ASX gains after Wall St hits records on stimulus hopes despite Trump turmoil

Australia’s sharemarket surged to a 10.5-month high as a 0.5pc rise in S&P 500 futures added to strong gains on Wall Street.

Workers erect a fence around the US Capitol Building the day after a pro-Trump mob broke into the building. Picture: Getty Images

That's all from Trading Day. Global markets are still rising despite this week’s turmoil in the US as investors eye more certainty and potentially greater fiscal stimulus from Washington. Australia’s sharemarket surged to a 10.5-month high as a 0.5pc rise in S&P 500 futures added to strong gains on Wall Street. Wall Street surged to new record highs with the S&P 500 up 1.5 per cent and the NASDAQ up 2.6pc. The Australian dollar dipped to US77.26c after hitting a 33-month high of US78.20c a day earlier.

Darren Cartwright 6.51pm: Limits reintroduced at Woolies, Coles in Queensland

Panic buying sparked by a snap three-day lockdown of Greater Brisbane has pushed supermarket giants Coles and Woolworths to reinstate purchase limits on a range of toiletries, essential items and frozen goods.

The new measures come as Brisbane residents swarmed supermarkets on Friday after the Palaszczuk Government put Greater Brisbane into a three-day lockdown from 6pm.

Car parks were jammed and long queues formed as supermarket shelves were stripped clean in panic buying reminiscent of crazy scenes during Brisbane’s first lockdown early last year.

Among the long list of items now limited to two per customer at both Woolworths and Coles are toilet rolls, paper towels and liquid soap.

Woolworths Supermarkets Director of Stores Rob Moffat said they had no choice but to act following the rush on certain items on Friday.

“We understand this is an anxious time for Brisbane residents, however we want to reassure our customers we will remain open as an essential service to support their food and grocery needs during the temporary lockdown,” he said.

“We have stock to draw on from our suppliers and distribution centres and it will continue to flow into stores in large volumes.

“We encourage everyone to continue shopping as they usually would and only buy what they need.”

John Stensholt 6.04pm: Cotton-On riches revealed

A rare spotlight has been thrown on one of Australia’s biggest but most secretive retailers, revealing for the first time the big pre-tax profits and revenue being generated by the Cotton On clothing chain.

Founded by low-profile Geelong billionaire Nigel Austin, who started his career aged 18 by selling denim jackets from the boot of a Ford Bronco at the Beckley Market in his home town, Cotton On has become a ubiquitous presence in shopping malls and high streets across Australia.

Cotton On sells casual-style dresses, T-shirts, jackets, jumpers, activewear, underwear, shoes, sleepwear and other fashion accessories in more than 600 stores across Australia.

It has also expanded around the world, and the group owns accessories and footwear brand Rubi, stationery chain Typo and youth fashion business Factorie.

While he has owned horses that have raced in the Melbourne Cup and watched on from the packed mounting yard, the 46-year-old Austin has deliberately shunned the spotlight for decades after opening his first store behind a butcher’s shop in 1991.

That strategy has extended to Cotton On and its associated entities being spread across a labyrinthine collection of corporate entities in Australia and abroad, all usually and eventually owned by Mr Austin – a member of The List – Australia’s Richest 250 – and cousin Ashley Hardwick.

But financial documents lodged for the first time with the corporate regulator, just before Christmas, reveal the extent of Cotton On’s national and international success and give the most extensive picture yet of Austin’s retailing success.

The maiden accounts lodged for a company called COGI Pty Ltd (named Cotton On Group Investments Pty Ltd until last July and only formed in June 2019) show a group that has almost $300m in pre-tax profits and revenue of more than $1.2bn across Australia and around the world.

COGI made earnings before interest and tax, depreciation and amortisation of about $295m for the year to June 24, 2020 from revenue of $1.25bn, according to the accounts.

A depreciation, amortisation and impairment expense of $221m was a big contributor to profit before tax, being about $13m after finance costs of almost $62m. After paying corporate taxes of about $24m, the group made a statutory net loss of $11.4m.

