Global markets were higher overnight (S&P 500 Index +0.5%) as US technology stocks and small caps rallied.
Thursday brought the start of a new quarter, but trading started choppy across the globe as investors focussed on the smoke signals from US stimulus talks as a deal between Republicans and Democrats remains out of reach, government responses to new waves of COVID-19 in Europe and the UK, and falling oil prices.
Rare earths miner Lynas jumped +5% yesterday after President Donald Trump triggered rarely used emergency government powers to allow direct state investments in critical minerals projects on Australian soil as part of a global push to eliminate US reliance on Chinese suppliers.
In our view, Lynas provides an attractive investment for those wanting to gain indirect exposure to electric vehicle theme. We have a High-Risk Buy rating on LYC given the risks associated with commodity pricing and the hazardous nature of mining rare earths, while remaining optimistic on the long-term market dynamics supported by the forecast growing demand for rare earths.
Covid-19 has created a temporary setback, but with a sound balance sheet post capital raise and limited cash burn Lynas has managed to weather the worst of a challenging quarter. In our view the long-term growth story remains intact with electric vehicles providing a powerful multi-year tailwind.
Australia & New Zealand Market Movers
The Australian market rallied (ASX 200 Index +1.0%) yesterday, starting the month on a positive note and rebounding from the prior session.
The major iron ore miners led the gains following a sharp rise in iron ore prices ahead of China's Golden Week holiday, with iron ore benchmark rising 5%. Some of the best performers were Reliance Worldwide Corporation (+10%) and buy now, pay later company Zip Co (+7%). Gambling stocks were also a standout, while a number of gold miners were weaker after the price of the precious metal dipped.
The New Zealand market was higher on Thursday (NZX 50 Index +0.6%) as Fisher & Paykel and the healthcare sector led a broad rally, mirroring a similar trend in United States indices on Wednesday night.
Meridian Energy was a touch lower after its annual general meeting yesterday but had made strong gains since the Labour Party announced it would negotiate an extension for the Tiwai Point aluminium smelter. The company’s chief executive said four years remained the firm’s preferred term for an extension, as it would provide sufficient time to develop plans with new customers and for them to consent any new activities.
Online travel expense management company Serko went into trading halt while it completes the bookbuild for an unexpected $55 million equity raising. Serko clearly faces uncertain times and is likely looking to maintain a strong financial position to benefit from any upswing in travel over the next few years.
3 Things Markets Will be Watching this Week
- COVID-19 related -flow remains key, with second wave and lockdown headlines, while US Congress debate what an extension of stimulus will look like.
- This week sees the first 2020 US presidential debate, monthly US employment data, and US 2nd quarter economic growth (GDP) data.
- Locally, NZ business and consumer confidence data and the latest building permits data will be released along with retail sales in Australia.