Wall St closed mixed as surging treasury yields sent growth stocks lower bank stocks rallied ahead of quarterly earning season this week. JP Morgan kicks off the earning season on Wednesday. A review on the moves in Europe with the presidential election and the RBA Financial Stability Review. Good morning. A jam pack four day week. I hope you had a great weekend. I’m Melissa Darmawan for Finance News. This is your market outlook.
The Australian sharemarket is set to rally after financial markets lost ground last week.
Wall St mixed on surging bond yieldsAs financial sanctions expand against Russia amid the humanitarian crisis in Ukraine, the dampening in mood saw US stocks closed mixed on Friday, following three straight days of losses as investors continue to focus on the hawkish comments from the Fed.
Why?The March meeting minutes showed that the US central bank is set to start trimming its US$9 trillion balance sheet next month and aims to do so at a faster pace as the economy faces persistent inflationary pressures. The imminent acceleration in normalising monetary policy pushed investors to sell off, while they await the release of quarterly earnings this week.
At the market close, the Dow Jones rose 0.4 per cent to 34,721, the S&P 500 shed 0.3 per cent to 4,488 while the Nasdaq fell 1.3 per cent to 13,711.
All three major indexes ended the week with losses with the S&P 500 snapping a three-week winning streak, losing 1.3 per cent while the Dow lost 0.3 per cent and the Nasdaq tumbled 3.9 per cent.
Bank stocks across the Dow and S&P 500 lifted these indexes as the rate sensitive sector is set to kick off first quarter earnings season on Wednesday. For now, investors shrugged off some indications that we could be headed for a recession, a concern which has underpinned some of the volatility in the market.
Wall Street notched off the week with surging treasury yields and the rotation out of tech stocks to defensive plays such as energy, financials, healthcare, and materials, which was definitely the cards played under the S&P 500.
Energy, back in the winner’s corner, up 2.8 per cent, followed by financials, gained 1 per cent, then healthcare and materials. In the loser’s corner, information tech fell 1.4 per cent, followed by consumer discretionary, down 1 per cent then communication services. Industrials shed the least by 0.6 per cent while the other sectors closed higher.
The yield on that 10-year treasury hit a new three year high settling at 2.70 per cent, rising over 30 basis points on the week. This comes after several moments of the 2/10 yield curve inverting in the past few weeks which historically meant that a recession was on the horizon. The central bank has a big job on their hands, a balancing act between raising interest rates, managing the balance sheet runoff and doing so by avoiding a recession.
Bank of America warns of “recession shock”Last week, we heard from JP Morgan, Deutsche Bank and now Bank of America released a research note. The bank warned that the US could enter into a recession more quickly as economic conditions worsen while the Fed takes a more aggressive approach to suppressing inflation, referring to “'Inflation shock' worsening, 'rates shock' just beginning, 'recession shock' coming." A recipe for gold to rally which the soft metal continues to do.
Looping this back to equities, growth names have been a big underperformer, while rate-sensitive plays like banks have been weak and other reopening sectors, including retail, restaurants and transport, all reinforcing recession concerns.
Oil prices closed 2.1 per cent higher but finished lower for its second-straight week. Ever since the news on the coordinated stockpile release, the price of oil has stabilised. It will be interesting if oil majors run into any labour shortages in a bid to ramp up production.
Musk at tipping point into lithium mining entryWe can’t go past what’s been happening with Twitter and Tesla’s CEO Elon Musk. Musk tweeted that Tesla could get into lithium mining as the cost of the metal, a key component in manufacturing batteries, has skyrocketed.
“Price of lithium has gone to insane levels,” Musk tweeted. “There is no shortage of the element itself, as lithium is almost everywhere on Earth, but pace of extraction/refinement is slow.”
Tesla CEO has tweeted in the past that he has sourced lithium from Australia. We have seen a bit of action here with our local miners and offtake agreements signed. Something to keep an eye out on.
Hawkish Fed awaits hot CPITraders are not only mulling on the hawkish choir from the Fed, the week ahead with the consumer price figures - inflation was also on their mind. It’s set to come in with a big print with market participants expecting it to come in at 8.5 per cent. Investors are concern not only about the magnitude of the print but the duration. When is inflation really going to abate? And also, does this number change anything for the trajectory of the Federal Reserve?
With earnings season upon us, what to keep an eye on is not on the backward looking results but the outlook. Can companies still pass along the price increases robustly to the end consumer? What is their quarterly outlook versus their annual forecast amid this hot inflationary environment?
Equity markets are pricing in a slow down as it got really defensive last week. The banks were not responding to higher rates with a weak performance until Friday where it snapped its losing streak.
Figures around the worldEuropean markets closed higher as oil, gas and banks lead while telecom and media lag.
The focus remains on central bank policy and implications for market outlook amid news that the staff from the ECB staff are designing a crisis tool that could be activated if bond yields spike. The European Union agreed to a fifth round of sanctions against Russia, including bans on the import of coal, wood, chemicals and other products.
Paris added 1.3 per cent ahead of the first round of the presidential election over the weekend, which subsequently resulted in incumbent President Emmanuel Macron winning around 28 per cent of the votes. President Macron is set to face Marine Le Pen with around 23 per cent of the votes in a second round election.
Frankfurt gained 1.5 per cent while London’s FTSE fell 1.6 per cent while the rise in mining and oil majors were not enough to offset the falls. Rio added 0.8 per cent, BP jumped 3.7 per cent and Shell closed 3.9 per cent higher.