The accounts show the breadth of Cotton On’s international presence. About $275m of the group’s revenue came from Asia, the biggest source internationally, though that figure was down from almost $320m in 2019.

Read more

Lisa Allen 5.35pm: Tourism begs for consistent border rules

State governments should develop a consistent, national approach to border closures, according to the former boss of Tourism Australia, the federal government’s key tourism marketing agency.

John O’Sullivan, who now heads the ASX-listed Experience Co, the second-largest marine operator on the Great Barrier Reef and largest skydiving operator in Australia and New Zealand, hit out at state governments saying if consistent border policies were not developed people could lose the desire to travel.

“(With) the more uncertainty that comes into the market what we are going to see is people’s propensity to travel decline and that is why we would be asking for a national policy on hotspot definitions and responses.

“With the operators I talk to we are asking for consistency in state border closures we are not asking for handouts,” said Mr O’Sullivan, who spent five years with Tourism Australia as managing director before resigning in 2019.

Depending if you are in NSW, Queensland, or Victoria there have been different responses, from various state governments, he said.

Mr O’Sullivan said it is obvious that there is fear among health officials about new strains of the virus developing.“(But) What we would like to see is a national, consistent definition of hot spots and hot spot management to give business certainty and our customers certainty,” Mr O’Sullivan told The Weekend Australian.

Travel stocks were hit by the decision to put Brisbane into a three-day lockdown, with Corporate Travel Management falling 3 per cent to $16.80, Webjet dropping 1.2 per cent to $5.02, and Flight Centre losing 0.5 per cent to $15.66.

Read more

4.45pm: ASX +0.7% to 10.5-month high

Australia’s sharemarket surged to a 10.5-month high as a 0.5pc rise in S&P 500 futures added to strong gains on Wall Street.

The S&P/ASX 200 rose 0.7pc to 6757.9, its highest since 25 February 2020, with buyers taking advantage of liquidity in the closing match.

The index is now just 6 per cent below its record high of 7197.2 points after Wall Street hit record highs after the outcome of Senate elections this week increased conviction around economic reopening.

A 2.6 per cent rise in the S&P/ASX 200 this week was its best week since November and its best start to the year since 2001.

The Technology sector led gains as it did on Wall Street, with Afterpay rebounding 6.6pc.

Consumer Discretionary stocks surged on a bullish note from Citi, with JB Hi-Fi and Harvey Norman up almost 4pc and Wesfarmers up 1.8pc.

Health Care stocks also bounced back alongside US peers, with CSL up 1.9pc.

The Energy, Financials and Consumer Staples sectors also outperformed with Woodside up 1.9pc, Westpac up 1.5pc and Woolworths up 0.9pc.

Bond proxies in the Real Estate and Utilities sectors fell, while iron ore miners were hit by profit taking with Fortescue down 2.2pc, Rio Tinto down 1.3pc and BHP down 0.5pc after surging to record highs this week.

The lockdown of Brisbane weighed on retail property trusts, and travel stocks with Mirvac down 1.5pc and Webjet down 1.2pc.

3.50pm: Platinum continues to lose FUM

Platinum Asset Management continues to bleed funds under management.

Funds under management fell by $149m to $23,598bn in December.

That included net outflows from the Platinum Trust Funds of about $97m.

Platinum’s FUM has fallen every month since August 2018.

PTM shares were last down 0.7pc at $4.04.

2.45pm: Asia markets track US records

Asian markets continued to push higher Friday following another record-breaking performance on Wall Street as investors set their sights on a further huge US stimulus after Democrats took control of Congress.

The prospect of another massive splurge in the world’s biggest economy helped divert attention from soaring Covid infection and death rates that have forced governments to once again lock down as they try to quickly roll out vaccinations.

