RBA Remains Supportive | De.mem Update

9 September 2021

Global markets were mostly lower overnight, with the US market (S&P 500 index, -0.3%) lower as investors returned from the long weekend trading with a more cautious tone.

There is a prospect that the European Central Bank could signal a tapering of asset purchases on Thursday and better than expected trade data from China seemed to lift the US 10-year Treasury bond yield by +0.05% to 1.37%. The market looks to be in a transitional stage, as the delta variant is already weighing on 3rd quarter growth, and there is fading fiscal stimulus.
This saw financial trade strongly while big tech shares ignored the rise in bond rates and moved upwards as well. While the drag on the market was driven by economically sensitive stocks such as real estate, materials and industrials lead losses.

European Markets fell overnight (Stoxx 600 index -0.5%) heading into ECB’s meeting this Thursday as the market anticipates a more hawkish tone amid a recent spike in Euro zone inflation and an uptick in economic indicators,

Closer to home, the RBA announced its going to keep the cash rate unchanged at 0.10% (largely expected), and  “keep” its economic support at $4 billion a week of bond buying  “at least” going until February 2022 – extending it from November. Stating that Delta and recent lockdowns have only delayed not derailed Australia’s economic recovery, they are expecting a sharp contraction in economic growth in the September quarter, but a similar bounce back in economic activity post lockdown experienced before.

Mr Boyd said the RBA believes Australia will start recovering again “gradually” in the September quarter and return to pre-COVID recovery path by around June 2022. Further out, we remain hopeful that once restrictions are eased and Australia has adjusted to 'living with COVID', a strong economic recovery will see the RBA's first hikes by mid-2023 – as they want to see material “wage growth” first.

De.mem (DEM:ASX)

De.Mem jumped +6% yesterday after its shares have been beaten down over the last month or so despite releasing a solid result for the first half of the 2021 financial year.

Yesterday De.mem announced a breakthrough with its next generation membrane technology providing customers a number of significant benefits as well as further positioning De.mem as a leader in hollow fibre membrane technology – which was well received by the market. 

The new technology provides significant customer benefits including increased throughput, therefore reducing operating costs and superior filtration performance (20-24% increased water flux throughput, and increased rejection of contaminates). The manufacturing process highly scalable and consistent with existing manufacturing processes. The new product will be implemented and trialed in pilot programmes over the next 12-24 months. 

We remain BUY rated, with the currently beaten down price an attractive entry point rated as the new technology shows the benefit of their ongoing research and development in order to keep their product set attractive while creating a competitive edge in the hollow-fibre membrane technology market – which is expected to grow to US$16 billion by 2026.


Australia & New Zealand Market Movers

The Australian market ended yesterday flat (ASX 200 index +0.02%), as the RBA remains supportive of the economy.

Materials were the weakest sector driven by the big iron ore miners being weaker again as iron ore prices continue to decline another -8.5%. The delay in potential interest rate hike due to delta, meant the banks were marginally weaker over the session. 

Communication stocks were the strongest, seen as being defensive and benefit from low interest rate environment, with Telstra up +0.5%.

Travel stocks were generally higher as they prepare for boarders to eventually open up on the back on strong vaccine rollout in recent weeks to help Australia reach its 80% target.

The New Zealand market was a touch higher on Tuesday (NZX 50 index, +0.2%) as stocks set to benefit from easing of covid restrictions outside of Auckland as they move to level 2 – expanding the amount of business activity that could occur – with restrictions remaining on the size of gatherings. 

Retailers were stronger, as they could open their doors to stores outside of Auckland, with Briscoes up +1.5%, The Warehouse Group up +1.6% and Kathmandu up +4.3%.

Sky City shares rose +1.5% as its operations could recommence however its key Auckland property remains closed and represents 70% of group revenue.

Fletcher Building had a similar jump, up 1.5% as the construction firm benefits the most moving from level 4 down to level 3 as construction can recommence.

3 Things Markets will be Watching this Week

  1. ​In a quieter week, Chinese trade data will be closely watched given the growing concerns around the state of the Chinese economy. .
  2. ​Central Bank Meetings in Europe (ECB) and Australia (RBA).
  3. Covid-19 and lockdown related announcements locally.
Global markets were mostly lower overnight, with the US market (S&P 500 index, -0.3%) lower as investors returned from the long weekend trading with a more cautious tone.

Do You Want Daily Market Insights?

If you’re interested in staying up-to-date with the latest news and analysis on stocks, be sure to sign up to BlackBull Research.

1 Month Free Trial

Access our expert stock market research Free of charge with no obligation

Free 1 Month Free Trial

Unlock this article & access our expert stock market research

ASX, NZX & USD Stock Buy, Hold, Sell recommendations. Model Portfolios. Daily news and more