Those Yanks have done it again with their jobs report coming in better than expected. At least on this front there are understandable reasons for Wall Street (and particularly the tech sector) ignoring the COVID-19 negativity that’s around. That said, the big name FAANG stocks were sinking overnight, which is linked to President Trump’s executive orders to address the threat to the US from TikTok and WeChat. This means ByteDance and Tencent, which own these companies, will be barred for 45 days.
It comes as the US-China war of words gets even nastier, with the US sanctioning Hong Kong leader Carrie Lam. This has to be a pre-election ploy that Donald will use to underline how important he is to the American people, but it makes investing right now pretty tricky.
Back to the job report and the Yanks added 1.763 million jobs in July, which beat the economist forecast of 1.4 million. This helped unemployment fall to a better-than-expected 10.2%. While no one thinks the US economy is strongly on the way back with these numbers, they do reduce fears that the rising infection rates in some states of the US are starting to hurt the economy.
This now shifts the attention to the stimulus package, which is needed soon because the $600 per week enhanced federal unemployment benefit ceased at the end of July. “Democrats and Republicans appear to have come closer to an accord on issues including direct payments of up to $1,200 to Americans and extending a moratorium on evictions from federally backed housing,” CNBC reports this morning. But both sides still have a lot to agree on, including what the new federal unemployment benefits should be.
Back home and the S&P 500 rose 1.3% for the week to end at 6004.8. Part of that rise was helped by the 5% rise in the gold price over the week. And in case you missed it, the price of iron ore on the futures market hit $120 a tonne this week and the oil price reached a level not seen since March.
It was a stellar week for BHP, which put on 6.9% and is now at $39.30. And those who kept the faith with energy stocks had a good week, with Santos up 8.2% and Origin 6.7% higher. Commodity experts link this to the improving economic data coming out of China, so every Trump battle with our most important export customer always makes me a tad uneasy.
It was good to see Charter Hall Long WALE REIT report well, despite all the challenges for landlords. Operating earnings rose 72% and the stock rose 5.1% to $4.97.
Insurer IAG reported a 60% slump in profit with bushfires, hailstorms and the market effects of the Coronavirus all making for a tough time in the insurance business.
One company defying the negatives of COVID-19 restrictions is REA, which reported a 7% lift in profit. Its share price is now $113.42.
This chart courtesy of Bloomberg and the SMH gives you the big winners and losers of the week.
What I liked
- Retail trade rose by 2.7% in June (consensus: +2.4%), after rising by 16.9% in May. Retail trade is up 8.5% over the year.
- The trade surplus increased to $8.2 billion in June (consensus: $8.8 billion surplus) from $7.34 billion in May.
- Australia’s annual exports to China were at new record highs of $151.04 billion in June and imports hit all-time highs of $80.89 billion. China accounts for 34% of total Aussie trade.
- The RBA says we’ll rebound 5% next year but this year isn’t so great — see below.
- The total number of personal insolvencies hit 24½-year lows of 4,239 in the June quarter (the lowest since the December quarter 2005). In fact, insolvencies fell by 35.1% in June from a year ago – the sharpest annual contraction since records began in the September quarter 1987. JobKeeper and JobSeeker must have helped.
- The value of home loans rose by 6.2% in June (consensus: flat).
- The CBA/IHS Markit Services Purchasing Managers’ Index (PMI) rose from 53.1 in June to 58.2 in July – the highest since April 2017. Any reading above 50 indicates an expansion in activity.
- In the week to July 31, credit & debit card spending was up 3.2% on a year ago (spending in Victoria was 5.8% lower over the year).
- The ISM services index in the US rose from 57.1 to 58.1 in July (survey: 55).
- The Markit services index in the US rose from 47.9 to 50 in July (survey 49.6).
- Reuters reported that “Positive earnings reports and a surge in commodities shares lifted European stock markets on Wednesday.” European investors are ignoring infection challenges, so I hope they know something I don’t!
- The Caixin China Services PMI fell from 58.4 to 54.1 in July (consensus: 58). Any reading above 50 indicates an expansion in activity.
What I didn’t like
- Along with Treasury, the RBA now predicting that unemployment will go to 10% and Victoria’s lockdown was the cause.
- The RBA suspects our economy will contract 6% this year.
- The weekly ANZ-Roy Morgan consumer confidence rating fell by 0.4% to a 14-week low of 88.6 (long-run average since 1990 is 112.7). Sentiment fell for a sixth successive week but is still up by 35.7% since hitting record lows of 65.3 on March 29 (the lowest since 1973).
- The Roy Morgan business confidence index fell by 10.7 points (or 11.3%) to 84.3 in July – the second lowest level on record (since December 2010). Confidence is 29.7 points lower than a year ago and below the long-term average of 114.
- In July, 72,505 new vehicles were sold, down 12.8% on July 2019.
- The AiGroup Performance of Construction Index (PCI) rose from 35.5 points in June to 42.7 points in July. Readings below 50 indicate a contraction of activity.
Laugh at Microsoft’s Gates -v- GM
At a recent computer expo (COMDEX), Bill Gates reportedly compared the computer industry with the auto industry and stated “If GM had kept up with the technology like the computer industry has, we would all be driving $25 cars that got 1,000 miles to the gallon.”
