Taking a breather
The S&P 500
broke three straight days of gains, falling 0.2% as investors seemingly became exhausted from an extended rally. This despite unemployment benefits slowing and announced recoveries in domestic flights. Earlier the ASX 200
gained 0.8% and is now nearing the 6,000 level on the back of a sustained rally in the banking sector; the index is now pushing towards its 6th
consecutive weekly rise.
To me, it is clear that markets are, and will remain supported by the cheap flow of capital coming from global central banks (another $500 billion from the ECB
overnight), triggering a fear of missing out reaction from those who exited during March. In my view, the biggest risks to this sustained recovery are an unexpected second wave of COVID-19
, with current protests threatening a large spike in cases, or an increase in political risk as the US election nears. In the meantime, investors best remain selective and enjoy the ride.
(ASX:CSL), rallied 3.8% on Thursday after Paterson’s Securities
upgraded their view, suggesting the 10% fall this week represents a unique opportunity for investors to access a true global leader; being long-term holders of CSL
, I couldn’t agree more. The Commonwealth Bank of Australia Ltd
(ASX:CBA), lead banks higher, +2.3%, yet the question of governance remains after Westpac Banking Corporation
(ASX:WBC) blamed human error and technology issues for its 23 million AUSTRAC
In what may be a sign of cracks in the development sector, a well-known commercial property developer announced he had cut rents by 50% to fill a new office building, likely sending valuations in the entire region down. This is the problem with property in the current environment, if one landlord decides to reduce their rent
, all tenants will seek discounts and valuations will suffer. On a separate note, retail sales disappeared in April, falling 17.7%, driven lower by falls in clothing
(-50%) and restaurants
Can we fix it?
Prime Minister Scott Morrison
announced his Homebuilder Package
, offering $25,000 cash grants for middle income earnings willing to renovate for at least $150,000 in total. This appears to be a stop gap solution, with the Government appearing to support the building sector without committing too much funding. The lower than expected stimulus send Boral Ltd
(ASX:BLD) and AdBri
The top performer for the day was small-cap automated ‘bricklayer’ Fast Brick Robotics Ltd
(ASX:FBR). The company bounced 110% after announcing its automated Hadrian AI machine
was laying bricks at a commercial rate of 200 per hour. In a stunning turnaround we flagged to clients in mid-March, the AUD
has approached 70 US cents this week, driven primarily by the losses of others, particularly Brazil, as skyrocketing COVID-19
deaths resulted in a spike in iron ore prices. This is not great news for our own recovery, with the RBA
likely to intervene in the coming months should the strength continue.
The daily report is written by Drew Meredith
, Financial Adviser and Director of Wattle Partners