Home / Daily Market Update / Afterpay helps record-high ASX to best week since May

Afterpay helps record-high ASX to best week since May

Daily Market Update

Tech powers record week, iron ore price tumbles, records everywhere

The ASX 200 (ASX: XJO) overcame another 8% fall in the iron ore price to deliver a 0.4% gain on Friday, ultimately taking the weekly increase to 2%.

Afterpay Ltd (ASX: APT) capped off an incredible week with another 5.5% gain, but it was all about News Corporation (ASX: NWS) which jumped 7.9% on Friday after reporting its most profitable quarter since its restructuring.

  • News Corp revenue rose 4% to US$9.36 billion for the quarter, sending net profit 30% higher to US$389 million, a significant improvement from the US$1.5 billion loss in the previous year.

    The group has managed to navigate the end of traditional media by moving to digital, with Dow Jones segments and Foxtel powering ahead and as advertising revenue recovers.

    REA Group Limited (ASX: REA), which is majority-owned by News Corp, had a weaker day, falling 4.7% despite delivering a 13% increase in revenue to $927.8 million as the huge residential property boom continues to support volumes and transactions. Earnings improved 19% to $556 million.

    ResMed (ASX: RMD) was flat after reporting a 12% increase in quarterly revenue as it benefitted from a major competitor being forced to recall its main product.

    Across the week, it was all about technology as Afterpay’s deal with Square Inc (NYSE: SQ) sent the share price 36.6% higher and brought Zip Co Ltd (ASX: Z1P) along with it, jumping 16.4%. The result was a 13.7% weekly increase in the tech sector alone.

    Materials were the primary detractor as hopes of another commodity supercycle were dashed as prices began returning to normal. The sector fell 1.9% with Fortescue Metals Group Limited (ASX: FMG) down 7.6%.

    Employment gains, taper talk continues but rates remain low

    Global markets finished the week on a broadly positive note after another strong payroll result from the US economy. New job additions increased by 943k, dropping the unemployment rate from 5.9% to 5.4% in July.

    The result was a strong rally in the Dow Jones, up 0.4%, and the S&P 500, up 0.2%, with financials (1.6%) and materials (1.4%) the key contributors.

    The Nasdaq was comparatively weaker, falling 0.4%, but managed a 1.1% gain for the week, with the Dow and S&P 500 both up 0.9% in a positive start to the month.

    Even Europe is getting in on the party with the EURO STOXX hitting an all-time high during the week.

    There remains little certainty on inflation amid growing talk of tapering with the global economy experiencing rarely before seen dislocations. One such sector is shipping, which many Australian companies complained about this week.

    Denmark’s Maersk Group delivered a strong quarter on the back of a spike in freight rate charges. Revenue was up 50%, earnings increased by over 100%, and profit hit US$3.71 billion from just US$427 million in the year prior.

    Volumes increased 15% for the quarter, suggesting the economy still has some way to go, but it was freight charges that drove the result up 59%.

    All eyes on China, records, records, records, Afterpay’s crowning

    The week began with a truly unexpected announcement as emerging financial giant Square Payments confirmed it had made a deal to acquire Afterpay, a company worth nothing just six years earlier, for $39 billion.

    This is a somewhat rare occurrence for Australia, many of which still reminisce about buying CSL for $2 in 1992, but all too common in the US and China, the home of global technology for decades.

    The question on everyone’s lips now is who is next? With investors once again flocking to Zip Co and the broader tech sector; but yet there may be just as many opportunities in more traditional parts of the market.

    Records continue to be broken, with every new level likely reducing its relevance.

    We live in a different world today and the days of relying on a market cap weighted index to determine the value of our sharemarket should be a relic of the past.

    An increasingly broad range of businesses is contributing to the record, as the torch passes from cyclicals like BHP and CBA to digitally-enabled groups and consumer giants including News CorpDomino’s, and Pinnacle, all of which reached record highs this week.

    Finally, it was all about China following the Government’s crackdown on much-maligned ‘cram’ schools. Despite being well flagged for many years, it surprised many investors, with some quick to call the region ‘uninvestable’.

    However, just a few days later the Government announced incentives for people to be fitter ahead of the Winter Olympic Games, sending the apparel and sports sectors up double figures. A more nuanced understanding of China is required than simply focusing on the headlines.

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