Morning 26 June

Jessica Amir
June 26, 2020

The Aussie futures are eyeing a 1.2% charge at the open, but local end of financial year selling and the U.S. Fed’s big announcement will keep gains in check, with the U.S. futures already suggesting a hesitant open on Friday.

The U.S. Fed made a huge announcement that big banks will have to suspend share buybacks and cap dividend payments at their current level for the quarter. Dividends will only be allowed to be paid based on a formula of the bank’s recent earnings, as the Fed forecasts loan losses of $700 billion with unemployment hitting 19.5%, significantly pressuring banks.

Today investors will be watching the big banks as they are expected to see pressure following the Fed’s announcement of rising debt levels. However, keep in mind many of our banks like CBA (ASX:CBA) have steady underlying income and balance sheets in good shape.

Local trading ideas:

  • Following Dr Martens, Vans, Athlete’s foot and shoe business, Accent Group (ASX:AX1) reporting FY20 earnings up 10% compared to the same time last year following tight costs, focus on online sales and government support, Bell Potter increased its price target to $1.80.
  • Citi increased its Newcrest Mining (ASX:NCM) valuation as production at the WA Havieron mine has been maintained. Newcrest has remained a Citi buy.
  • Macquarie (ASX:MQG) was declared Bell Potter’s top pick for FY21, giving it has strong underlying earnings, keeping in mind if COVID-19 didn’t occur, it’s profit would have been gained 4%, instead of fallen 8%. Bell Potter targets that Macquarie will grow to $135.
Read Transcript

Good morning good morning, so nice i’ll say it twice.

Well U.S. equities had a session of two halves dragging low on weaker than expected unemployment numbers, not so good, but then alley-oop-ed in late trade on regulation being wound back for the big banks, allowing banks to potentially free up capital.

The S&P500 rebounded 1.1% and the Nasdaq scored 108 points also 1.1%, but not enough though to recover from the prior day’s losses.

After the close of trade, the U.S. Federal Reserve made a big announcement saying that big banks would have to suspend share buybacks and cap dividend payments at their current levels for the quarter.

Now dividends will only be allowed to be paid based on a formula of the bank’s recent earnings.

Why?

While the Federal Reserve has forecast line losses in the U.S. to amount to $700 billion given unemployment has hit 19.5%, significantly putting pressure on banks.

On the commodity front it was good news though, the oil price scaled 2% high to $39.07, gold shone 0.25% higher back to seven and a half year high to  $1,707 USD, copper coiled up almost 1% and the iron ore put its foot on the gas as well at 0.3% on our price now at $103 USD.

Now what to watch today, well the Aussie futures are suggesting a 1.2% charge at the open, but local end of financial year selling is likely to keep us in check, particularly the U.S. Federal Reserve’s big announcement as well which will keep gains in order, particularly given U.S. futures are suggesting a hesitant open on Friday.

Now this is something that we closely look at based on how our session is likely to perform.

Also keep an eye out on big banks today which are running at an end of financial gear loss and expected to see mounting pressure following the Federal Reserve’s announcement about rising debt levels, but keep in mind CBA (ASX:CBA) in particular out of the big four banks has been steadily growing their underlying income and its balance sheet remains in good shape.

Now to some local trading ideas, well following Dr Martin’s, Vans, Athlete’s Foot and Sketches shoe business, Accent Group (ASX:AX1) reporting FY20 earnings 10% up on the same time last year following tight cost controls, a focus on online sales and government support, Bell Potter has increased its price target for accent to $1.80.

Secondly Citi increased Newcrest Mining (ASX:NCM) valuation in WA following the mine maintaining production levels which were better than expected.

Now Newcrest Mining was maintained as a Citi buy.

And thirdly, Macquarie (ASX:MQG) was declared Bell Potter’s top pick for FY21 in the banking sector given it’s got strong underlying earnings, keep in mind if COVID-19 didn’t occur, it’s profit or Macquarie’s profit would have gained 4% instead of falling 8%.

The financial powerhouse has $25 billion in equity yet to be deployed in infrastructure and other assets, Bell Potter targets Macquarie to grow to $135.

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

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