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Market update; fiscal stimulus in focus

Fixed Income

October starts on the front foot, fiscal stimulus in focus, property improving
October started better than September finished, the ASX 200 (ASX:XJO) finishing 1.0% higher as Prime Minister Scott Morrison began announcing his fiscal stimulus package and US Congress appeared to be nearing a deal on one of their own.

The Federal Government is turning to manufacturing, announcing a $1.5 billion investment in the sector, seeking to localise and modernise supply chains ranging from food and resources to medical products and recycling.

The A-REIT sector lead the way, improving 2.1%, with Scentre Group (ASX:SCG) up 2.7% as Victorian cases slow and hopes of a retail recovery improve.

Flight Centre Group Ltd (ASX:FLT) offered another forecast, suggesting international travel was unlikely to recover until 2024 without a vaccine.

Management intend to close another ninety stores as they seek to pivot towards the new normal; shares finished 2.8% higher.

FLT’s more scaleable competitors, including Webjet (ASX:WEB) stand to gain market share due to their lower overheads.

More positive economic news came in the form of a 59.4% increase in job vacancies in August from May levels, suggesting businesses are once again seeking to hire as Stage 4 lockdowns in Victoria seem to be coming to an end.

In technology, accounting software provider Xero Ltd (ASX:XRO) announced the acquisition of Waddle, an invoice lending platform.

This is a smart sideways move in the increasing popular supply chain or short-term lending sector.
DIY in high demand, US to invest in rare earths, online sales slowing
Plumbing supplies business Reliance Worldwide Ltd (ASX:RWC) provided a trading update, surprising investors with an incredibly strong start to the new financial year; shares finished 10.5% higher.

Sales in the US increased 22%, Europe 5% and the UK 24%.

As highlighted in our previous comments regarding Bunnings and Wesfarmer’s Ltd (ASX:WES), the massive annual spend on travel has been diverted towards home improvement, at least for the short-term.

The question is whether this is sustainable once stimulus cheques start to slow; I’d err on the side of caution.

Lynas Corporation Ltd
(ASX:LYC) rallied 5.2% benefitting from a US Government announcement that they intend to invest direct into Australian rare earth companies.

Combined with the Federal Government targeting the battery supply chain in their stimulus and the sector is looking up.

NAB’s online sales survey indicated that confidence is starting to wane, down 4.2% in August after growing 6.6% in July.

The Commonwealth Bank of Australia Ltd (ASX:CBA) offered an update on their deferred loans, with the pace of those restarting repayments slowing, some $59 billion in loans still deferred, down from $67 billion in the previous quarter.
US markets mixed, airline job cuts, incomes fall

US markets were mixed, with the Nasdaq finishing 1.4% higher on the back of strength from Amazon Inc. (NASDAQ:AMZN) and Microsoft (NASDAQ:MSFT).

The two biggest constituents rallied as more statements extended stay at home orders to protect from a second wave.

Oil prices continued to be battered, with concerned about oversupply capping the gain on the S&P 500 to just 0.4%.

In a sign of the growing importance of greater stimulus, US personal incomes fell 2.7% in August after the expiry of their own Job Keeper program, placing pressure on Q4 growth expectations. It was the third biggest drop ever.

Pepsi Co (NASDAQ:PEP) provided an earnings update, reporting a solid profit after sales climbed 5.3% in the quarter, to $18.1 billion.

Latin America was weakest, hit by the COVID-19 outbreak, down 13%, Europe grew 3%, the US 6% and Asia Pacific 15%, potentially providing a leading indicator for the state of the economy.

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