After Wednesday’s extraordinary scenes in Washington that saw a pro-Donald Trump mob storm the Capitol complex, the president said he would allow for a smooth transition of power to Joe Biden and later called for “healing and reconciliation”.

While the violence shocked the world, investors brushed it off but analysts said Trump’s comments would provide a little more reassurance.

Traders are now looking forward to hearing what Democrats propose to do with their new powers, with expectations they will try to revive their titanic spending plans that were cast aside last year to push through a second stimulus with Republicans just before Christmas.

Among the first pieces of legislation could be a drive to increase the cash handout included in that rescue package from $US600 to $US2000.

Observers also said earlier worries on trading floors that Democrats would try to hike taxes and pursue tighter regulations would likely disappear as lawmakers focus on eliminating the virus and reviving the economy.

And most agree that the prospects for 2021 are good, especially with the Federal Reserve pledging to keep interest rates at record lows for the foreseeable future and continue to provide vast sums as financial backup to businesses.

Axi’s Stephen Innes said that high amounts of liquidity, stimulus and high savings rates had created “the perfect conditions for speculation and asset price lift-off”.

- ‘Bullish’ for 2021 -

Wall Street “expects a massive infusion either side of $US1 trillion in the first quarter that is built around further stimulus cheques, funds for state and local governments, and enhancements to unemployment benefits, among other provisions”, he said, adding that a Biden presidency and the lifting of uncertainty from the White House was also a plus.

“Investors remain super bullish about the prospects for US equities in 2021. Effective vaccines mean consensus is aligned to a surge in economic activity and strong profit recovery.” All three indexes on Wall Street closed at records, with the Dow ending above 31,000 for the first time, and Asia picked up the baton.

Tokyo jumped 1.7 per cent, Taipei piled on 1 per cent, and Singapore added more than 1 per cent. There were also healthy gains in Shanghai, Sydney, Manila and Jakarta, though Wellington edged down.

Seoul climbed more than 2 per cent, helped by a jump in Samsung after it reported strong fourth-quarter earnings.

Hong Kong was up 1 per cent, though telecom giants tanked again after MSCI said they would be removed from its benchmark indexes a day after having their New York shares delisted in response to a Trump administration call to bar Americans investing in them.

China Unicom fell more than 7 per cent, China Mobile sank 5 per cent and China Telecom dropped more than 8 per cent - all extending Thursday’s massive losses.

On currency markets, the dollar built on gains as investors revel in the prospect of a big spending spree this year to kickstart the economy, while bitcoin broke $40,000 less than a week after cracking past $30,000.

Investors will be keeping an eye on the release later Friday of US jobs data for December, with fears of a weak reading, days after news that more than 100,000 people had lost their jobs in the private sector.

AFP

2.05pm: JPM sees investing continuity in 2021

JPMorgan’s Head of Cross-Asset Fundamental Strategy, John Normand, says the policy implications of an effective one-vote majority in the US Senate after Georgia runoffs this week bring “more continuity than disruption” of the consensus views of where to invest in 2021.

“The continuity comes in three portfolio rotations – Equities vs Bonds, Credit vs Bonds and Value vs Growth – that were already geared to this year’s prospect of economic reopening, vaccine deployment and fiscal stimulus,” Mr Normand says.

“Now under a unified government, the late December US stimulus package of $US900bn ($1.2bn) will almost certainly be boosted in early 2021, assuming the incoming administration prioritises income support over tax increases.”

He cautions that disruption may come via higher inflation expectations, higher bond yields and a stronger dollar, which upend the EM component of Value rotation within Equities as well as the most compelling mean-reversion opportunity within Fixed Income.

One casualty from higher yields would be the total returns of Developed Markets and Emerging Markets credit, since spread tightening due to declining ratings and default risk could be “insufficient to offset duration losses when the starting level of spreads this year was below average and when running yields were at all-time lows”.

“Whether stimulus becomes too much of a good thing for markets like Emerging Markets, Credit and Commodities ex-gold (gold usually sells off when nominal yields spike, because real yields rise too) hinges on the degree to which much looser fiscal policy drives a shift towards less-loose and then tighter monetary policy,” Mr Norman says.

