“Upside risks” taking the S&P 500 back into the 3300-3600 range are passage of more fiscal stimulus in the US and strong third-quarter tech earnings, the bank said. A downside risk forcing Nasdaq to test 9700 would be a credit breakdown driven by rise in COVID-19 deaths, which it notes is thus far not happening.
Fundstrat Global’s Vito Racanelii also is bullish, echoing some of the same positives noted by Bank of America.
In addition, Mr Racanelli pointed to investment grade bonds trading at about 53 times price to coupon vs about 20 times price to earnings multiple for equities; and that retail investor sentiment measured by the American Association of Individual Investors remains persistently negative.
Not everyone agrees. Guggenheim Partners’ Scott Minerd tweeted: “Federal Reserve corporate bond purchase activity appears to be on the rise. Soon we will test how committed the #Fed is to keeping risk-asset prices strong. Without stimulus tailwind, success will be costly. 2850 could be in the cards for the S&P 500.”
The S&P 500 ended at 3298 on Friday in New York.
No local data
Overseas data: UK nationwide house prices September; US Dallas Fed index September
ASX futures up 21 points or 0.4 per cent to 5951
- AUD -0.2% to 70.31 US cents (Session low 70.06)
- On Wall St: Dow +1.3% S&P 500 +1.6% Nasdaq +2.3%
- In New York: BHP -0.5% Rio -1.3% Atlassian +3.1%
- Telsa +5% Apple +3.8% Amazon +2.5% Microsoft +2.3%
- In Europe: Stoxx 50 -0.7% FTSE +0.3% CAC -0.7% DAX -1.1%
- Spot gold -0.4% to $US1861.58 an ounce
- Brent crude -0.1% to $US41.92 a barrel
- US oil -0.2% to $US40.25 a barrel
- Iron ore +0.5% to $US115.21 a tonne
- 2-year yield: US 0.13% Australia 0.14%
- 5-year yield: US 0.27% Australia 0.29%
- 10-year yield: US 0.65% Australia 0.79% Germany -0.53%
From today’s Financial Review
Business urges Andrews to open faster: Daniel Andrews’ cautious easing of the COVID-19 lockdown in Victoria has failed to satisfy business owners and Prime Minister Scott Morrison, who say the Victorian Premier needs to move more quickly.
Jobs trigger will take four years: A quarterly survey of the nation’s top economists by The Australian Financial Review reveals it could take a decade to end a run of budget deficits because of the lingering impact of the COVID-19 recession on workers, households and business.
Why this fundie likes Bigtincan, Temple & Webster: Karen Towle hasn’t lost her enthusiasm for big ideas and turbocharged growth, despite having seen this before. “There’s some absolutely fascinating, interesting companies that have been doing really well that deserve to do so.”
New orders for key US-made capital goods increased more than expected in August and shipments raced to their highest level in nearly six years.
Orders for non-defence capital goods excluding aircraft, a closely watched proxy for business spending plans, rose 1.8 per cent last month to the highest level since July 2018. Data for July was revised up to show these so-called core capital goods orders increasing 2.5 per cent instead of 1.9 per cent as previously reported. Core capital goods orders are now above the their pre-pandemic level.
Economists polled by Reuters had forecast orders for these goods gaining 0.5 per cent in August.
American Airlines said it secured a $US5.5 billion government loan and could tap up to $US2 billion more in October depending on how the US Treasury allocates extra funds under a $US25 billion loan package for airlines.
Delta Airlines said it expects to record an up to $US2.5 billion charge in the current quarter related to retirements of aircraft.
Federal Aviation Administration chief Steve Dickson is set to conduct an evaluation flight at the controls of a Boeing 737 MAX this week, a key milestone as the US plane maker works to win approval to resume flights.
Alphabet settled a shareholder lawsuit that accused the Google parent of covering up lavish exit packages to executives found responsible for sexual misconduct, saying it would overhaul workplace policies and increase oversight of its diversity efforts.
European stocks recorded their worst weekly decline since mid-June on Friday. The pan-European STOXX 600 index slipped 0.1 per cent.
The index shed 3.6 per cent in a week dominated by concerns about new coronavirus restrictions in Europe.
“New restrictions in Europe, less fiscal support, fading liquidity impulse and election risk should weigh on activity in Q4,” European equity strategists at Barclays wrote in a note. “Economic surprises are starting to roll over from all-time high levels.”
European banks sank to a fresh record low as investors shunned the sector.
British betting firm William Hill surged 43.5 per cent after revealing that it had received rival takeover proposals from buyout firm Apollo and US casino operator Caesars Entertainment.
Ladbrokes and bwin brand owner GVC jumped 16.7 per cent and Paddy Power owner Flutter Entertainment gained 6.8 per cent, helping reverse early losses in travel & leisure stocks, which were up 3.2 per cent.
