saudi Arabia and Bahrain as nations who have already approved the vaccine with the US set to review Moderna’s vaccine later this week.

Looking ahead

On behalf of the Prime Investment Committee and the wider Prime community, we would like to take this opportunity to wish you all a healthy and happy festive season.

We would like to thank you all for your continued support in what has been an extremely challenging 2020.

We are looking forward to reconnecting with you all in 2021 and wish you all well over the next few weeks.

Monday 14th December – Friday 18th December 2020

  • Monday: CN House Price Index (NOV)
  • Tuesday: AU RBA Meeting Minutes, CN Unemployment Rate (NOV), Retail Sales (NOV)  
  • Wednesday: AU Westpac Leading Index (NOV), UK Inflation Rate (NOV), US Retail Sales (NOV)
  • Thursday: AU Unemployment Rate (NOV), UK BoE Interest Rate Decision, US Building Permits (NOV)
  • Friday: N/A

Friday 11th December, 5pm values

 IndexChange%
All Ordinaries 6886+21+0.3%
S&P / ASX 2006643+9+0.1%
Property Trust Index1438-30-2.0%
Utilities Index6845+12+0.2%
Financials Index5527-11-0.2%
Materials Index15695+316+2.1%

Friday 11th December, closing values

 IndexChange%
U.S. S&P 5003663+36+1.0%
London’s FTSE6547-3+0.0%
Japan’s Nikkei26653-98-0.4%
Hang Seng26506-330-1.2%
China’s Shanghai3347-98-2.8%

Key dividends

Monday 14th December – Friday 18th December 2020

  • Monday: Div Ex-Date – WBCPE (WBCPE); Div Pay-Date – BENPG (BENPG), CWNHB (CWNHB), Soul Pattinson (SOL)
  • Tuesday: Div Pay-Date – Amcor (AMC), CBAPD (CBAPD), CBAPE (CBAPE), CBAPF (CBAPF), CBAPG (CBAPG), CBAPH (CBAPH), CBAPI (CBAPI), Qualitas Real Estate Income Fund (QRI)
  • Wednesday: Div Pay-Date – Betashares Legg Mason Australian Bond Fund (BNDS)
  • Thursday: Div Pay-Date – NABPB (NABPB), NABPF (NABPF), Pendal Group (PDL), ResMed (RMD)
  • Friday: Div Pay-Date – Westpac (WBC)

Contact

Mark Johnson – Chairman of Investment Committee(03) 8825 4738
Guy Silbert – Investment Manager(03) 8825 4750
Jordan Lisle – Dealer & Research Assistant(03) 8825 4749

If you would like to discuss your situation, please speak to your adviser or email clientservices@primefinancial.com.au

Mark JohnsonT: (03) 8825 4738Cameron MorcherT: (03) 8825 4737
Livio Caiolfa T: (03) 8825 4748Michelle BromleyT: (03) 8825 4751
Marcus AingerT: (02) 9134 6292Nicole LewisT: (03) 8825 4734
Dylan CresswellT: (03) 8825 4707Garry FrizzoT: (07) 4019 2410
Michael CooperT: (07) 3010 8597Nicholas MillerT: (03) 8825 4722
Jarrod RoddaT: (03) 8825 4729

The information in this article contains general advice and is provided by Primestock Securities Ltd AFSL 239180. That advice has been prepared without taking your personal objectives, financial situation or needs into account. Before acting on this general advice, you should consider the appropriateness of it having regard to your personal objectives, financial situation and needs. You should obtain and read the Product Disclosure Statement (PDS) before making any decision to acquire any financial product referred to in this article. Please refer to the FSG (www.primefinancial.com.au/fsg) for contact information and information about remuneration and associations with product issuers. This information should not be relied upon as a substitute for professional advice, and we encourage you to seek specific advice from your professional adviser before making a decision on the matters discussed in this article. Information in this article is current at the date of this article, and we have no obligation to update or revise it as a result of any change in events, circumstances or conditions upon which it is based.

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