“Less-loose means Fed tapering like the 2013 tantrum; tighter means hikes in the Fed funds rate and eventually Fed balance sheet shrinkage.”

But he notes that while Fed tapering around the end of this year is part of JPM Economics’ baseline view, it’s “more as a guess than a firm forecast given how little guidance Fed officials have offered around this issue.”

Fed tightening isn’t part of JPM’s outlook through 2022, given a recognition that even the US economy running at its “full employment” levels pre-COVID-19 couldn’t meet the Fed’s 2 per cent core personal consumption expenditure objective, much less exceed it.

Thus he says it’s “hasty to extrapolate too much” from the path of inflation breakeven bond rates.

“Yes the breakeven revival has been swift, but the rally hasn’t been excessive in either change or level terms compared to what typically occurs during the transition from recession to early-stage expansion,” he says.

“Unless the Phillips curve gets some backbone under Biden, this move too could fade, thus deferring the range of disruptive forces that some parts of fixed income currencies and commodities markets are experiencing this week.

It is likely that the Democrats’ one-vote effective majority will prove enormously consequential in some areas.

But it seems too soon – and too narrow – to place the inflation process and sustained market disruption within such a list.”

12.10pm: ASX +0.4%; hits 3-week high

Australia’s share market jumped to a fresh 3-week high after strong gains on Wall Street.

The S&P/ASX 200 rose as much as 0.5pc to 6746.3 just before midday, its highest point since December 17th when it peaked at 6756.7.

Technology leads gains as it did on Wall Street with Afterpay rebounding almost 6pc.

Energy stocks bounced back from early falls with Woodside up 1.7pc.

Consumer Discretionary stocks jumped after a bullish note from Citi, with JB Hi-Fi and Harvey Norman up about 3pc. Other outperforming sectors included Health Care, with CSL up 0.7pc, and Financials, with Macquarie up 1.4pc.

Iron ore miners fought back from early falls, but Fortescue remained down 1pc.

The lockdown of Brisbane saw Corporate Travel fall 2.7pc and Flight Centre fall 0.6pc but Qantas rose 1pc. Vicinity Centres and GPT lost about 2pc.

12.02pm: Hyundai surges on Apple talk

Hyundai confirms a potential deal with Apple, saying talks are “at early stage”, according to Bloomberg. It comes after South-Korea listed shares of Hyundai surged 17pc to a 6.5-year high of KRW242,000 a share after cable TV unit of Korea Economic Daily said Apple and Hyundai may cooperate on developing Apple’s self-driving electric “Apple Car” and battery development.

Hyundai shares are heading or their best day since 1988.

David Swan 11.00am: Musk now world’s richest

SpaceX owner and Tesla CEO Elon Musk. Picture: AFP

Tesla chief executive Elon Musk has raced past Amazon founder Jeff Bezos to become the world’s richest person, worth an estimated $US195 billion ($251bn), fuelled by his electric car company’s meteoric rise over the past year.

Mr Musk owns about 20 per cent of Tesla, whose shares skyrocketed eight-fold in 2020 and hit a new high on Friday, climbing 7.9 per cent and another 2 per cent in after hours trading, briefly overtaking Facebook and giving it a valuation of $US769 billion.

The surge makes Mr Musk the world’s richest person, worth about eight times the entire GDP of Iceland. He’s now worth $US10bn more than Mr Bezos, who he’s taking on in a high-stakes space race. Mr Bezos had been the world’s richest person since 2017, but gave a quarter of his family’s Amazon stake to ex-wife MacKenzie Scott in divorce proceedings in 2019.

Read more: Tesla’s Elon Musk becomes world’s richest person

10.25am: ASX hits 3-week high in early trading

Australia’s share market rose slightly to a fresh 3-week high after strong gains on Wall Street.

