Morning Bell 7 October

Jessica Amir
October 7, 2020

The Aussie market looks set to open 0.3% lower. U.S. President Donald Trump announced that the White House will halt negotiations of a further stimulus package until after the election. The U.S. market was initially marching forth until his announcement, then began to wipe out some of the prior day’s gains.

 

Commodities:

  • Oil jumped 1.8% to US$39.91.
  • Gold eased from its two-week high, falling about 2% to US$1,882.

 

What to watch today:

  • The focus will be on the budget and how investors and businesses will react.
  • For individuals: low and middle-income earners will be entitled to a tax offset of up to $2,745.
  • Wage subsidies: employers will get $200 a week for hiring people under 30 and $100 a week for hiring people between 30 and 35, and they must work at least 20 hours a week.
  • Businesses with > $5 billion turnover: ability to buy and write off the entire cost of any depreciating asset they buy before June 30, 2022.
  • Infrastructure: $3 billion will go to shovel ready infrastructure projects.

 

Trading ideas:

  • UBS maintained BHP (ASX:BHP) as Buy stock, with a $41 target. After the mining giant announced it’s buying an extra 28% stake in oil assets in the deep-water Gulf of Mexico assets for US$505 million, which will take its holding to 72%.
  • Whitehaven Coal (ASX:WHC) and Coronado Global Resources (ASX:CRN) were both reiterated as Bell Potter Buy’s, but both had their price targets reduced amid a damper coal price outlook.
  • Northern Star (ASX:NST), Saracen Minerals (ASX:SAR) and Resimac Group (ASX:RMC) are all showing bullish charting signals – according to Trading Central.

 

Read Transcript

Good morning, thanks for your company this Wednesday the 7th of October, I’m Jessica Amir, a market analyst with Bell Direct.

Well, overnight the U.S. Federal Chairman again called on fiscal help to be delivered saying it was necessary for the economic recovery and then we heard from U.S. President Donald Trump announce in a tweet that the White House will halt negotiations of further stimulus until after the election.

Now this is exactly what we thought would happen, Trump delaying stimulus until after D-day.

The U.S. market was initially marching forth until his announcement but then U.S. equities began to wipe out some of the day’s prior gains not all.

The Nasdaq lost 1.6% erasing about half of the day’s prior rally while the S&P500 fell 1.4% and the Dow also slipped about that as well rubbing out most of the previous sessions rally.

Now what to watch today, well the Aussie market looks like it’ll have a bit of a retreat, a drop of 0.3% if you go by the futures.

On the commodity side of things, the oil price has nudged ahead rising 1.8%, it’s now at US$39.91 while gold has eased from its two-week high falling about 2% to US$1,882 an ounce with investors instead buying into the safe haven USD.

Today the focus will of course be on the budget and how investors and businesses will be reacting to that and what companies could see a further kick.

There’s a lot to mull over.

For individuals, low-middle income earners will be entitled to a tax offset of up to $2,745 so the question is will tech stocks get another boost as they did with the first round of COVID-19 handouts.

For the wage subsidy side of things employers will get $200 a week for hiring people under the age of 30 and $100 per week for hiring folks between 30 and 35 but they must be working at least 20 hours per week.

For businesses with turnover of over $5 billion they’ll be able to buy and write off the entire cost of any depreciating asset that they buy before 30 June 2022.

That’s huge.

The manufacturers in defence, space, food, recycling and medical products they’ll get $1.3 billion in way that’s the total injection so think about local manufacturers that could get some of that slush of funds.

For infrastructure $3 billion will go to shovel-ready infrastructure projects with two-thirds to go towards small-scale road safety projects and the remainder for the government’s roads and infrastructure programs.

So companies to look at include (ASX:ABC), (ASX:BLD), (ASX:CSL), (ASX:FBU), (ASX:JHX), and for Citi, Boral (ASX:BLD) is a buy with a $5.30 target however successful Boral does remain dependent on getting project wins.

Citi says Boral is the best place though given its footprint on the east coast as that’s where the majority of work is focused.

As for trading ideas that could be worth a look UBS maintained BHP (ASX:BHP) as a buy stock, $41 target after the mining giant announced it’s buying an extra 28% stake in an oil asset in the deep water Gulf of Mexico for $505 million.

Now that’ll take its holding in the asset to 72%.

Now BHP could unlock extra value in the Shenzy oil field and it could have potential to increase production rates over the next 2 decades, so that’s BHP a UBS buy.

And Whitehaven Coal (ASX:WHC) and Coronado Global Resources (ASX:CRN) both reiterated as Bell Potter buys but both had their price targets reduced amid a damper coal price outlook now CRN’s new price target $1.60, WHC’s new target $2.15.

And lastly keep an eye on Northern Star (ASX:NST), Saracen Minerals (ASX:SAR) and Resimac Group (ASX:RMC) all showing bullish charting signals according to Trading Central.

I’m Jessica Amir with Bell Direct, stay safe happy trading.

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