Taper-talk tumbles Wall St, Why Zip Co is bullish: ASX to fall


The Australian sharemarket is to fall at the open following Wall St’s retreat on Friday as investors carefully watched the Federal Reserve for clues on when they will taper their support.

The central bank on Wednesday signaled rate rises by late 2023, sooner than they expected which put a dampener on investor sentiment. Then on Friday, it took a beating following the Federal Reserve Bank of St. Louis James Bullard after he predicted the first rate rise to be as soon as next year, during an interview on CNBC.

“I put us starting in late 2022….. My forecast said 3 per cent inflation in 2021, core PCE inflation and 2.5 per cent core PCE inflation in 2022….”

"......To me, that would meet our new framework where we said we’re going to allow inflation to run above target for some time, and from there we could bring inflation down to 2 per cent over the subsequent horizon..”

Market participants have watched the pace of the economic rebound amid record highs on the sharemarket and record prices in the housing sector. If the pace of the rebound continues, investors are concerned the Fed would need to review its low rates to handle an overheating economy.

The Dow Jones had its worst week since October last year as the blue chip index tumbled 1.6 per cent to 33,290. For the week, it dropped 3.4 per cent. The S&P 500 fell 1.3 per cent to 4,166 and notched a 1.9 per cent loss on the week snapping their trifecta winning streak. The tech-heavy Nasdaq shed 0.9 per cent to 14,030, down 0.3 per cent over the week.

The 10-year treasury note fell 7 basis points to 1.4431 per cent while US 2-year yields rose by 4 points to 0.2521 per cent which saw bank stocks fall with the likes of JPMorgan, Citigroup down 2.5 per cent following Bullard’s statement. Over the week, US 2-year yields added 10 points but US 10-year yields skid 1 point.

Energy stocks was the worst performing sector down 2.9 per cent. On the other hand, Technology shares were the best performer, up 1.1 per cent.

Oil prices rebounded on Friday to $0.60 to US$71.64 a barrell to its fourth straight weekly gain on news that OPEC expects limited US oil output growth this year.

The gold futures price skid 0.4 per cent with the gold price was near US$1,769 an ounce at the US close. For the week gold fell 5.9 per cent over the week since March last year or US$110.60 an ounce.

In London trade, BHP dropped 2.2 per cent while Rio Tinto lost 2.2 per cent. Iron ore shed 1.6 per cent to US$217.30 a tonne while over the week, iron ore fell 1.2 per cent or US$2.65 a tonne. Its futures point to a 1.9 per cent fall.

London’s FTSE lost 1.9 per cent with UK retail sales down 1.4 per cent in May while Paris fell 1.5 per cent and Frankfurt closed 1.8 per cent lower on weakened sentiment after the EU lost its bid for faster Covid-19 vaccination deliveries from British drugmaker AstraZeneca.

In Asian markets, Japan’s Nikkei fell 0.2 per cent as the Bank of Japan holds steady on policy. Hong Kong’s Hang Seng added 0.9 per cent and China’s Shanghai Composite edged 0.01 per cent lower on Friday.

ASX futures

Taking all of this into the equation, the SPI futures are pointing to a 1.5 per cent fall.

ASX 200

On Friday, the Australian share market added 10 points or 0.1 per cent to close at 7,369 as the index continued its winning streak for their fifth straight week. Over the week, the best performing stock was Zip Co (ASX:Z1P) up over 16.4 per cent as growth stocks made a comeback while the worst performing stock was Northern Star Resources (ASX:NST) after a pullback in the price of gold.

Local economic outlook

Focus this week is the preliminary retail and international trade data. Purchasing manager indexes are also due for June.

Today, the Australian Bureau of Statistics is to issue preliminary retail trade figures. Westpac group economists expect spending to be up 0.5 per cent in May.

International economic outlook

Overseas, investors will turn their attention to the first-quarter GDP figures in the US, home sales, personal income and spending figures this week.

AGMs

CSR (ASX:CSR) has their AGM on Friday.

Stockwatch

Our weekly stock to watch this week is Zip Co (ASX:Z1P). David Thang, Senior Private Wealth Adviser at Sequoia (ASX:SEQ) rates Zip Co as a buy. From a technical angle, Zip Co is bullish on a number of grounds.

After the second week of trading in June, a combo candle had formed. This candle is considered both a bullish engulfing candle and a bullish doji. Importantly, the third week of June saw buyers drive prices higher as shown by the horizontal-dashed grey line at the $7.38 level. This is a positive development, and suggestive of higher levels to follow over the weeks ahead.

Should this scenario unfold, then the upside target zone is expected between $8.97 and $9.45, as illustrated by the orange rectangle. This area of resistance is significant for a number of reasons, being the 61.8 per cent Fibonacci retracement indicated by the horizontal green line, the forward 12-month analyst median valuation which is the blue line and the broader 38.2 per cent Fibonacci retracement which is the horizontal grey line.

Lastly, with reference to the Williams %R indicator which is the purple line on the lower pane. This provides an insight into the weakness or strength of stock including the stock’s overbought or oversold levels plus trading signals. This oscillator has moved out from oversold territory, which shows a strengthening of upward momentum. Shares in Zip Co (ASX:Z1P) closed 9.85 per cent higher at $8.14 on Friday



IPOs

There are seven companies slated to make their debut on the ASX this week from a combination of mining explorers, hospitality and a fund manager. It kicks off on Wednesday with Friday looking like a busy day. For more information, you can go to the ASX website.

This Wednesday, Tamboran Resources (ASX:TBN) is pencilled in.

On Thursday Arcadia Minerals (ASX:AM7) and Endeavour Group (ASX:EDV) are slated.

On Friday Australian Rare Earths (ASX:AR3), Openn Negotiation (ASX:OPN), Torque Metals (ASX:TOR) and WAM Strategic Value (ASX:WAR) are scheduled.

Ex-Div

Kelly Partner Group (ASX:KPG) is paying 0.33 cents fully franked.

Currencies

One Australian Dollar at 7:40 AM was buying 74.85 US cents, 54.26 Pence Sterling, 82.54 Yen and 63.11 Euro cents.

Commodities

Iron Ore futures suggest a 1.9 per cent fall.
Gold has lost $5.80 to US$1769 an ounce.
Silver has gained $0.11 US$25.97 an ounce.
Oil has added $0.60 to US$71.64 a barrel. 

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