Weekly Market Update – 12 July 2021

Equities mixed but data remains strong.

Global equity markets climbed higher for a third consecutive week with the MSCI World Index rising +0.30% in AUD terms.

Major US equity markets were mixed throughout the week but posted a strong session on Friday which saw growth stocks further extend their recent run of outperformance versus their value counterparts.

Once again, record all-time highs were recorded within the S&P 500 and Nasdaq indexes.

U.S treasury yields fell sharply across the board last week, with the 10-year yield falling to 1.25% in intraday trading on Thursday – the lowest yield seen since February. Though, the losses were ultimately recovered the following trading day.

RBA leaves rates on hold, reduces bond purchasing program

The Reserve Bank of Australia once again left the cash rate untouched at 0.10%, marking the seventh consecutive meeting the rate was left unchanged. Moreover, the RBA stated that the 3-year bond yield would also remain at 0.10%. 

It also announced that it would start the slight tapering off of its quantitative easing (QE) program, with the bank reducing the number of government bonds being purchased from $5b to $4b per week after September and then continuing there on out until mid-November at the earliest. 

The bank restated that it remains committed to maintaining highly supportive monetary conditions and does not intend to increase the cash rate until actual inflation is sustainably within the 2-3% range, asserting that it is not enough for inflation to be simply forecasted within this range.  

Though, the RBA commented that the economic recovery from Australia had been stronger than originally anticipated and expects the positive outlook for the investment and labour market to now continue. 

Governor Phillip Lowe had a surprising change of tone when forecasting the conditions for interest rates to rise. The RBA had previously stated that ‘’rates will be on hold until 2024 at the earliest, however, now it is ‘until 2024’ hinting that an increase in rates may come sooner than once thought.  

The RBA also stated that the board would closely monitor trends in housing borrowing to ensure lending standards are maintained in the current environment of rising house prices and low interest rates. 

Second Quarter results kick-off next week in the US

An important week to come as investors prep themselves for the big US banks to kick off reporting season with the likes of Bank of America, JP Morgan Chase and Wells Fargo alongside other major financial companies all due to report their quarterly earnings next week. 

Analysts expect yet another strong quarter on Wall Street as the US’s economy progressively recovers with fewer Americans now defaulting on loans compared to earlier in the pandemic. 

Forecasted earnings by analysts expect an increase in earnings of 65.8% from Q2 of 2020, keeping in mind the low base given the shutdown in the US last spring. 

This reporting season marks a crucial time for investors as upcoming earnings must validate and justify how a market can continue to post record highs. 

ASX Weekly Wrap

Locally, investors were discouraged towards the tail-end of the week as additional lockdown restrictions were imposed in NSW after COVID-19 case numbers worsened, with the state recording 44 new locally acquired cases. A figure of this nature has not recorded for 14 months. 

As a result, the local market sold off on Friday as investors rotated out of risk assets. Concerns surrounding Australia’s path to recovery from the new COVID-19 cases linked to the infectious delta strain were a primary driver. 

The S&P/ASX 200 Index ended the week -0.5% lower with Friday’s -0/9% fall weighing heavily on the index return. 

The consumer discretionary sector led losses on the ASX last week, contracting -2.7% throughout the week. Poorly received updates from Tabcorp Holdings (TAH) about the demerging of its Lotteries & Keno business can be pointed to for blame.  

In contrast, the best performing sector for the week was the Industrials sector which gained +3.3% for the week. 

This strong gain posted in the Industrial sector was led by Sydney Airports (SYD) which was a standout for the week after it received an unsolicited takeover bid by a consortium of institutional investors at an offer price of $8.25 per share or $22 billion in total.

The bid represented a 42% premium to Sydney Airport’s previous close and resulted in SYD shares surging from $5.80 to an intraday high of $8.04 on Monday. 

Meanwhile, the best performing stock within the Prime Australian Equities Growth SMA last week was Ampol Ltd (ALD) which climbed +3.8% following a positive update on court proceedings against the company. 

Looking ahead

Monday 12th July 2021 – Friday 16th July 2021

  • Monday: AU Retail Sales (MAY), ANZ Job Advertisements (JUN), CN Caixin Services PMI (JUN)
  • Tuesday: AU RBA Interest Rate Decision
  • Wednesday: US Markit Services PMI (JUN), ISM Non-Manufacturing PMI (JUN)
  • Thursday: US FOMC Minutes, Weekly Jobless Claims
  • Friday: CN Inflation Rate (JUN), UK Balance of Trade (MAY)

Friday 9th July, 5pm values

 IndexChange%
All Ordinaries 7587+8+0.1%
S&P / ASX 2007309+10.0%
Property Trust Index1551-34-2.1%
Utilities Index5894-238-3.9%
Financials Index649700.0%
Materials Index17217+104+0.6%

Friday 9th July, closing values

 IndexChange%
U.S. S&P 5004352+71+1.7%
London’s FTSE7123-13-0.2%
Japan’s Nikkei28783-283-1.0%
Hang Seng28310-978-3.3%
China’s Shanghai3519-89-2.5%

Key dividends

Monday 12th July 2021 – Friday 16th July 2021

  • Monday: N/A
  • Tuesday: Div Pay-Date –  iShares Asia 50 ETF (IAA), iShares MSCI Emerging Markets ETF (IEM), iShares Global 100 ETF (IOO), iShares S&P 500 ETF (IVV)
  • Wednesday: N/A
  • Thursday: Div Pay-Date – ETFS FANG+ ETF (FANG), Platinum Asia Fund (PAXX), Platinum International Fund (PIXX), Qualitas Real Estate Income Fund (QRI)
  • Friday: Div Pay-Date – Betashares Legg Mason Australian Bond (BNDS), BetaShares Gold Bullion ETF-Currency Hedged (QAU), Vanguard Australian Shares Index ETF (VAS)

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 4707Nicholas MillerT: (03) 8825 4722
Jarrod Rodda T: (03) 8825 4729Gina McIntoshT: (07) 3557 2557

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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