ASX Weekly Wrap 29/05 - 02/06

We had a surprisingly positive week for the XJO with the main index able to climb 36.40 points or 0.63%. I say surprising because it just seems that there is so much negativity around at the moment and bit of soft data that is flowing through isn’t helping. However the XJO was able to buck the sentiment and finish in the green. In fact we had our best day for the index in 9 weeks on Friday, which saw bargain hunters step up. Our high was 5,793.70 on Friday and our low was 5,679.80 on Tuesday.

Once again a week with little company news to speak of but plenty of economic data that impacted markets. Locally we had two important points of data released. Firstly retail sales came in higher than expected for April with a print of +1.0% vs +0.3% expectations. It’s too early to declare a recovery in the sector but is a step in the right direction.

Sticking with retail we had one of Australia’s largest broking houses in Morgan Stanley downgrade a heap of stocks in the sector this week after it finalized its research into the impact of Amazon on the Australian market. Key points where, like many, they expected EBITDA to fall hard and margins to be squeezed mainly due to loss of market share and price deflation. They also pointed out they expect eBay Australia to feel the impact in the early years, but by 2026 for the rest of the sector as Amazon establishes itself more. They warned it won’t be as easy for retail companies here to cut costs by shutting stores as many have very long term leases so the benefit of shutting that store may be negligible. Below are some of their forecast numbers for the larger retail stocks on the ASX. I don’t want to continue to too my own horn but I did put an Avoid on the sector back as early as September last year on the back of the then rumored Amazon entry.

Sticking with local news the Australian manufacturing PMI read came in softer than expected for May. The data showed a 54.8 read, lower than the 58.8 read in April. This still means the sector is expanding at a healthy rate it’s just a slower expansion than the previous month. Reasons for the slow down were cited as higher input costs and shortage of specialized labor. It still shows a healthy manufacturing sector which will only be boosted the lower the Australian Dollar falls.

China had their official government manufacturing PMI numbers released this week for May along with the Caixin PMI numbers, which is an independent set of numbers, and they showed conflicting outcomes. The government PMI came in at 51.2 which beat expectations of a read of 51.0. These were the same as April’s read of 51.2 also. The Caixin numbers came in at 49.6, below the 50.3 read in April and lower than the forecast 50.1. Obviously the government numbers still show a healthy expansion in the manufacturing sector whilst the Caixin numbers do show a contraction. This has brought into question the legitimacy of Chinese economic data again. However the difference can be explained due to the fact that the Caixin numbers concentrate on small to medium business whilst the government figures are a broader market read. Whatever the case we will get more of an idea of the state of the manufacturing sector in China after the June numbers come in later this month.

Finally the US had its jobs figures out on Friday night and unexpectedly they were fairly soft as well. The US added 138k jobs for May v the 183k expected. The unemployment rate did drop to a 17 year low of 4.3% though, but only on the back of a lower participation rate. The biggest drags came from government jobs and the retail sector whilst professional and business services, health, education and leisure and hospitality all boasted impressive gains. Hourly earnings did increase 0.2% to 2.5% on year despite the weaker number and it still probably gives the fed enough ammo to lift rates at their meeting next week. I dare say it will be harder for the US to post significant jobs numbers moving forward as many believe it is a full employment at this point. From here the focus should be on rising wages/hourly earnings.

Most sectors ended the week in the green apart from Energy, Utilities, Metals & Mining, Resources and Telecommunications. Industrials lead the charge along with property trusts and we saw a slight recovery in the banks. The gold sector continues to put on solid gains as the metal edges up and the Australian dollar heads down giving listed gold companies a double benefit. Below are a list of the week’s best and worst performing stocks.

Gold surged late last week on the softer than expected US jobs numbers on the thought that a third lift in rates this year isn’t as certain for the Fed. This caused Gold to break out above the long term trend line (red) and actually close above it. It has held it thus far to start the week, but I would like to see a continuation of the rise before calling it an official breakout. However things are looking bullish for Gold in the short term. Some gold companies on the radar I like are EVN, SBM, SAR, KIN, OKU, NST. If the break holds it would provide some nice trading opportunities as there are plenty of gold companies with technically appealing charts.

The XJO was able to recover some of those losses last week and ground its way up higher to hit some resistance. Although it still continues to trade in a downward trend identified by those red bars. From here it would be nice to hit the top of that downward trend by the end of the week before breaking through early next. The longer term view is still very bullish and we should be knocking over 6,000 later in the year.

A heap of data both here in abroad is released this week. Australian job ads, company profits, inventories, services PMI, RBA meeting and the big two…… Q1 GDP (Wed) and Trade Balance (Thurs). US, UK & China also have their services PMI out tonight with China also revealing its trade balance on Thursday and CPI on Friday. Add to that the UK election will be held Thursday evening our time. Big week ahead for financial markets indeed.

A much shorter wrap for you this week. Hope you enjoyed the addition of the best/worst performing stocks for the week. I am really keen on some company news to write to you all about, but its been fairly dry. We may get a few earnings upgrades/downgrades in the coming weeks as confession season starts. Be ready with your finger on that buy button if Gold holds this break. Until next time stay safe and have a great week. Go Crows!

heath@hlminvestments.com.au

0413 799 315

Important Notice

Any advice in this article should be considered General Advice only and does not take into account your personal needs and objectives or your financial circumstances. You should therefore consider these matters yourself before deciding whether the advice is appropriate to you and whether you should act upon it. I am happy to assist you in this process. To do so, I will need to collect personal and financial details from you before providing my recommendations. Please note the author may own shares in the companies mentioned in the above blog.