Weekly Market Update – 08 Feb 2021

Markets trade higher on stimulus hopes and upgrades to GDP forecasts.

Global equity markets continued to charge higher last week with the MSCI World Index rallying +4.4% in AUD terms.

Continued optimism surrounding further stimulus in the US boosted global equity markets whilst Friday’s non-farm payrolls showed unemployment on the decline.

Further boosting global sentiment was the upbeat earnings data coming out of the US. Stronger than expected Q4 earnings figures from Alphabet (GOOG), PayPal (PYPL) and Amazon (AMZN) provided further impetus for tech stocks to rerate higher.  

Locally, the Reserve Bank of Australia’s (RBA) statement indicating the cash rate will remain at current levels until “2024 at the earliest” was the key piece of data released and was well received by the market.

Corporate reporting season also commenced and despite a very small number of companies having reported the initial sample size suggests the ASX reporting season will likely be a good one.

Whilst many companies refrained from providing earnings guidance in the last 12 months due to the unknown impacts of COVID-19, there has been a clear rebasing of investor expectations, which means that companies that underperform are likely to be punished less than we have come to expect in prior years.

RBA

This was a clear sign that the RBA remains committed to reigniting the Australian economy.

Whilst the cash rate remaining at 0.10% was largely expected, the RBAs commitment to purchase an additional $100b in longer dated government bonds was far from a foregone conclusion.

The interesting aspect of this was that the RBA being committed to purchasing these bonds despite upgrading its employment and inflation forecasts having acknowledged the pace of the recovery was faster than expected.

The RBA upgraded its GDP forecast for 2021 with expectations the economy will grow by 3.5% (a +0.50% increase from its previous forecast). December quarter GDP figures to be released next month will provide further insight into the state of the economy.

The RBA also lifted its 2021 inflation forecast to 1.25% from 1%, whilst its inflation estimates for 2022 were unchanged at 1.5%.

This is further proof that the economy is continuing to rebound from the sharpest downturn since the 1930s when Australia became one of the worst affected by the Great Depression.

The RBAs willingness to continue with its accommodative monetary policy stance and importantly the very clear outlook it provided in its statement should provide investors with a degree of comfort.

The board said it “will not increase the cash rate until actual inflation is sustainably within the 2-3% target range [and it] does not expect these conditions to be met until 2024 at the earliest.”

It was a bold statement and our cautiously optimistic view on markets and the ASX more specifically remains very well intact. 

US non-farm payrolls

The S&P 500 posted its best week of gains since November rallying +4.6% last week.

The Biden Administration’s progress towards implementing a third round of stimulus worth $1.9tr was a major catalyst.

The deal if approved would reportedly see individuals earning up to $50,000 receive $1,400 cheques. Importantly, this differs from the first and second round of stimulus which saw benefits begin to phase out at $75,000 and above.

A second reason behind the US equity market strength last week was the positive release of non-farm payrolls which showed unemployment at 6.3% compared to consensus estimates of 6.7%.

The US economy added 49,000 jobs last month as the unemployment rate continues to tick downwards from its April 2020 high of 14.7%. As a reminder the unemployment rate was a 50-year low of 3.5% prior to the pandemic.

Whilst the unemployment rate fell further than expected downward revisions from the past two months were disappointing with December’s -140,000 job losses revised to -227,000. Nevertheless, the +49,000 jobs created in January is an important turnaround from the prior month.

Major stocks to report last week included Google’s parent company Alphabet and Amazon which simultaneously announced its founder Jeff Bezos would step down as CEO later this year.

GOOG exceeded Q4 sales expectations with shares rising +14% for the week with advertising from the likes of YouTube accounting for 81% of group revenues. Q4 profit rose +43% to $15.2b outperforming market forecasts of $10.9b.  

AMZN shares rallied +4.5% with sales rising to $125b beating analyst estimates of $119.7b

ASX

The ASX200 delivered its best week of returns for 2021 rising +3.5% last week.

Best performing sectors on the ASX last week were financials and IT which rallied +5.7% and +6% respectively.

Utilities were the only sector to post negative returns for the week falling -1% with confirmation of the ‘lower for longer’ interest rate policy by the RBA causing investors to take profits and exit positions.

The best performing stock on the ASX last week was Virgin Money UK (VUK) which climbed +23% with a stronger than expected quarterly update which showed the bank had a profitable and positive Q1 as customer deposits increased.

Meanwhile, the best performing stock in the PRIME Australian Equities Growth SMA last week was News Corporation (NWS) which rallied +17% following its FY21 Q2 earnings release on Friday. 

Despite revealing a -3% decline in Q2 revenues which fell to US$2.48b due to lower revenues at its News Media segment, NWS more than doubled its profit reporting Q2 net income of US$261m compared to US$103m a year earlier.

NWS advised that the second quarter of fiscal 2021 was the most profitable quarter since the new News Corp was launched more than seven years ago reflecting the ongoing digital transformation of the business.

Reporting season continues to gather momentum this week with Macquarie Bank (MQG) releasing an operational update on Tuesday, Commonwealth Bank (CBA) releasing its half year result on Wednesday and Telstra(TLS) due this Thursday.

Looking ahead

Monday 8th February – Friday 12th February 2021

  • Monday: N/A
  • Tuesday: AU NAB Business Confidence (JAN), US NFIB Business Optimism Index (JAN)
  • Wednesday: AU Westpac Consumer Confidence (FEB), Building Permits (DEC), CN Inflation Rate (JAN)
  • Thursday: US Inflation Rate (JAN), Wholesale Inventories (DEC)
  • Friday: UK GDP (DEC), Balance of Trade (DEC), US Weekly Jobless Claims

Friday 5th February, 5pm values

 IndexChange%
All Ordinaries 7113+242+3.5%
S&P / ASX 2006841+234+3.5%
Property Trust Index1412+28+2.0%
Utilities Index6331-64-1.0%
Financials Index5872+314+5.6%
Materials Index15496-971-5.9%

Friday 5th February, closing values

 IndexChange%
U.S. S&P 5003887+173+4.7%
London’s FTSE6489+82+1.3%
Japan’s Nikkei28779+1116+4.0%
Hang Seng29289+1005+3.6%
China’s Shanghai3496+13+0.4%

Key dividends

Monday 8th February – Friday 12th February 2021

  • Monday: Div Pay-Date – Metrics Credit Partners Master Income Trust (MXT), Metrics Credit Partners Income Opportunities Trust (MOT)
  • Tuesday: Div Pay-Date – NB Global Corporate Income Trust (NBI)
  • Wednesday: Div Ex-Date – ResMed Inc. (RMD)
  • Thursday: Div Ex-Date – VGI Partners Global Investments (VG1); Div Pay-Date – Nickel Mines (NIC), Saracen Mineral Holdings (SAR)
  • Friday: Div Pay-Date – Charter Hall Long Wale REIT (CLW)

Contact

Mark Johnson – Chairman of Investment Committee(03) 8825 4738
Guy Silbert – Investment Manager(03) 8825 4750

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 4707 Nicholas Miller T: (03) 8825 4722
Jarrod Rodda T: (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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