The S&P/ASX 200 gained 0.4pc to 6739.7, its highest point since December 17th when it peaked at 6756.7. But it soon pared that rise as travel, gaming, fuel retailers and real estate stocks were hit by the lockdown in Brisbane.

There was also some profit taking in the resources stocks after strong gains this week.

The Technology sector led gains as it did on Wall Street with Afterpay rebounding 4pc.

Consumer Discretionary stocks jumped after a bullish note from Citi, with JB Hi-Fi up 3.5pc.

Other outperforming sectors included Health Care, with ResMed up 2pc, and Financials, with Macquarie up 1.3pc.

Iron ore miners were the biggest drags with BHP down 0.9pc, Fortescue off 0.7pc and Rio Tinto down 1.7pc.

In the travel sector, Corporate Travel fell 2pc, Qantas fell 0.8pc, Webjet lost 1.2pc and Flight Centre fell 0.8pc.

In the Real Estate sector, Vicinity Centres fell 1.3pc, Scentre fell 0.7pc and GPT lost 0.9pc.

Viva Energy fell 1.4pc and Ampol lost 0.4pc.

Among gaming stocks Crown Resorts was down 0.9pc.

Joyce Moullakis 10.17am: Spin-offs may be AMP’s best option

AMP’s “best route” forward may be the spin off of key assets, as the clock is ticking on Ares Management striking a $6bn-plus deal to buy the wealth group, according to Citigroup analysts.

The analysts led by Nigel Pittaway think AMP should spin off its capital and banking divisions, if a transaction is not forthcoming from its portfolio review.

His view is that Macquarie Group’s acquisition of Waddell & Reed Financial was likely “to lessen” its interest in AMP Capital, which is the company’s real estate, infrastructure and equities arm.

“Still, this is the business which likely most attracts current conditional bidder

Ares (at least in part), with Macquarie (and possibly others) still potentially interested in AMP Bank,” Mr Pittaway said.

“Consequently our proposed route of spinning off these two businesses, realising substantial capital and retaining the harder to sell, but heritage, AWM (Australian Wealth Management) business may still be possible. This would also leave AMP still in control of its ultimate destiny, something we presume the AMP board would find attractive.”

The Citi analysts are of the view that if AMP and Ares can’t strike a deal, the transformation strategy would likely be a “long haul”.

“While we believe a successful execution of AMP’s standalone transformational strategy would see eventual share price upside, in our view, the challenge of reinventing its advice business is significant with no guarantee of success,” they said.

“Arguably recent happenings at AMP Capital have only made this more difficult with this business now potentially more valuable in someone else’s hands.”

AMP Capital was beset with issues when Boe Pahari was promoted to run the division, despite having been penalised for an earlier sexual harassment incident. Investor unrest eventually claimed the job of chairman David Murray and saw Mr Pahari demoted to his former role.

Citi raised its core earnings-per-share target for AMP by 3 per cent for calendar 2020, and 2 per cent for both 2021 and 2022. The AMP price target was increased to $1.60 from $1.55.

But the broker retained its “neutral/high risk” rating on the stock.

10:00am: Retail run to continue: Citi

Crowds pack Cairns Central Shopping Centre in the CBD in search for a good deal during Boxing Day sales. Picture: Peter Carruthers

Citi sees upside risk to FY21 earnings for the Australian retail sector after being “surprised at the longevity of the cycle”.

“Our forecasts have consistently underestimated the longevity of the sales and earnings strength throughout COVID-19,” says Citi analyst Craig Woolford.

“This has continued over November and December 2020 trading, which has broadly beaten our conservative expectations despite inventory shortages for many retailers.

As a result, we have a clear positive skew to our FY21 earnings risks, led by Super Retail, with most upside to Citi forecasts of about 2 per cent to 5 per cent for most retailers.”

