Global markets started December off on a positive note (S&P 500 Index +1.1%) as better than expected factory data from China, hopes that a COVID-19 vaccine will be available soon and bipartisan support for a stimulus package in the US Senate helped lift sentiment for cyclical stocks. Pfizer and partner BioNTech SE have sought regulatory clearance for their Covid-19 vaccine in the European Union and BioNTech said it could start shipping the first doses “within hours” after approval.
US Federal Reserve Chair Jerome Powell testified before the Senate Banking Committee & agreed that more fiscal stimulus is needed & that ‘the risk of doing too much is less than that of not doing enough’, cautioning lawmakers that the US economy remains in an uncertain state.
Closer to home, the Reserve Bank of Australia (RBA) left the cash rate at the record low 0.1% and made no changes to its QE programme at its last monthly meeting for 2020. However, it reiterated that the likelihood of an uneven recovery and a concern about ongoing high unemployment and associated subdued wage growth would mean that policy settings remain accommodative for an “extended period of time”. Globally, the sentiment of central bankers remains cautious and dovish.
BHP Billiton (BHP:ASX)
Mining giant BHP has awarded Shell a landmark contract to supply fuel for the world's first fleet of liquefied natural gas-powered Newcastlemax bulk carriers as it seeks to lower shipping emissions.
As part of the company's pledge to slash emissions across its supply chain, BHP this year said it would charter five vessels from Eastern Pacific Shipping, powered by liquefied natural gas (LNG) instead of bunker fuel, to carry 10 million tonnes of iron ore a year from Australia to China from 2022. This is an interesting move as BHP looks to “clean up” its image.
From an operational point of view, BHP has made a solid start to the 2021 financial year, recently announcing an in-line September-quarter production report with iron ore and copper tracking well. BHP did not change and maintained 2021 guidance for its key assets, expecting a 7% rise in iron ore output.
There has been some volatility as BHP has confirmed China is deferring shipments of Australian coal, saying it is concerned about the impact the trade tensions will have on post-pandemic economic recovery. Although the full picture is unclear, coal traders in China confirmed reports on industry websites that some buyers had been told to stop purchasing thermal and coking coal from Australia. We think this is where BHP’s diverse commodity production base is an advantage (versus relying solely on one commodity such as coal).
While there are always commodity price risks, we think the sector currently has strong fundamentals – from a weakening dollar to healthy free cash flows and everything in between. Since August, the mining sector share price performance has decoupled from strength in commodity prices and we think stock prices could catch up and move higher. We maintain our BUY rating on BHP given its attractive dividend (4% yield) and as a diverse and efficient mining business.
Australia & New Zealand Market Movers
The Australian market started December with a gain (ASX 200 index +1.1%) rising firmly through the morning and was little changed through the afternoon as the Reserve Bank of Australia kept rates on hold.
APRA is taking action after Westpac failed to meet liquidity standards and ASIC is taking legal action against the Commonwealth Bank for overcharging on business overdrafts. In saying that, both banks added to gains yesterday.
Goodman Group also helped lead the market gains, rising 1.9% – it was one of a number of stocks linked to e-commerce trading higher, as retailers reported better-than-expected sales from the Black Friday and Cyber Weekend sale events.
KFC restaurant operator Collins Foods was also stronger, rising 10.9% despite reporting a fall in profit as the strength of its Australian KFC operations was offset by a poor performance from KFC Europe and Sizzler. It still paid out an increased dividend of 10.5 cents.
The media is highlighting strong uptake for 5G access in Australia and Telstra is expected to easily meet its target of having 750,000 5G devices on its network by Christmas, when 45% of its network will be 5G-enabled.
The New Zealand market pulled back yesterday (NZX 50 index -0.3%) as A2 Milk and Mainfreight slipped -3.7% and -2.2% respectively, offsetting a +6.2% jump in Pushpay.
Sky Network Television shares took a tumble after chief executive Martin Stewart said he was leaving the company to return to Europe after just 21 months in the role. We actually think that the CEO resignation a mild positive in our view. His tenure was weighed down by overpaying for rugby, a large increase in the cost base, rugby pass acquisition and a highly dilutive equity raise.
3 Things Markets Will be Watching this Week
- COVID related news flow, including vaccines are likely to dominate headlines for another week.
- US economic data is due at the end of the week – including nonfarm payrolls and the ISM manufacturing survey.
- The latest decision from the RBA on its Cash rate target is due Tuesday.