The Australian markets ended the week strong with the ASX200, ASX300, and Ordinaries up 1.65%, 1.96%, and 1.52% respectively. The markets opened the week strong and held steady to close slightly higher on Friday.
Tech, banking, and media stocks led the market while miners took a beating due to corrections in the commodity markets.
Good results from certain sectors enthused investors, but the worsening pandemic situation kept the bulls in check for the rest of the week.
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Last Week in ASX Stocks
The biggest market winners of the week were from the financial services, real estate, and ancillaries, banking, and technology sectors.
The star performer was AfterPay (ASX:APT) which closed the week up nearly 37% on news that US fintech major Square (NYSE: SQ) has agreed to acquire the company in an all-stock deal for A$39 billion.
Square intends to integrate Afterpay’s buy-now-pay-later (BNPL) offering into its Cash App and Seller businesses.
BNPL has taken off across the world and typically lets a shopper pay for their purchase in a fixed number of instalments. This has proved hugely popular with millennials and gen-Zs who prefer BNPL to traditional credit cards with high interest rates.
Chief rival Zip Co. (ASX:Z1P) benefited from the bullish sentiment in Afterpay and ended the week 7% higher.
Other big winners in the tech sector were analytics and AI.
Investigative intelligence and analytics provider Nuix (ASX:NXL) surged after major shareholder Macquarie Group reiterated its positive outlook for the company despite its issues with alleged insider trading and underperformance against forecasts.
Nuix ended the week 7.91% in the green.
Machine learning and artificial intelligence service provider Appen (ASX:APX) had a strong week after CitiGroup rated the stock as a buy due to sectoral tailwinds; Citi also hinted that the company could be a potential M&A target.
The banking sector posted a solid week after the effects of the worsening pandemic were priced in and the market focused on expectations of strong earnings next week.
Investors are expecting strong results and dividends from banks due to reversals of sizable loss provisions built up on COVID-related asset quality concerns.
The Commonwealth Bank of Australia (ASX:CBA) ended the week up 3.86%, National Australia Bank (ASX:NAB) closed 2.46% higher, Australia and New Zealand Bank (ASX:ANZ) surged 2.76% and Westpac (ASX:WBC) ended the week 1.7% in the green.
Other winners in finance included asset and wealth management companies that are enjoying strong growth due to rising equity markets and the exit of large banks from the business.
Investment manager Pinnacle (ASX:PNI) reported a 100% increase in profits for the financial year and has been given an ‘outperform’ rating by Citi due to its operating leverage and the strong outlook for the sector.
Real estate and ancillaries were other big winners due to macro tailwinds such as cheap debt, increasing savings, abundant liquidity, and a strong property market.
Centuria REIT (ASX:CIP), one of the exchange’s largest REITs and industrial property owners, reported a 72% growth in profits and record low national vacancy rates due to strong tailwinds from the warehousing and logistics requirements in the e-commerce sector.
However, the strong results had likely already been priced in and the stock ended the week flat.
Genworth Mortgages (ASX:GME) ended the week nearly 12% higher after it swung into the green, erasing memories of the losses in the previous year. The company reported strong operating metrics with a substantial improvement in the Loan-to-Value ratio across all originations due to rising property prices.
Sentiment in favour of the stock was also propelled by large government incentives for homeownership.
Other big property majors also went up sharply in the wake of Centuria’s results and the strong sector outlook. Goodman (ASX:GMG), Dexus (ASX:DXS), Mirvac Group (ASX:MGR), and Vicinity Centers (ASX:VCX) ended the week up 2.67%, 2.63%, 2.43%, and 2.88%, respectively.
Rupert Murdoch’s News Corporation (ASX:NWS) reported record annual revenues of A$13 billion and a profit of A$445 million after a dismal year in 2020. The company attributed its strong performance to digital content. News Corp ended the week up 10.14%.
As mentioned, mining companies were on the back foot due to a tumble in iron ore prices after China hinted at steel production cuts on climate concerns.
