Morning Bell 2 September

Jessica Amir
September 2, 2020

Records were smashed in the U.S. overnight for two key reasons: (1) U.S. factory activity in August saw its biggest expansion since November 2018 and (2) video conferencing company, Zoom, reported a 360% jump in revenue, pushing its shares up 41%. The S&P500 ended 0.7% higher, closing at brand new record, while the Nasdaq soared 1.4% also breaking its prior record.

Commodities:

  • Gold lifted by US$2 compared to yesterday, hitting US$1,979
  • Oil trades steady at US$42.76 after encouraging manufacturing numbers came through, however U.S. oil supply fell for the sixth week

What to watch today:

  1. Aussie share market should see a lift today, futures are suggesting at 0.4% gain
  2. China suspends barley imports from CBH, claiming there were pests in a shipment.
  3. Economic front: GDP data is out today, showing how much the economy shrank from April to June. Estimates suggest that GDP shrank 6% in the second quarter, which means we will officially enter a recession for the first time in 30 years.
  4. The Australian dollar took a breather but holds two-year high territory, 73.74 US cents as the U.S. dollar came back in favour.
  5. BHP listed in New York gained 3.1% overnight,  so you’d think the ASX listed BHP could follow.

As for Trading ideas:

  • Zip (ASX:Z1P) was downgraded to a sell by Citi, giving it a price target of $6.90. Yesterday Z1P fell 13% to $7.99. However its outperformed the market of late, rising over 35% in the last month. The entry of PayPal increases concerns over the medium-term – in particular, Zip’s acquisition of Quadpay could go head to head with PayPal’s pay in four. Hence Citi downgraded Zip to a sell.
  • Aristocrat Leisure (ASX:ALL) was reiterated as a UBS buy, while dropping its target to $29.60. The most upside for Aristocrat comes from online with 35% digital growth expected in the second half of the year.
  • Silver Lake Resources (ASX:SLR) has formed a bullish “continuation wedge” chart pattern according to Trading Central’s technical analysis. This indicates SLR shares could rise from yesterday’s close of $2.23 to $2.70 – $2.85 over the next 18 days according to standard principles of technical analysis. Macquarie has a $2.60 price target for SLR.
Read Transcript

Good morning, thank you for your company this Wednesday the 2nd of September. I’m Jessica Amir, a Market Analyst with Bell Direct.

Well records were smashed in the U.S. overnight for two reasons: (1) U.S. factory activity in August saw its biggest expansion since November 2018, with supply chains restarting and employees returning to work with activity rising for the first full month since COVID-19, and (2) we saw video conferencing company Zoom report a massive 360% jump in revenue pushing its shares up a massive 41%.

Industrial stocks like Caterpillar and 3M got a kick while Apple shares rose 4% leading larger tech stocks up, while Tesla shares went the other way falling 2% after announcing its selling up to $5b in stock following its smashing rally. The S&P500 ended 0.7% higher, closing at a brand new record high while the Nasdaq soared 1.4% also breaking its prior record.

Moving to commodities, gold lifted by about US$2 compared to yesterday hitting US$1,979. Oil trades steady at $42.76 U.S. a barrel after those encouraging manufacturing numbers came through while also in good news U.S. oil supply fell for the sixth straight week and that’s what we want when we’re faced with limited demand.

Now what to watch or note today, we’ll firstly, the Aussie share market should see a lift today the futures are suggesting a 0.4% rally.

Now, secondly China suspended Bali imports from CBH claiming that there were pests in a shipment which saw Australia’s biggest grain exporter deny those claims so keep an eye on that.

Thirdly on the economic horizon all eyes today on GDP data showing that the economy shrank from April to June with estimates suggesting GDP fell 6% in the second quarter which means we’ll officially enter a recession in Australia for the first time in 30 years. It is important to note though that although this is very dire data, economists are focused on the recovery and if this fall in national income today is larger than expected, expect the market to retreat, if it’s better expect a bit of a rally.

And on the Aussie dollar front well that the Aussie dollar took a breather overnight falling from its two-year high but it’s still in that territory at a US$73.74 as the U.S. dollar came back in favour. What else to consider well BHP listed in New York gained 3.1% there so you’d think that the ASX listed BHP could follow.

Now for three quick trading ideas. Well Zip (ASX:Z1P) was downgraded to a sell by Citi giving it a price target of $6.90. Yesterday, Z1P fell 13% to $7.99, however Z1P has outperformed the market of late. It’s up about 35% in the last month but the entry to PayPal really increases concerns over the medium term. In particular, Zip’s acquisition of Quadpay could go head to head with PayPal’s pay and fall, hence Citi downgraded Z1P to a sell.

Secondly, Aristocrat (ASX:ALL) was reiterated as UBS buy but UBS dropped its price target to $29.60. The reason for this lies in the detail, 85% or over of U.S. casinos remain open and 90% of these machines there are switched on but the margins are muted. However the most upside for Aristocrat comes from online with 35% digital growth expected in the second half of this year. All in all UBS decreased ALL’s EPS this year and increased its earnings estimates for next year.

And Silver Lake Resources (ASX:SLR) has formed a bullish continuation wedge chart pattern according to technical analysis provider Trading Central’s data now this indicates SLR’s shares could rise from yesterday’s close of $2.23 up to $2.70 to $2.85 over the next 18 days and that’s according to standard technical analysis principles. Also keep in mind that SLR is backed by Macquarie with a $2.60 price target.

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

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