Global markets were mostly higher overnight, (S&P 500 index +0.2%) continuing on with a broadly positive tone with US markets notching their third straight day in the green.
Technology and healthcare stocks were stronger as investors grew optimistic on big tech names delivering strong earnings next week – with Sales Force up +2.5%, Amazon and Facebook rising +1.4%, while Microsoft jumped +1.6% following a broker update.
Some stocks more sensitive to the general economy were weaker after a jobless claim unexpectedly rose to 419,000 – higher than the 350,000 estimated, partly driven by some seasonal adjustments. American Airlines and Southwest Airlines both reported their first quarterly profit since the pandemic thanks to a recovery in travel demand – however their share prices traded lower over the session.
European stocks were up overnight (Stoxx 600 index, +0.6%), helped by the European Central Banks's (ECB) dovish comments. The ECB didn’t modify any of its policy settings aiming for an inflation target of 2% and will continue to remain “persistently accommodative”, adding that interest rate hikes from the ECB are seen as a distant prospect.
Lynas Rare Earths (LYC:ASX)
Lynas shares jumped +9% yesterday after reporting it had received a $14.8m grant from the Australian government’ Modern Manufacturing Initiative – to facilitate converting valuable research into commercially viable outcomes. This was a pleasing result and we have made great returns over the last year on our Lynas recommendation.
The company expects the grant to cover roughly half the costs of implementing and commercialising its “industry-first rare earth carbonate refining process”, which was developed by its own research team. Lynas will install the new process during construction of its $500 million Kalgoorlie Rare Earth Processing Facility project.
In our view, Lynas still provides an attractive investment for those wanting to gain indirect exposure to electric vehicle theme. There is decade long run up in the demand for rare earths, not only from Electric Vehicle, but also Consumer electronics, wind turbines, and smart homes which all require some form of rare earth minerals.
On balance we remain BUY rated due to the strong growth potential but caution investors around China ramping up production to meet global demand, a major risk for LYC affecting volatility in commodity prices.
Australia & New Zealand Market Movers
The Australian market closed at record highs yesterday (ASX 200 index, +1.1%) following strong a strong lead from Wall street boosting investor confidence.
Cyclical stocks led the charge with the Banks and miners performing well as concerns about the global economic recovery waned.
BHP rose +3.1% after signing a deal to supply Tesla with nickel from BHP’s Nickle West mines and refinery in Western Australia. Other miners were also stronger with Rio Tino up +1.2% and South32 climbing +2.8%. Battery mineral stocks also performing strongly following the lead of Lynas, with Lithium miner Orocobre up +9.9% on a positive production update and Iluka Resource +7.2%.
Santos shares rose +2.6% after its June quarter sales record high of US$1.1 billion, with other energy stocks performing strongly: Woodside Petroleum (+3.2%), Beach Energy (+5%) and Whitehaven Coal (+6.2%).
ZipCo tumbled -7.8% despite doubling its revenue over the June quarter as market missing the markets high expectation embedded in its share price, with other tech stocks also trading weaker.
The New Zealand market (NZX 50 index +0.1%) ended Thursday more or less flat as the RBNZ ends its bonding programme.
The yield on NZ 10-year government bond moved up a few basis points to 1.6% but still short of the almost 2% yields seen a month ago.
Stocks offering an attractive dividend were generally stronger with Goodman property leading the market higher up +2.3%.
Contact Energy (+0.4%) and Meridian Energy (+0.4%) were both up after proposing an interest to build the worlds’ largest green hydro plant to be built as a means to replace demand from Tiwai Point Aluminium Smelter from 2024.
Tower insurance was down -2.1% after announcing it received 141 claims from the serve flooding, fortunately Tower's liability will be partially covered and is expected to be limited to $2.5m – based on underwriters.
3 Things Markets will be Watching this Week
- Key events this week include US earnings (Netflix, Johnson & Johnson, Coca-Cola), ECB July rate decision, Eurozone Manufacturing PMI.
- Covid-19 related development globally, and particularly in Australia (NSW and Victoria Lock down).
- RBA Minutes and quarterly updates from Australian miners.