Morning Market Update - 11 June 2021

By Phillip Smith - June 11, 2021

Pre-Open Data

International Markets vs Australian Market

Key Data for the Week

  • Thursday – AUS – Consumer Inflation Expectations increased to 4.4% in June, up from 3.5% in May.
  • Thursday – EUR – ECB Monetary Policy – The ECB left interest rates unchanged at 0%.
  • Friday – UK – Industrial Production

S&P ASX 200 Last 12 Months

Australian Market

The Australian sharemarket lifted 0.4% on Thursday to reach a new record high. All sectors except Energy and Materials finished stronger, with REITs the top performer, up 2.4%. GPT Group rallied 3.8% and Stockland gained 3.2%, while Aventus Group and Goodman Group added 3.0% and 2.3% respectively.

The Information Technology sector was boosted by a 16.8% gain in financial services software company Iress. The gains followed a report by The Australian Financial Review that suggested investment bank Barrenjoey may purchase a stake in the company, however, Iress later released a statement confirming it had not received a direct approach. Buy-now-pay-later providers advanced; Afterpay and Sezzle both lifted 1.0%, while Zip Co added 0.7%.

The Consumer Staples sector was mixed; Coles lost 0.4% and Bega Cheese slipped 0.5%, while Woolworths closed up 0.8% after the ACCC allowed the supermarket giant to acquire 65% ownership of distributor PFD Food Services.

The Energy sector eased 1.1%, while the Materials sector finished the session flat; Oil Search shed 3.3%, while Woodside Petroleum and Beach Energy both fell 1.5%. Mining heavyweights were mixed; Fortescue Metals added 0.8% and Rio Tinto gained 0.1%, while BHP gave up 0.8%.

The Australian futures market points to a 0.01% rise today.

Overseas Markets

European sharemarkets were mixed overnight as the European Central Bank raised its recovery outlook and left interest rates unchanged. Automaker stocks weakened for the third consecutive day; BMW fell 1.9% and Volkswagen slipped 0.4%, while Porsche eased 0.3%. British telecommunications company BT Group climbed 6.6% after Altice Group announced it had taken a 12.1% stake in the company. By the close of trade, the UK FTSE 100 added 0.1% and the German DAX slipped 0.1%, while the broad based STOXX Europe 600 finished the session flat.

US sharemarkets advanced on Thursday despite the release of higher than expected inflation data, with the Consumer Price Index up 0.6% in for the month of May, exceeding consensus estimates of 0.4%. However, investors remained optimistic, as the release of economic data overnight supported the US Federal Reserves’ view that the current spike in inflation will be temporary. The Information Technology sector was a top performer; Spotify rallied 4.0% and Fortinet gained 1.5%, while Microsoft and Alphabet rose 1.4% and 1.2% respectively. Financial services stocks also enjoyed gains; PayPal added 2.2% and PagSeguro Digital lifted 1.6%, while Visa rose 0.7%. By the close of trade, the NASDAQ closed up 0.8% and the S&P 500 added 0.5%, while the Dow Jones lifted 0.1%.

CNIS Perspective

Like many aspects of the COVID-19 financial collapse and subsequent economic rebound, comparisons between this year’s and last year’s data looks like typos. Earnings Per Share for companies that make up the S&P 500 were up 225% in the first quarter this year from the corresponding period last year. According to S&P Global, this was in part due to the big hit taken during the January through March period of 2020.

The US Consumer Price Index was up 5.0% in May from a year earlier (announced overnight), more than double the Federal Reserve’s inflation target of 2%. However, a year ago COVID-19 was causing havoc for the economy and corporate profits. Demand for services like hotels, air flights and car rentals collapsed. The 5.0% comparison could provide an exaggerated snapshot of price pressures because it is from a deflated base in May 2020.

The Fed is now struggling with this challenge as it relates to inflation. Clearly prices are rising for both goods and services throughout the economy, however, statistics are misleading without the context. Quite possibly these base effects will fade later in 2021 as comparisons with 2020 become less dramatic.

S&P 500 Company Profits Comparison

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