Mr Woolford says upside risk exists for consensus FY21e earnings forecasts are driven by strong December sales momentum driving 1H21 operating leverage, gross margin upside as promotions have been reduced in light of inventory shortages and strong demand, and ongoing strong demand to persist into 2H21 as COVID-19 tailwinds take longer than expected to subside, coupled with a strong housing market.”

Citi is ahead of consensus on most discretionary retailers in 1H21, given strong operating leverage to elevated sales growth.

“We consider consensus to be including some stale estimates, which may not reflect the continued strength in earnings through the December quarter, as well as gross margin upside given limited stock availability, particularly in home-related categories and for retailers with high levels of private label and vertical margins,” Mr Woolford says.

He expects 1H21 earnings to beat expectations, driven by a combination of operating leverage to strong life-for-like sales momentum and gross margin expansion as promotional intensity falls.

In addition he’s optimistic around the 2H21 earnings outlook as demand remains elevated given restricted spending outside of retail, particularly in travel.

Higher than expected sales - albeit well below the unsustainable 2H20 - and margins are expected to remain elevated given the higher sales density.

Mr Woolford notes that retailers de-rated throughout November 2020, driven by the reopening trade, which largely reversed in December 2020 and early January 2021 with a second wave of NSW COVID-19 cases.

He’s focusing on FY22 earnings multiples given this looks through the majority of the elevated earnings from COVID-19, and broadly reflects normalised earnings.

The FY22 PER multiples - relative to the ASX200 ex-Resources - for most retailers, are ahead of long term averages, according to the Citi analyst.

“This likely reflects upgrade risk to FY21 and FY22 consensus earnings,” he says.

“Retailers trading on a significant premium to historical levels include Wesfarmers, Lovisa and City Chic.

In contrast, retailers where value is still present include Buy-rated Super Retail, Harvey Norman and Beacon Lighting.”

9.15am: What’s impressing analysts this morning?

• Altium raised to Hold: Bell Potter
• Sonic Healthcare raised to Add: Morgans Financial
• ASX raised to Neutral: Macquarie
• AusNet raised to Neutral: Citi
• NIB cut to Neutral: Macquarie
• Medibank Private cut to Underperform
• Macquarie, Pharmaxis raised to Speculative Buy: Bell Potter

Ellie Dudley 9.10am: Brisbane locked down

Greater Brisbane will go into a 3-day lockdown from 6pm Friday to 6pm Monday in response to the highly-transmissible UK strain of the virus entering Queensland.

The council areas affected include Brisbane, Logan, Ipswich, Moreton, and Redlands.

Premier Annastacia Palaszczuk said Queensland will “go hard and go early” to address the situation asking Brisbane residents to “think of it as a long weekend at home.”

“If we do not do this now, it could end up being a 30-day lockdown,” she said.

Queensland has recorded nine new positive cases recorded in hotel quarantine, from more than 13,000 tests.

Read more: Fears over UK virus threat as cabinet meets

9.00am: Tesla tops Facebook

People look at a Tesla Model Y car at a Tesla showroom in Beijing. Picture: AFP

Tesla has surpassed Facebook to be the 5th largest US company by market capitalisation for the first time on record. Tesla shares rose 7.9% to a record high close of $US816.04, giving it a market capitalisation of $US773.5bn. Facebook shares rose 2.2% to $US268.74, giving it a market capitalisation of $765.45 billion. Tesla has added $US104.6 billion in market capitalisation in 2021 alone. It comes as all three of the major US equity benchmarks surged to record highs.

8.55am: Wall St hitting records

All three of the major US equity benchmarks surged to record highs on Thursday as a small effective majority for the Democrats in the Senate fuelled hope of major US fiscal stimulus.

In a change of leadership from a day earlier, the Nasdaq led with a 2.6% rise to 13067.48 points.

Among leading stocks, Apple rose 3.4pc, Tesla jumped 7.9%, Facebook rose 2.2%, Microsoft rose 2.9%, Alphabet gained 3% and Amazon rose 0.7% despite a late pullback.

