ASX trims losses to 0.1% after unexpected GDP bounce

September begins with a loss, GDP surprises again, Metcash sales weaken

After delivering an eleventh straight month of gains by finishing 1.9% higher in August, the ASX200 (ASX: XJO) fell 0.1% to begin September.

Given the busy month that was August market volatility will likely recede as investors turn to the outlook for vaccination rates and border closures.

On Monday, however, it was all about the consumer sector with both discretionary and staples falling by over 1%.

The former was due to Wesfarmers (ASX: WES) dropping 3.3% after going ex-dividend and the latter after Metcash (ASX: MTS) reported weaker sales that send Woolworths (ASX: WOW) down in unison.

All eyes were on the June quarter GDP result, with the spread of predictions ranging from the beginning of another recession to a more positive below trend result.

Once again, the consensus was wrong and significantly so, with expectations of 0.3% growth beaten by a result that saw the Australian economy expand by 0.7%.

It is somewhat surprising that Government spending was the key driver in the June quarter, with public investment contributing 0.4% and government consumption also 0.3% higher.

The result took the 12-month expansion to over 9%, however, the worst is still to come as lockdown hit in the second quarter and show no signs of easing until well into November.

AUD, bond rates higher, Metcash cycles lower sales

The unexpectedly strong GDP result sent the ASX up over the afternoon, but also contributed to a rally in the AUD which reached 0.73 US cents after falling as low as 70 cents.

Similarly, the 10-year bond rate also spiked as traders price in the threat of higher interest rates however unlikely this may be.

Grocery retailer and key beneficiary of lockdowns in 2020, Metcash (ASX: MTS) fell 2.5% after offering an insight into the beginning of the new financial year.

Interestingly the company reported by 2019 and 2020 comparables with supermarket sales growing 13% on the former but falling close to 2% on last years figures.

Liquor sales continued to strengthen as those stuck at home in the most populous states were forced to consume more at home, sales were close to 10% higher than even last years figures.

Finally, hardware has gained significantly following the total tools acquisition and benefitting from the fact that most construction has continued during lockdowns, sales growing over 16% in the first 16 weeks of the financial year. 

Nasdaq record, weaker jobs growth, FANG+ in favour

The Nasdaq continued its strong recent run with investors flocking to higher quality defensive earnings, sending the index to another record, 0.3% higher.

Chinese tech stocks listed in the US were among the biggest contributors with Pinduoduo (NYSE: PDD) up over 6%, Baidu (NYSE: BIDU) and JD.com also sharply higher.

They are benefitting from an improvement in sentiment towards the region and a boost in policy stimulus.

In America it was bad news on the jobs front with the private sector adding 374,000 jobs compared to the 600,000 expected with the real estate, utility and staples firms hit by the impending completion of the $300 child stimulus program.

Both Chinese and US manufacturing gauges continued to slow, with factory activity contracting due to shutdowns and the US struggling due to a labour shortage.

ARK Investment is set to release a ‘Transparency’ ETF that focuses on investing only in those investments in quality companies that offer transparency into the ESG risks.

The Inside Adviser