ASX200 continues to negotiate higher yields and earnings season

As discussed previously, the Australian economy has experienced a strong run of economic data since the end of 2020, outperforming many of its global peers due to the successful suppression of the Covid-19 virus.

The confidence that this has provided has filtered through into the current ASX200 reporting season (for the first six months of the new financial year July 1 to December 31), in sharp contrast to a June first half reporting season marred by the onset of the pandemic and lockdowns.

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According to Morgan Stanley, beats this season have exceeded misses by a factor of 4.4x. Guidance has returned with 53% of companies providing more detail and the FY21e DPS pay-out is back above 70%.

Notably, bank shareholders have enjoyed the return of more attractive dividends while resource companies have seen the biggest upgrades and are expected to see 50% earnings growth this year. This is behind the record dividend announcements from BHP, Rio and FMG mentioned in last week’s article here.

The biggest headwind to the local market is the ongoing rally in long-end global bond yields which may see the correction in high growth tech stocks continue. Offsetting this, higher yields are supportive of banks and resource stocks. Whether this global stock rotation sparks a correction in global indices remains to be seen.

Technically, while upside progress has been made during February (+2.95%), the price action has been choppy, a pattern that is expected to continue.

On the topside, the upward sloping three-month trend channel should continue to provide good resistance (currently 6950ish). While on the downside, trend channel support is viewed 6700 area, before horizontal support 6520/00ish, my preferred buy zone.

Source Tradingview. The figures stated areas of the 22nd of February 2021. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

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