Still, worries about new travel restrictions weighed on airlines, with British Airways-owner IAG, Lufthansa and Air France KLM down between 0.6 per cent and 3.3 per cent.
Auto makers fell 1.4 per cent after an industry body said British car production fell by an annual 45 per cent in August
Hong Kong stocks ended lower on Friday, posting their biggest weekly drop in six months.
At the close of trade, the Hang Seng index was down 76 points, or 0.3 per cent, at 23,235.42. The Hang Seng China Enterprises index fell 0.7 per cent to 9302.59.
For the week, HSI slumped 5 per cent, while HSCE shed 5.1 per cent, both posting steepest daily drop since the week ended March 20.
The Hang Seng index could remain sluggish in the short term as new listings drew liquidity and investors turned cautious ahead of China’s week-long National Day Holiday starting October 1, Guodu Hong Kong said in report.
Tech players weighed on the market, with the Hang Seng tech index retreating 6.1 per cent for the week.
China’s main benchmarks were flat. The blue-chip CSI300 index rose 0.2 per cent, to 4570.02, while the Shanghai Composite Index slipped 0.1 per centto 3219.42.
For the week, the CSI300 shed 3.5 per cent, while SSEC lost 3.6 per cent, both logging their steepest weekly declines since the week ended July 17.
The US dollar gained ground on Friday and measured its biggest weekly gain since early April. The Aussie slipped.
The Bloomberg Dollar Spot index was 0.3 per cent higher to 1186.44; its highest since late July.
Is the US dollar rally over? No is the short answer from Bank of America: “We estimate there is some room left for the USD to move higher in the coming weeks as we look for certain retests, measured moves or Fibonacci levels to be reached.
“The rally in the USD this month is viewed as the start of a stretched short position washout and resolution of oversold momentum conditions. From a technical target perspective we think the BBDXY can rise to 1200/1210, the DXY into the mid 95s and euro should get close to 1.15. New and tactical USD longs considered should BBDXY dip to 1175.”
Still, it’s not a straight line. Bank of America said: “The risk we continue to face is buying the USD when the medium term trend turned bearish this summer. The BBDXY broke below trend line support dating back to 2011 and the euro broke above trend line resistance dating back to 2008. We recap our wave counts that suggest we should be selling USD further into this rally and buying the euro correction, such as in Chart 5 of the BBDXY and Chart 7 of EUR/USD. We anticipate buying euro at/below 1.15 and selling USD with BBDXY greater than 1200. We’ll revisit more then.”
China’s imports of liquefied natural gas will likely grow 10 per cent to new highs this year as companies scoop up cheap supplies to cover increasing industrial use and robust residential demand.
With its total natural gas use likely expanding at 4-6 per cent this year, China is the only major bright spot on the world gas market.
LNG imports are set to hit a record 65-67 million tonnes this year, analysts and Chinese traders estimate, a tenth more than 2019’s total and at a growth rate that could see China overtake Japan as the world’s top buyer by 2022.
In its weekly commodities strategies note, Fitch said the potential confirmation of the La Niña weather phenomenon – perhaps in October -“poses upside risks and chances of increased volatility to some commodity prices in Q420 and Q120. This is because it raises risks to agricultural production, to coal production and transport as well as to natural gas consumption. We note this remains a risk rather than our core view for now.”
As per industrial metals, this is Fitch’s current view: “Metal prices are taking a beating in September along with the pressures on the wider financial market as national lockdowns are being feared with the resurgence of COVID-19 cases across the globe, especially in Europe.
“While most industrial metals have lost some of their gains acquired since May, prices still remain at pre- COVID-19 levels in general. Iron ore continues to outperform the commodities we track with prices having breached 2019 highs while among non-ferrous metals copper remains the strongest.
“Stronger-than generally expected Chinese demand alongside COVID-19 related supply disruptions (Peru, Chile, Brazil), improving investor sentiment due to government financial support measures globally and economic re-openings had created an increasingly optimistic view of the sector.
“We are now neutral to bearish towards prices in Q4 as technical indicators suggest the metal price rally is overextended. Additionally, volatility and risks are elevated with COVID-19 cases rising once again and the US Presidential elections approaching fast, both of which will keep investor sentiment fragile in the coming weeks.”
The ASX sealed its best week in six after banks rallied on the surprise easing of responsible lending guidelines on Friday.
The S&P/ASX 200 index climbed 1.5 per cent, or 88 points, to 5964.89 during the last session of the week for a five-day gain of 1.7 per cent.
“Australian shares managed a decent gain through the week with banks boosted by the government moving to relax the responsible lending laws and strong gains in health, utility, industrial and consumer shares,” noted AMP Capital’s head of investment strategy, Shane Oliver.
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