Asian markets closed higher. Tokyo’s Nikkei added 0.4 per cent, Hong Kong’s Hang Seng gained 0.3 per cent as tech fell again, offset by properties while China’s Shanghai Composite rose 0.5 per cent on a real estate rally.
ASX 200 Friday wrapOn Friday, the Australian sharemarket closed 0.5 per cent higher at 7,478 lifted by materials, energy and bank stocks with seven out of the 11 sectors rallying. Over the week, the local bourse fell 0.2 per cent snapping its three week winning streak and its 0.5 per cent higher for the year to date.
The relationship between Aussie equities and currency has become the closest in a decade as commodity prices surge, according to Bloomberg. The 180-day correlation between the local bourse and the dollar has climbed to the highest level since late 2011. The strengthened ties come as gains in materials from oil to iron ore have boosted both the nation’s equities and the Aussie dollar.
The dollar has strengthened about 3 per cent this year to make it the best-performing Group-of-10 currency over the period. The Aussie, which traded at 74.79 U.S. cents Friday, has surged more than 7 per cent since touching its lowest in more than a year in late January
The world’s biggest miner became the local bourse’s largest stock after the company scrapped its dual-listing structure in January now making up 12 per cent.
BHP
(ASX:BHP) jumped 1.7 per cent to $51.94 after confirming that the sale of its oil and gas assets to Woodside Petroleum
(ASX:WPL) was on track. The merger is slated to be completed on 1 June after a Woodside shareholder vote on 19 May. Woodside closed 1.5 per cent lower to $32.40.
Under the deal, BHP will receive around 915 million Woodside shares, valuing its petroleum business at US$23.4 billion. BHP shareholders are entitled to one Woodside share for
every 5.5340 BHP shares they own.
The best-performing stock was Paladin Energy
(ASX:PDN), closing 13.1 per cent higher at $0.91. It was followed by shares in GrainCorp
(ASX:GNC) and Gold Road Resources
(ASX:GOR).
The worst-performing stock was Platinum Asset Management
(ASX:PTM), closing 15 per cent lower at $1.90 after reporting net fund outflows in March of $222 million, with total funds under management falling to $19.4 billion from $21.2 billion at the end of February. It was followed by shares in Tyro Payments
(ASX:TYR) and PointsBet Holdings
(ASX:PBH).
GrainCorp
(ASX:GNC) rose 5.8 per cent at $9.19 after the grain handler and marketer upgraded its financial year 2022 operating earnings guidance to a range of $590 to 670 million from a range of $480 to 540 million previously. The upgrade was attributed to the growing demand for Australian grain and oil seeds amid the war in Ukraine, cutting exports from two of the world's largest exporters of those commodities.
Elsewhere, the RBA Financial Stability Review noted the Australian financial system remains highly resilient with banks very well capitalised, business balance sheets in good shape and households having built substantial savings buffers on mortgages.
The review acknowledged that highly indebted borrowers could struggle with rising interest rates but noted the majority of households are well placed given high savings. However, also noted the risk of households drawing down savings faster if income growth fails to keep pace with inflation.
While RBA rate hike expectations have firmed following the hawkish shift in Tuesday's policy statement, economists argue Governor Philip Lowe will proceed at a more measured pace given the heightened sensitivity of households to interest rates compared to previous tightening cycles.
SPI futuresTaking all of this into the equation, the SPI futures are pointing to a 0.4 per cent gain.
The week aheadWe have a four day week shortened by Good Friday with US March consumer prices figures on Tuesday night, producer prices on Wednesday. Locally, it’s jobs data week along with business and consumer confidence figures.
What to look out for todayIn economic news, the national skills commission is set to release its preliminary jobs vacancies data for March.
Amid the rise in the underlying commodity prices, resource stocks could be on the move today. Keep an eye out for your majors like BHP
(ASX:BHP), Woodside Petroleum
(ASX:WPL) and Newcrest Mining
(ASX:NCM).
In broker moves, Morningstar has cut Mineral Resources
(ASX:MIN) rating to a sell from a hold.
As for stocks, keep an eye out for Westpac
(ASX:WBC) amid indicative offers for their flagship platform BT Panorama as per
AFR.
Telstra
(ASX:TLS) could be in the spotlight after the public float of Foxtel set to be delayed until later this year due to a range of domestic and international factors that have altered the media landscape in recent months as per
The Australian.
Ex-dividendThere are two companies set to trade without the right to its dividend.
Brickworks
(ASX:BKW) is paying 22 cents fully franked
Lion Selection Group
(ASX:LSX) is paying 3.5 cents unfranked
Dividend-payThere are three companies set to pay eligible shareholders today
Adbri
(ASX:ABC)NB Global Corporate Income Trust
(ASX:NBI)Saunders International
(ASX:SND)CommoditiesIron ore futures point to a 1.3 per cent fall.
Gold has gained $7.80 or 0.4 per cent to US$1946 an ounce. Silver is up $0.09 or 0.4 per cent to US$24.82 an ounce.
Oil has added $2.23 or 2.3 per cent to US$98.26 a barrel.
CurrenciesOne Australian Dollar at 7:20 AM has weakened from Friday, buying 74.64 US cents (Fri: 74.85 US cents), 57.36 Pence Sterling, 92.69 Yen and 68.42 Euro cents.
Source: Bloomberg, Factset, IRESS, TradingView, UBS, Bourse Data, Trading Economics
