US stocks snap 3-day streak ahead of Fed meeting, Why Macquarie prefers Coles over Woolies: ASX to dip

Market Reports

by Melissa Darmawan

Video is slightly different to the transcript

The Australian sharemarket is set to drop following Wall St’s retreat from record highs as investors await clues from the central bank on their support.

Last year the Fed cut interest rates to boost economic activity which has seen hot inflation readings and a bull run on markets. Despite the reassurance that inflation rises are transitory, investors fear that the Fed will pull back on their US$120 billion bond purchase program and their pledge to keep rates low.

The S&P 500 dipped 0.2 per cent to 4,247 as the Federal Reserve began their two-day monetary policy meeting. A day before, the index peaked to an all-time high as economic data pointed to improvements in the pandemic recovery which sparked renewed bullishness among investors. The S&P 500 traded almost 0.4 per cent lower in early session as inflation in US wholesale prices leapt 0.8 per cent last month, more than what economists expected. Over the year, wholesale prices are up 6.6 per cent, the largest 12-month increase on record in 11 years amid already hot inflation figures.

The Dow Jones Industrial Average dipped 0.3 per cent while the tech heavy Nasdaq fell 0.7 per cent to 14,072.86 from its own record high with the likes of Apple, Amazon and Microsoft all closed in the red.

Real estate and Technology sectors were the outliers of the session while Energy and Industrials led the way. Oil prices gained $1.24 to US$72.12 a barrel as it rose to a 32-month high amid optimism on fuel demand. On the precious metals front, Gold shed while silver fell while iron ore climbed.

Back home, investors mull on the bright news on the UK-Australia free trade deal.

Figures from around the globe

Wall Street closed lower yesterday: The Dow Jones Industrial Average fell 0.3 per cent to 34,299, the S&P 500 fell 0.2 per cent to 4,247 and the NASDAQ closed 0.7 per cent lower at 14,073 points.

European markets closed higher: London’s FTSE, Paris and Frankfurt all gained 0.4 per cent.

Asian markets closed mixed: Tokyo’s Nikkei gained almost 1 per cent, Hong Kong’s Hang Seng lost 0.7 per cent and China’s Shanghai Composite closed 0.9 per cent lower.

ASX futures

Taking all of this into equation, the SPI futures are pointing to 0.2 per cent fall.

ASX 200 – Tues wrap

Yesterday, the Australian sharemarket closed 0.9 per cent higher at 7,379 with new record highs set among our largest names. The biggest company on the local bourse, Commonwealth Bank (ASX:CBA) hit a new peak, up over 2 per cent while Wesfarmers (ASX:WES) rose over 2.4 per cent and James Hardie (ASX:JHX) gained 2 per cent.

The best performing sector was Healthcare, up 2 per cent thanks to Resmed (ASX:RMD) jumped 7 per cent and biotech giant CSL (ASX:CSL) added almost 2 per cent. All sectors advanced while Utilities closed.

The Reserve Bank's minutes of the June meeting drew attention as they outlined options for its July decision on their bond buying program. Market participants were presented with the options of the RBA maintaining its pace, scaling back, spreading the purchases over a longer period or the notion of more frequent reviews.

Attention now turns to RBA Governor Philip Lowe's speech on Thursday called “From Recovery to Expansion” followed shortly after by the May jobs data on clues for future direction on monetary policy.

Broker moves

Macquarie rates Coles (ASX:COL) as a buy with a price target of $18.20. The upgrade follows their revised outlook for the company ahead of the strategy briefing day tomorrow. The broker anticipates an upside from consumer behaviour normalising with a comparable sales gap between Coles and its rival Woolworths (ASX: WOW) narrowing. Coles is expected to reap from the unwinding of the "local shopping" trend as their supermarkets are “over-indexed to shopping centres and CBDs, areas most impacted by the pandemic.” As people return back to work, physical occupancy levels in Sydney and Melbourne CBDs improved to 68 per cent and 45 per cent (respectively) of pre-Covid levels as of May. Target price is raised to $18.20 from $17.30. Shares in Coles Group (ASX:COL) closed 1.92 per cent higher at $16.99 yesterday. 

Macquarie rates Woolworths (ASX:WOW) as a hold with a price target of $44.50. The broker observed the share price had a strong run ahead of the de-merger of Endeavour Group. Along with the company’s medium-term growth outlook, which the broker likes, it’s noted that the company’s increased focus on their core business is likely to drive efficiencies. Despite this, the broker downgraded its rating with its preference switched to Coles Group (ASX:COL). Macquarie believes the demerger is priced into the stock and the valuation is now full keeping its price target steady at $44.50. Shares in Woolworths (ASX:WOW) closed 1.37 per cent higher at $43.50 yesterday.

IPOs

Today HitIQ (ASX:HIQ) is set to make their debut on the ASX today. The technology platform helps in the detection and diagnosis in sports-related head injuries.

Currencies

One Australian Dollar at 7:40 AM was buying 76.88 US cents, 54.60 Pence Sterling, 84.64 Yen and 63.40 Euro cents.

Commodities

Iron Ore has gained 0.5 per cent to US$221.87.
Iron Ore futures suggest a 0.5 per cent gain.
Gold has lost $9.50 to US$1856 an ounce.
Silver has fallen $0.35 to US$27.69 an ounce.
Oil has gained $1.24 to US$72.12 a barrel. 

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