Global markets were mostly lower on Friday, with the US market (S&P 500 index -0.03%) ending the session flat as the much anticipated jobs report for the month of August missed.
US nonfarm payrolls increased by 235,000 jobs in August, well off economists surveyed who were expecting 720,000 jobs and down from the revised higher +1.053m in July. While the figures are a sizeable miss, the effects of the Delta variant were evident with covid-sensitive sectors such as leisure and hospitality driving the weaker numbers. The weaker figures are unlikely to sway the Fed from tapering asset purchases at the end of the year, although most analysts now expect an announcement in November. The USD continued to push lower on the news, with the NZD and AUD outperforming again.
This saw economically sensitive stocks fall heavily, which their losses were offset by rise in Tech and other defensive sectors – the later benefiting from the worse than expected jobs data supporting teh argument to keep monetary policy supportive for longer.
Closer to home, there were 20 confirmed Auckland Covid-19 cases in the community on each of Saturday and Sunday, continuing the downwards trend in new cases. Meanwhile, in Australia vaccination rates have accelerated significantly. With the expectation that Phase B's 70% target of 16+ population to be reached by mid-Nov to early-Dec 2021 and Phase C's 80% target to be reached by Dec 2021 to Jan 2022.
As announced previously, we are recommencing US stock research coverage, and have released an initiation report on household name, Apple. The stock continues to break out to fresh all-time highs after a solid second quarter result to now become a $2.5 trillion company, and we think there is plenty left in the tank for further growth.
Amongst the mega cap US companies, we favour Apple. There are a variety of reasons we still have a BUY rating today even at all-time highs – From great returns to shareholders, a Berkshire Hathaway seal of approval (Buffet owns 5% of AAPL), excellent services and providing fashionable tech to those who want it. Compared to technology sector peers and on a standalone basis, Apple’s valuation is very reasonable in our view – trading on a forward price to earnings multiple of 26x, with forecast revenue growth at a 30% annual run rate. We think Apple still has gas left in the tank and we are not ready to take our foot off the pedal yet.
Australia & New Zealand Market Movers
The Australian market was higher on Friday (ASX 200 index +0.5%), partially recovering from Thursday’s losses given a strong lead from Wall Street.
Smaller miners were strong performers on the day, with Lithium miner Orocrobre up +7% and Rare earth miner Lynas jumping +3.4%. Materials and Energy stocks were stronger as upbeat outlook on the economy saw commodity prices rose, as well as reopening plays such as travel stocks. While Financials and tech stocks were generally weaker.
The New Zealand market was a touch higher on Friday (NZX 50 index +0.1%) in another subdued day of trading following the end of earnings season.
A handful of smaller cap companies lead the market – Plexure Group jumping +10% following successful capital raise, while investors continue to pile into Sky TV which was up +4.6% on renewed confidence they can deliver revenue growth.
Stocks that had generally been stronger were weaker as investors took profit, Restaurant Brand hardest hot on no news down -3.1%, followed by Oceania (-2.6%), Mainfreight (-1.1%) and EBOS (-0.8%) to name a few.
Highlights this week include Central Bank meetings (ECB, RBA), the latest Chinese trade data, ResMed’s Virtual Investor Day and Turners Automotive hosting its AGM.
3 Things Markets will be Watching this Week
- In a quieter week, Chinese trade data will be closely watched given the growing concerns around the state of the Chinese economy. .
- Central Bank Meetings in Europe (ECB) and Australia (RBA).
- Covid-19 and lockdown related announcements locally.