Morning Report / 3 things catching our eye as James continues his postie run – Part 2 (Z1P, APT, AMZN US)

The ASX closed above 6200 yesterday for the first time since the 6th of March, the obvious question now being whether the market has exhausted the selling around this psychological area which would allow it to rally to a fresh level of equilibrium. The banks continue to outperform this week and with the rotation being mirrored in the US overnight it appears that the local market will hold up well in the face of a volatile session on overseas bourses. It still feels like the path of least resistance is up, especially as stocks continue to shrug off bad news.

Nerves are increasing across global indices as the COVID numbers continue to grow, overnight France alone recorded more than 30,000 fresh cases as the region moves closer to an economically painful second lockdown. Amazingly major countries like Germany and Italy are also reporting a record increase in cases as they appear to lose control, without planning it they might actually end up following Sweden towards herd immunity.

Another brief note from the MM Team today as explained earlier in the week, James has set-off across the Flinders Ranges on his Postie Bike! We will again briefly cover 3 stocks / sectors catching our eye today.

MM remains bullish stocks into 2021.

ASX200 Index Chart

The “Aussie” came under pressure yesterday as the RBA’s Philip Lowe suggested strongly that the central bank will ease next month in light of the faltering Australian economic recovery, primarily courtesy of the Victorian lockdown e.g. another 36,000 jobs were lost on Dan Andrews watch in September. For now the RBA is all about unemployment as opposed to inflation which is refreshing considering the magnitude of the issues.

MM remains bullish the $A medium-term.

Australian Dollar ($A) Chart

1 The BNPL space is definitely volatile!

The BNPL space has lived up to its volatile reputation this week and I’m sure James will continue to monitor closely next week, especially following Afterpay (APT) reaching our initial target area on Wednesday.

MM likes the BNPL revolution.

Zip Co Ltd (Z1P) Chart

Afterpay Ltd (APT) Chart

2 Tech can occasionally underperform.

It felt like the market had read our quick missive yesterday as the tech stocks wobbled while the banks rallied – it’s been a long time since we’ve seen that over a prolonged period. Overnight the story was the same as the NASDAQ slipped slightly while the US banks rallied. However when we stand back and look at the respective sectors since March the recent price action hardly registers.

MM is looking for an opportune time to reweight from Tech towards Value Stocks e.g. Resources.

ASX200 IT v Banking Sectors Chart

3 Bonds agree that RBA will cut

Yesterday the RBA implied a rate cut on Melbourne Cup day was a formality, yet the bond markets hardly moved, they already have the cut fully priced in. We shouldn’t underestimate how cheap money has become; Australian 30-year bonds are now only yielding ~1.7%.

Interest rates appear anchored to zero.

Australia 3-year Bond Yield Chart

Overseas Indices & markets

Overnight US stocks recovered strongly from early session jitters as COVID continues to win the global fight but as has so often been the case the buying quickly stepped up to the plate into weakness e.g. the Dow rallied over 300-points from its intra-day low to close basically unchanged.

MM continues to believe US stocks have found a significant short-term low.

US S&P500 Index Chart

Overnight the tech based NASDAQ finally closed down -0.7% but again significantly off its lows. We remain bullish the likes of Amazon (AMZN US) looking for fresh all-time highs.

MM remains bullish Amazon (AMZN US) short-term.

Amazon (AMZN US) Chart

Have a great day!

The Market Matters Team

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