The S&P 500 rose 1.5% to 4803.79 and the Dow Jones Industrial Average rose 1.5% to 31041.1.

In small caps, the Russell 2000 index rose 1.9%, but the Russell 1000 Growth index rose 2.3pc, while the Value index gained 0.8pc.

8.44am: Boeing paying $US2.5bn settlement

Boeing has reached a $US2.5 billion settlement with the US Justice Department in which it plans to admit wrongdoing to resolve a criminal investigation into whether its employees misled regulators about safety issues two deadly crashes of the 737 MAX, according to court filings.

The settlement, which was filed in Dallas federal court, would lift a legal cloud that has hung over Boeing for about two years since the crashes. Federal prosecutors had been investigating Boeing’s high-profile lapses in informing the Federal Aviation Administration about 737 MAX safety shortcomings before and after the tragedies.

The settlement includes a $US243 million fine as well as $US2.2 billion in compensation to airline customers and families of 346 people who were killed in two MAX crashes.

Read more: Boeing to pay $U2.5bn over 737 MAX

Dow Jones

8.34am: Why the risk rally will continue

Capital Economics says risk asset markets aren’t yet in a state of excessive optimism despite their continued rally in the face of alarming news like the riot on Capitol Hill this week.

First, vaccine rollouts this year should spark a strong recovery later in 2021 - perhaps helped by additional fiscal stimulus in the US after the Democrats achieved an effective majority in the US Senate - and economic damage from current restrictions will prove largely temporary, so investors are right to look through the latest pickup in case, says Capital Economics markets economist Thomas Mathews. Second, low interest rates on safe assets mean equity prices can be sustainably higher relative to earnings and he doesn’t think central banks won’t let market interest rates rise much further any time soon.

Third, while aggregate measures of risky asset prices such as the MSCI World Index have returned to or surpassed pre-pandemic levels, an economic recovery is unlikely to have been fully priced in.

Moreover, with the prices of many of the hardest-hit assets remaining well below pre-pandemic levels, and with lower interest rates and in some cases implicit or explicit central bank support, the economic advisory service suspects there remains some scope for further gains.

He does note that a premature tightening in fiscal policy or hiccups in the vaccine rollout were among the key risks that could derail risky assets’ relentless rise.

But in the near term, the most likely candidate may be expectations for monetary policy.

If investors begin to doubt the Fed’s commitment to keeping long-term yields low as part of its accommodative monetary policy settings, these yields could rise further, which could take some of the wind out of the sails of risky assets, Mr Thomas cautions.

“However, we still think the Fed will want to keep conditions accommodative – and thus safe asset yields low – for quite some time, regardless of the prospects for fiscal stimulus.

In our view, that should continue to support further gains in risky assets.”

7.06am: Bitcoin soars past $US40,000

The price of the cryptocurrency bitcoin soared past $40,000 for the first time on Thursday, rising $10,000 in just five days.

The price of bitcoin was $40,380 at roughly 1820 GMT, having jumped 10.4 per cent during the trading session.

It later lost some ground and Factset data valued it at $38,950 dollars, up 6.52 per cent on the day, at 1850 GMT.

The cryptocurrency, which has known wild swings in value, passed $30,000 for the first time just on Saturday.

“Investors continue to hop on the cryptocurrency train which appears to be gaining more interest now that the US economy is poised to deliver more stimulus in Biden’s first 100 days,” said market analyst Edward Moya at currency trading platform Oanda.

But its latest meteoric rise is already fuelling talk of a new correction. Fellow Oanda analyst Craig Erlam warned that even if a correction does not seem imminent, once one emerges “it’s going to hurt”.

And one European analyst who wished to remain anonymous told AFP that “it’s starting to get worrying -- it’s no longer at all the market of a few weeks back -- a correction is inevitable.”

7.03am: US suspends French tariff move

Washington has suspended a plan to impose new tariffs on $1.3 billion in French products in a dispute over a digital services tax, the US Trade Representative (USTR) announced on Thursday.