In response to Bill’s comments, General Motors issued the following press release:
“If GM had developed technology like Microsoft, we would all be driving cars with the following characteristics:
1. For no reason whatsoever, your car would crash twice a day.
2. Every time they repainted the lines in the road, you would have to buy a new car.
3. Occasionally your car would die on the freeway for no reason. You would have to pull over to the side of the road, close all of the windows, shut off the car, restart it, and reopen the windows before you could continue. For some reason, you would simply accept this.
4. Occasionally, executing a maneuver such as a left turn would cause your car to shut down and refuse to restart, in which case you would have to reinstall the engine.
5. Only one person at a time could use the car unless you bought “car NT”, but then you would have to buy more seats.
6. Macintosh would make a car that was powered by the sun, was reliable, five times as fast and twice as easy to drive but would only run on five percent of the roads.
7. The oil, water temperature, and alternator warning lights would all be replaced by a single “General Protection Fault” warning light.
8. The airbag system would ask “Are you sure?” before deploying.
9. Occasionally, for no reason whatsoever, your car would lock you out and refuse to let you in until you simultaneously lifted the door handle, turned the key and grabbed hold of the radio antenna.
10. GM would require all car buyers to also purchase a deluxe set of Rand McNally road maps (now a GM subsidiary), even though they neither need nor want them. Attempting to delete this option would immediately cause the cars performance to diminish by 50% or more. Moreover, GM would become a target for investigation by the Justice Dept.
11. Every time GM introduced a new car, car buyers would have to learn to drive all over again because none of the controls would operate in the same manner as the old car.
12. You’d have to press the “Start” button to turn the engine off.”
P.S. I hope this isn’t fake news that the Internet has become famous for! Either way, it’s a funny take on how we put up with a lot of computer crap!
The week in review:
- With a double dose of articles this week, I shared 16 stocks that could be worth buying or selling [1] along with a look at where the buying opportunities are [2].
- Paul Rickard also delivered double this week, with a comparison between Afterpay and Zip Co [3] as well as strategies on how to play the gold rally [4].
- James Dunn told us which stocks to watch as reporting season ramps up [5].
- Tony Featherstone investigated the sectors that could benefit if a COVID-19 vaccine is not found [6].
- SuperGuardian’s Joshua Williams explained when an SMSF trustee can refund contributions [7].
- In Buy, Hold, Sell – What the Brokers Say this week, there were 4 upgrades and 16 downgrades in the first edition [8], and 7 upgrades and 9 downgrades in the second [9] edition.
- In Questions of the Week [10], Paul Rickard answered questions about a silver ETF, Magellan, target prices for the big four banks and WAM Microcap.
Our videos of the week:
- Webinar: What to expect this reporting season [11]
- Afterpay a sell? Top stocks big gains ahead? & CEO of Fortescue! [12] | Switzer TV: Investing
- Victoria lockdown: Expert shows how you can make money out of property [13] | Switzer TV: Property
Top Stocks – how they fared:
The Week Ahead:
Australia
Tuesday August 11 – Weekly CBA card spending (August 7)
Tuesday August 11 – Weekly consumer sentiment (August 9)
Tuesday August 11 – Weekly payroll jobs & wages (July 25)
Tuesday August 11 – NAB Business confidence & conditions (July)
Wednesday August 12 – Monthly consumer confidence (August)
Wednesday August 12 – Wage Price Index (June quarter)
Thursday August 13 – Labour force (July)
Thursday August 13 – Average Weekly Earnings (May)
Friday August 14 – Overseas arrivals/departures (June)
Friday August 14 – Reserve Bank Governor Lowe testimony
Overseas
Monday August 10 – China Inflation (July, annual)
Monday August 10 – US JOLTs job openings (June)
Tuesday August 11 – US NFIB Business Optimism index (July)
Tuesday August 11 – US Producer prices (July)
Wednesday August 12 – Reserve Bank of NZ interest rate decision
Wednesday August 12 – US Consumer prices (July)
Wednesday August 12 – US Monthly budget statement (July)
Thursday August 13 – US Import/Export prices (July)
Friday August 14 – China Retail sales, production, investment (July)
Friday August 14 – US Retail sales (July)
Friday August 14 – US Industrial production (July)
Friday August 14 – US Business inventories (June)
Friday August 14 – US Uni of Michigan consumer sentiment (Aug.)
Food for thought:
“I’m only rich because I know when I’m wrong… I basically have survived by recognising my mistakes.” – George Soros
Stocks shorted:
ASIC releases data daily on the major short positions in the market. These are the stocks with the highest proportion of their ordinary shares that have been sold short, which could suggest investors are expecting the price to come down. The table shows how this has changed compared to the week before.
Chart of the week:
This chart from Vincent Deluard posted on Twitter [14] (via The Daily Shot) shows that the FAANMG stocks (Facebook, Amazon, Apple, Netflix, Microsoft and Alphabet) are collectively valued at US$7 trillion, higher than the combined values of the US financial, energy, industrial and materials sectors:
Top 5 most clicked:
- The question on everyone’s lips: Zip or Afterpay? [3] – Paul Rickard
- 16 stocks I’ll be buying or selling soon! [1] – Peter Switzer
- What stocks should you keep your eye on during reporting season? [5] – James Dunn
- 7 sectors to watch if vaccine hopes fail [6] – Tony Featherstone
- Where are the buying opportunities? [15] – Peter Switzer
Recent Switzer Reports:
- Monday 03 August: 16 stocks I’ll be buying or selling soon! [16]
- Thursday 06 August: 7 sectors to watch if vaccine hopes fail [17]
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.