Red-hot inflation rise pressures Wall St to plunge: ASX to fall

Market Reports

by Melissa Darmawan

The Australian share market is set to drop following Wall St closing its third straight session in the red, as the annual inflation rate rose to its highest in 13 years. All three indexes fell powered by concerns that interest rate hikes could come sooner rather than later. The consumer price index rose 0.8 per cent in April and 4.2 per cent year-on-year, the fastest pace since 2008 driven by rising car and airfare prices. Investors spooked by the notion that inflation is here to stay, amid rising commodity prices and labour shortages saw a broad sell-down on Wall St with technology shares plummeting as fears in rising rates would chew down profits on already overpriced stocks. As investors ignored the US central bank’s reassurance, the S&P 500 tumbled with all sectors in the red except energy shares boosted by the price of crude oil. On the technology front, Google-parent Alphabet fell 3 per cent while Microsoft, Apple and Amazon fell more than 2 per cent with Facebook closing lower. Over in Asia, the sentiment is similar with investors cautious with the price of raw materials and goods leaving its factories, rising at its fastest pace in more than three years by 6.8 per cent year-on-year with inflation at its highest level in seven years. On the flip side, US treasury yields which are inversely related to the markets jumped to a one-month high. Meanwhile, oil prices rose as gold prices sunk while back home, profit results from Graincorp (ASX:GNC), Orica (ASX:ORI) and Xero (ASX:XRO) are due out today.

Figures from around the globe

Wall Street closed lower yesterday, the Dow Jones Industrial Average fell almost 2 per cent to 33,588. The S&P 500 fell 2.1 per cent to close at 4,063. The Nasdaq dropped 2.7 per cent to 13,032.

European markets closed higher, London’s FTSE added 0.8 per cent, Paris and Frankfurt both gained 0.2 per cent.

Asian markets were mixed, Tokyo’s Nikkei lost 1.6 per cent, Hong Kong’s Hang Seng added 0.8 per cent while China’s Shanghai Composite closed 0.6 per cent higher.

SPI futures

Taking all of this into equation, the SPI futures are pointing to a 0.4 per cent fall.

ASX 200

Yesterday, the ASX closed 0.7 per cent or 52 points lower at 7,045 falling for its second straight day with only Information Technology and Communication closing in the black. Investors digested the detail of the Federal Budget which saw certain companies perform well. Aged-care stocks lifted following the announcement of an extra $17.7 billion of funding over five years with the likes of Estia Health (ASX:EHE) up 4 per cent and Japara Healthcare (ASX:JHC) added 3.5 per cent. Companies that sell to aged care facilities were in the green with home monitoring and alert system company Intellicare Holdings (ASX:ICR) soared 7.4 per cent and imaging service company Capitol Health (ASX:CAJ) gained 1.4 per cent. On a not so positive note, travel stocks dragged on the market following the delay of the restart of international flights due to the pace of the vaccine rollout with Sydney Airport (ASX:SYD) slumped 4.8 per cent, Qantas shed 3.4 per cent to three month lows with Webjet closing lower. Amid this, earnings results were announced with CSR (ASX:CSR) which climbed 4.2 per cent, PushPay (ASX:PPH) added 3 per cent and CBA (ASX:CBA) up 1 per cent following positive results.

Economic news

Today the Melbourne Institute’s May update on consumer inflation will be published.

Broker moves

Citi rates Suncorp (ASX:SUN) as a neutral with a target price of $11.80. The downgrade is following the company’s release of insights to the local investment community of which was largely in line with the broker’s expectations. Even though the rating has been downgraded from a buy, Citi has increased the target price by 0.40 ($11.40 to $11.80). Shares in Suncorp Group (ASX:SUN) closed 5.28 per cent lower at $10.40 yesterday.

Morgan Stanley rates Virgin Money UK (ASX:VUK) as a hold with a target price of $3.45. The upgrade follows the company’s first half profits reporting better than expected due to a lower credit impairment change. In view of this, the target price rose from $2.36 to $3.45 due to more certainty associated with the UK macroeconomic outlook. Shares in Virgin Money (ASX:VUK) closed 3.03 per cent lower at $3.52 yesterday.

Ex-dividend

National Australia Bank (ASX:NAB) is paying 60 cents fully franked.
Westpac Banking Corp (ASX:WBC) is paying 58 cents fully franked.

IPOs

Mining exploration company Australasian Gold (ASX:A8G) is pencilled in to make their debut at 12.30pm (AEST) after raising $6 million at $0.20 a share.

Currencies

One Australian Dollar at 7:50 AM was buying 77.30 US cents, 54.98 Pence Sterling, 84.76 Yen and 64.03 Euro cents.

Commodities

Iron Ore has gained 3.0 per cent to US$237.57.
Iron Ore futures are pointing to 0.3 per cent rise.
Gold has lost $13.30 to US$1823 an ounce.
Silver has fallen $0.42 to US$27.24 an ounce.
Oil was up $0.80 to US$66.08 a barrel.