The punitive levies were due to take effect Wednesday, but USTR held off citing ongoing investigations of similar measures “adopted or under consideration in 10 other jurisdictions.” The government of President Donald Trump in July 2020 announced the decision to impose 25 per cent tariffs on French handbags and cosmetics, among other items, but suspended collecting the duties until January 6.

That was in retaliation for the tax France approved in 2019 on tech firms like Facebook, Amazon, Apple and Google, which were accused of moving their profits offshore.

USTR Robert Lighthizer slammed the move saying it “unfairly targets US digital technology companies.” Paris suspended collection of the digital services tax through the end of 2020, as the sides have been trying to a negotiate a deal through the Organization for Economic Co-operation and Development (OECD).

AFP

6.51am: US jobless claims fall

There were 787,000 Americans newly filing unemployment claims last week, according to data released from the Labor Department Thursday, a smaller total than expected but still far above pre-pandemic levels.

The number of people filing initial claims for the week ended Jan. 2 was just 3,000 below the prior week’s upwardly revised figure of 790,000. Economists were expecting there to be 815,000 new claims. With Thursday’s tally, which was the second consecutive week that initial claims fell below 800,000, the four-week moving average for claims decreased by 18,750 to 818,750.

Futures on the S&P 500 were modestly higher after the news.

Continuing claims, which lag initial claims data by one week, also saw a decrease. There were 5.1 million people who had applied for unemployment benefits for at least two weeks as of the week ended Dec. 26. Thursday’s data showed a 126,000 drop in continuing claims from the week ended Dec. 19.

6.40am: I was wrong on Tesla: analyst

After two years of saying investors should sell Tesla stock, RBC auto analyst Joseph Spak made a startling admission Thursday: He believes his Tesla call was wrong.

As a result of his revelation, Spak upgraded shares to Hold from Sell, ending two years with his most bearish rating.

“There is no graceful way to put this other than to say we got [Tesla’s] stock completely wrong -- even if our fundamental view to date wasn’t too far off,” Spak wrote in a Thursday research report.

Spak’s old price target for Tesla (ticker: TSLA) stock was $339. Now it’s $700, up 106%. What has changed about his thinking? A lot.

For starters, Spak increased his 2025 delivery target to 1.7 million vehicles from 1.3 million vehicles, up about 31%. He expects more vehicles for Tesla because of greater capacity and faster adoption of electric vehicles.

Access to capital is another factor that changed his thinking. Tesla raised $10 billion in two stock sales late in 2020, and the company’s ability to take advantage of its stock price to fuel new capacity growth is something that the rest of the auto industry just doesn’t have. “Traditional OEMs need to generate significant cash from existing operations to fund their transition to electrification,” adds Spak.

OEM is short for original equipment manufacturer and is industry jargon for auto makers such as General Motors (GM).

Spak also adjusted his valuation methodology: “Given the low-cost of capital and the ability for the high stock price to supercharge growth, higher multiples are warranted.” He uses 8 times estimated 2025 sales. His prior valuation used 4 times estimated 2025 sales. His multiple now more closely approximates tech companies such as Apple (AAPL), Amazon.com (AMZN), Alphabet (GOOGL), and Netflix (NFLX).

Dow Jones

6.35am: US stocks climb towards records

Political unrest in Washington didn’t dent the stock market’s ongoing rally Thursday, with U.S. stocks climbing toward fresh records.

Financial and technology stocks led Thursday’s gains, pushing the S&P 500 up 1.5% and putting the broad index on pace to close at its first record of 2021. The Dow Jones Industrial Average also rose, adding 338 points to 31168.83, while the Nasdaq Composite jumped 2.1%, putting both of those benchmarks on track for new closing highs as well.

Investors largely looked past Wednesday’s violent clash between pro- Trump protesters and law enforcement in the Capitol building that left four people dead, instead focusing on what the shift of political power from Republicans to Democrats means for the market, analysts said.

Dow Jones