Wall St snaps back on energy & banks, Why Rio is a sell: ASX to rise


The Australian sharemarket is set to rise following Wall St’s snap back from its heavy losses, as investors’ worries from the surprised hawkish tilt from the Federal Reserve eased. The initial concern was on the central bank which signaled two rate rises by the end of 2023 due to the economic recovery. Then Chairman Jerome Powell acknowledged the Fed had started discussions about tapering its bond buying program. Following that, St. Louis Federal official James Bullard mentioned the first-rate increase might come as soon as next year. The immediate reaction from investors was to sell stocks as raising interest rates would pinch profits on stock prices that are seen to be overpriced.

The S&P 500 jumped up 1.4 per cent to 4,225 and recovered nearly three-quarters of its worst weekly loss since February. All sectors closed in the black except Utilities which shed 1.3 per cent. Energy snapped up 4.3 per cent higher as investors continued to bet on higher oil demand as the prospect of Iran oil exports was put on hold after Ebrahim Raisi won the country’s presidential election. This was also helped along with a weaker greenback as it retreated from two-month highs. Oil was up $2.02 to US$73.66 a barrel.

Financials gained 2.4 per cent as banks pivoted their stance by the close. Wells Fargo climbed 3.7 while Bank of America gained 2.5 per cent.

The Dow Jones added 1.8 per cent to 33,877 led by American Express which rose 4.3 per cent with the Nasdaq closed 0.8 per cent higher.

In London trade, heavyweight miners closed mixed. BHP rose 1.2 per cent while Rio Tinto fell by 0.3 per cent. Iron Ore lost 4.9 per cent to US$208.15 with its futures pointing to a 4 per cent fall.

Focus now turns to Powell's testimony before the House on Tuesday, with markets looking for any clues on a possible timeline for tapering.

Figures around the globe

Wall Street closed higher yesterday: The Dow Jones Industrial Average gained 1.8 per cent to 33,877, the S&P 500 gained 1.4 per cent to close at 4,225 and Nasdaq closed 0.8 per cent higher at 14,141.

European markets closed higher: London’s FTSE added 0.6 per cent, Paris gained 0.5 per cent and Frankfurt closed 1 per cent higher.

Asian markets closed mixed: Tokyo’s Nikkei lost 3.3 per cent, Hong Kong’s Hang Seng fell 1.1 per cent and China’s Shanghai Composite closed 0.1 per cent higher.

ASX futures

Taking all of this into equation, the SPI futures are pointing to a 1.3 per cent gain.

ASX 200

Yesterday, the Australian sharemarket fell 1.8 per cent to 7,235 as the index slumped to its worst day in more than four weeks. Bank stocks suffered the biggest losses with Commonwealth Bank (ASX:CBA) sunk 5.4 per cent on news of its sales of their general insurance business. ANZ dropped over 3 per cent while Westpac (ASX:WBC) closed 2.7 per cent lower.

On the sector front, Technology and Consumer Staples managed to firm up by 0.2 per cent as equal first. The best-performing stock was Afterpay (ASX:APT) up 2.5 per cent higher at $117.21, while the worst-performing stock was Codan (ASX:CDA) down 11.8 per cent lower at $17.05.

On a rosier note Boral (ASX:BLD) closed 1.3 per cent higher as the building product maker agreed to sell its North American business for $2.9 billion.

Local economic news

Today, the NSW State Budget for 2021-2022 will be handed down. Reports suggest the budget will include building social housing to help stimulate the economy and reduce homelessness. The NSW government’s cap on public sector wages, which put a 1.5 per cent limit on wage increases in November is also set to be lifted. The news generally doesn’t move the needle but it’s something to keep an eye out for.

On the data front, ANZ and Roy Morgan will issue the weekly consumer sentiment survey while the Australian Bureau of Statistics is set to publish the weekly payroll jobs and wages data for the period to 5 June.

Company news

Buy now pay later provider LayBuy (ASX:LBY) has raised $5 million to boost its market presence in the UK after completing its share purchase plan announced in May this year. The oversubscribed offer, which had to be scaled back, will see eligible investors receive their shares this Friday at $0.50 per share. The news comes after the New Zealand fintech announced its rapid growth in their full year results which saw a 433 per cent increase in UK active merchants. Shares in Laybuy Group (ASX:LBY) closed 0.99 per cent higher at $0.51 yesterday.

Broker moves

UBS downgrades Rio Tinto (ASX:RIO) to a sell with a price target of $104. The company delivered a total shareholder return of 79 per cent over the past 12 months thanks to the iron ore price. While cash flow suggests shareholder returns look to remain elevated for the rest of this year, UBS believes the top of the cycle has peaked. The broker forecasts iron ore prices to retreat up to 50 per cent in the next 12 to 18 months. Amid the backdrop, the Fed is turning more hawkish, China is taking action to deflate commodity prices while Brazilian iron ore production begins to recover. Due to this, UBS retains the price target of $104 and downgrades its rating from a neutral to a sell. Shares in Rio Tinto (ASX:RIO) closed 2.77 per cent lower at $120.05 yesterday.

Ex dividend

Valmec Limited (ASX:VMX) is paying 1.2 cents fully franked

Currencies

One Australian Dollar at 7:50 AM was buying 75.40 US cents, 54.11 Pence Sterling, 83.18 Yen and 63.28 Euro cents.

Commodities

Iron Ore has lost 4.9 per cent to US$208.15
Iron Ore futures are pointing to 4.00 per cent fall.
Gold has gained $13.90 to US$1783 an ounce.
Silver has added $0.06 to US$26.03 an ounce.
Oil was up $2.02 to US$73.66 a barrel.  

Are you a 708 sophisticated investor?

A sophisticated investor is defined under Section 708 of the Corporations Act (net assets of $2.5 million or annual incomes in excess of $250,000).

They are eligible to receive information regarding wholesale investment opportunities that are not available to regular or retail investors.

Please subscribe if you would like to be alerted to these types of opportunities.