Next Week in ASX Stocks
Annual earnings reports
Transurban Group (ASX:TCL) reports full-year results on Monday. One of the largest toll-road operators in the world, it was assigned a price target of $15.20 by Macquarie last month.
Aurizon Holdings Limited (ASX:AZJ), Australia’s largest rail freight operator, also reports annual numbers on Monday. The dividend yield on this stock is currently 6.92%.
SunCorp Group (ASX:SUN) is likely to continue the forward momentum in the financial sector with its annual results that are due on Monday. The company is expected to deliver strong performance due to a growing loan book and lucrative interest margins.
Bloomberg projects net earnings of A$974 million, compared to A$913 million last year. The consensus dividend is 30 cents a share.
Ditto for Challenger Financial Services (ASX:CGF), which reports on Tuesday. Based on the bullish tone of its investor presentation, Bloomberg expects the company to deliver an NPAT of A$276 million. Market expectations of dividends are for 10.4 cents a share.
Commonwealth Bank’s (ASX:CBA) numbers are due on Wednesday. The consensus NPAT is A$8.945 billion, which may have been priced in due to market expectations of provision reversals. Dividend expectations are for A$2.05 per share.
Electricity Utility company AGL Energy (ASX:AGL) is expected to deliver results on Thursday. The market expects the company to declare a strong result based on its guidance and the high electricity demand in the last quarter.
However, the stock is already up 3.47% this week in anticipation. The stock boasts a dividend yield of 11.01%.
Coronado Global Resources (ASX:CRN), one of the world’s largest producers of metallurgical coal, will publish its quarterly results on Tuesday.
Also reporting quarterly numbers on Tuesday is Oz Minerals (ASX:OZL). The company is expected to benefit from rising copper prices.
However, moving forward, the recent tumble in gold might hurt the company.
We expect that the strong performance is already baked in and there is only a slim chance that the company beats consensus.
Minerals exploration company Cannon Resources (ASX:CNR) is set to list on Thursday. The company aims to raise A$6 million and is offering 30 million shares at A$0.2.
The company is being spun off from Rox Resources and owns base metals and nickel assets across Australia.
Cobram Estate Olives (ASX:CBO) is set to launch its IPO on Wednesday. The company has a unique vertically integrated business model that makes it the industry leader in Australia.
It owns the largest olive farm in Australia, along with two bottling/storage facilities and three olive mills.
The company aims to raise A$75 million by listing 6.25 million shares at A$12 each.
Economic News, Currency and Market Outlook
At its MPC meet last week the RBA decided to keep the cash rate unchanged at all-time low levels and surprisingly, decided to taper bond repurchases by 25% to A$4 billion a week.
On the latter, it argued that fiscal stimulus was a “more appropriate” tool to deal with the pandemic and lockdowns.
At the same time, the central bank lowered the projected GDP growth rate for 2021 from 4.75% to 4%.
It expects inflation to stay below the RBA’s 2-3% target band until mid-2023 before inching up to 2.25% by end-2023.
However, a strong earnings season and the rally in tech helped the market shrug off these concerns.
Due to the strong jobs report, the US markets ended the week at record levels.
However, the Fed stated that it will start lowering financial assistance to the economy later this year and that recovery is firmly on track.
Due to Australia’s struggles with the pandemic and a rebounding US economy, the AUD is down 1.05% against the USD over the past month, and this trend is expected to continue.
However, analysts at major investment banks are hopeful that an abundance of capital all over the world and a weakening AUD will make Australia a target for M&A activity and drive its stock market higher, as witnessed after the AfterPay (ASX:APT) deal.
The Australia and China trade war is showing no signs of easing. Australia has made it clear that it will not capitulate to China’s demands as a precondition for the resumption of talks.
This is bad news for mining companies, both in copper and iron ore, considering that China is such a large customer.
The country’s economy may also suffer given that mining is one of its core sectors.