Morning Bell 8 July

Jessica Amir
July 8, 2020

The Aussie share market looks set to drop 0.6% at the open, as the rocky recovery continues.

Yesterday we saw the Aussie share market end flat, failing to follow Wall Street’s record rally. But now it is like the boy who cried wolf, traders might be wishing they followed those gains yesterday, as overnight U.S. equities headed South.

Atlanta Federal Reserve said the U.S. economy recovery will be “bumpier” as COVID-19 cases continue to rise, with 2.93 million cases in the U.S..

What to watch today:

  • Given the commodity rally, I’d be watching hard commodity miners and producers. On the iron ore front Fortescue (ASX:FMG) and BHP (ASX:BHP), have been reiterated as UBS buys. Citi also likes BHP and Goldman Sachs backs BHP as well, but sees the most upside in Rio Tinto (ASX:RIO).

Local Trading ideas:

  • UBS reiterated its buy rating on Imdex (ASX:IMD) with a price target of $1.30, after the cloud-drilling and extraction company snapped up AusSpec for $8.5 million.
  • Afterpay (ASX:APT) was given another big upgrade by Bell Potter, beefing up its buy rating and price target to $81.25. It comes as Afterpay announced it’s significantly de-risking the business, raising $800 million. They also have more than doubled its gross merchant value to $11.1 billion and customer numbers to 9.9 million, where the runway for further growth appears bright. Bell Potter upgraded revenue estimates by 3.8%, 5.6%, and 6.3% for FY20, FY21 and FY22 respectively. Bell Potter’s price target is $81.25 per share, while UBS overnight maintained its sell rating in the stock increasing its price target to $27.
  • UBS maintained its hold rating on Magellan (ASX:MFG) with a $62.32 price target, after the fund manager shares have gained about 11% so far this year. UBS also noted Magellan has generated performance fees for the group $15 million ahead of expectations.
Read Transcript

Good morning, thanks for your company.

Well the rocky recovery continues, yesterday we saw the Aussie share market end flat, failing to follow Wall Street’s record rally.

But now it looks like it’s a bit of the boy who cried wolf, traders and investors might be wishing that they followed those gains yesterday as overnight U.S. equities headed south and it looks like Aussie shares are set to follow.

It comes as the Atlanta Federal Reserve said the U.S. economy recovery will be bumpy as COVID-19 case has continued to rise, there’s currently 2.93 million cases in the U.S..

Adding to that skittish tone, 20 U.S. states reported hospitalization growth rate of at least 5% on the weekend.

On the positive side of things though, Wall Street rallied earlier in the session after the U.S. Government awarded drug maker Novavax a $1.6 billion contract to develop a COVID-19 vaccine, this is the biggest handout under the White House’s warp-speed program to get a COVID-19 vaccine in the community.

The news sent Novavax’s shares almost a 40% higher.

However, selling across most of thesectors except Staples saw the U.S benchmark S&P500 fall for the first time in six days down 1.1%, the Nasdaq also taking a breather from its record all-time high falling 0.9%, with Expedia down almost 3% and American Airlines falling 7% in the Nasdaq.

On the blue-chip Dow Jones side of things, that fell the most out of the major indices losing 1.5% and in the Dow Jones component, Boeing lost the most almost 5%.

On the commodities side, great news.

The oil price has maintained its US$40 price, it did see a bit of profit taking though losing about 0.3% with traders cautious that demand won’t be there with the second COVID-19 wave of lock downs kicking in.

That explains why the gold price is now above its milestone US$1,800 level after it rose 0.8%, where there’s gold in the ground there’s usually copper and this explains why the copper price lifted 0.4%.

The iron ore price also heading further north as well up almost, 2.6% to US$101.54.

Now what to watch today, as mentioned earlier, the Aussie share market looks like it’ll take a bit of a breather losing 0.6% at the open, if you go by the futures.

Keep in mind though on the commodity front things could be positive following the commodity boost.

Out of the iron ore majors of Fortescue Metals (ASX:FMG) and BHP (ASX:BHP) are reiterated as UBS buys.

Citi also likes BHP and Goldman Sachs backs BHP as well but sees the most upside in Rio Tinto (ASX:RIO).

For three trading ideas, overnight UBS reiterated its buy rating of Imdex (ASX:IMD) with a target of $1.30 after thecloud-drilling and extraction company snapped up a company called AusSpec for $8.5 million.

The purchase of this AI mineralogy company will expand Imdex’s rock knowledge and also provide immediate cash flows to them and also extra reoccurring revenue, that’s what we all like.

Secondly, Afterpay (ASX:APT) was given another big upgrade by Bell Potter, beefing up its buy rating and price target to $81.25. It comes as Afterpay anounced it’s significantly de-risking the business raising $800 million in capital.

Afterpay has also more than doubled its gross merchant value to $11.1 billion and customer numbers are almost at around 10 million with further runway ahead.

Bell Potter upgraded their revenue estimates for Afterpay by 3.8%, 5.6%, and 6.3% and that’s for FY20, FY21 and FY22 respectively.

Bell Potter’s price target is *$81.25* per share, UBS overnight maintained its sell rating though in Afterpay with a $27 target.

UBS maintained its hold rating of Magellan (ASX:MFG) with a $62.63 target after the fund managers shares have already gained 11% this year.

UBS also noted that Magellan is generating performance fees well above

expectations, $15 million above expectations in fact.

However UBS notes Magellan’s costs are at the top end of their guidance levels, but should pare

back and reduce given restrictions are in full force with COVID-19 lock downs and Magellan won’t be able to put on their elaborate events like they have in the past.

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

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