Wall St wobbles, inflation tug-of-war continues, APT's price target slashed: ASX to fall

Market Reports

by Melissa Darmawan

The Australian sharemarket is set to retreat with the SPI futures pointing to a 0.1 per cent fall.

Global markets took a step back to digest the state of affairs. U.S. shares closed mixed as the Federal Reserve chair testified before a House finance committee. Europe closed a tad lower on inflationary data. Asian markets fell as the U.S. government warns on growing risks of supply chain and investment risks.

Wall St ended on a wobbly note as investors digested a plate of figures. From latest company earnings results to the latest economic data and the Federal Reserve Chair’s comments on inflation.

U.S. treasuries drop, defensives jump

Cyclical sectors closed in the red and defensive sectors rose while bond yields fell. The US 10-year Treasury bond yield dropped 7 basis points to 1.35 per cent. Energy was the worst performer as crude oil price fell over 2 per cent while Consumer Staples rose 0.9 per cent.

Producer prices surge to biggest rise on record

Market participants reacted to an accelerated growth in U.S. producer prices as it soared to its largest annual increase in more than 10.5 years. Producer prices index rose 1 per cent last month after it rose 0.8 per cent in May, up 7.3 per cent annually.

A tug of war on inflation continues as investors fret that rising inflation would bring forward policy tightening which has helped with the economic recovery. If the Fed puts a lid to handle rampant inflation figures, a likely rate hike would follow, squeezing margins on investments.

Fed Chair testify on inflation

Federal Reserve Chair Jerome Powell stuck to his narrative that inflation is transitory. He said the central bank isn't ready to tighten policy as the threshold for "substantial further progress" was still some way off. He also said that inflation, which has been surging as the recovery strengthens, “will likely remain elevated in coming months” before “moderating.”

The Fed's Beige Book survey revealed continued signs of economic recovery, tight labour markets, supply chain constraints and rising price pressures.

"The outlook for demand improved further, but many contacts expressed uncertainty or pessimism over the easing of supply constraints."

"Three-quarters of districts reported either slight or modest job gains and the remainder reported moderate or strong increases in employment."

"Prices increased at an above-average pace, as seven districts reported strong price growth and the rest saw moderate gains."

U.S. bank earnings mixed, tech jumps

Wall Street closed mixed as the Dow Jones Industrial Average gained 0.1 per cent to 34,933. The S&P 500 added 0.1 per cent to close at 4,374. The Nasdaq closed 0.2 per cent lower at 14,645.

Mega cap technology stocks jumped from the falling bond rate with the likes of Amazon up 0.1 per cent and Microsoft added 0.5 per cent. Apple rose 2.4 per cent on news that it would increase iPhone production by 20 per cent this year.

In the earnings results space, Wells Fargo rose 4.0 per cent beating expectations. Bank of America fell 2.5 per cent and Citigroup shed 0.5 per cent as investors responded negatively to their results.

Inflation blues hits UK markets

Across the Atlantic, London’s FTSE fell 0.5 per cent while Paris and Frankfurt closed flat due to inflationary pressure. Britain’s inflation rate rose to 2.5 per cent in June, jumping ahead of the Bank of England’s inflation target. Rio Tinto rose 0.2 per cent while BHP nipped higher by 0.1 per cent.

Asia falls as U.S. government warns on China's supply link

Asian markets closed lower after the U.S. government warned businesses of heightened risks on China’s supply chain link.

The State Department warned Americans against conducting business with anyone connected to China’s Xinjiang province over alleged human rights abuses and genocide by the Chinese Communist Party against the region's Uyghur Muslims and other ethnic minorities.

Tokyo’s Nikkei lost 0.4 per cent, Hong Kong’s Hang Seng fell 0.6 per cent and China’s Shanghai Composite dropped 1.1 per cent.

ASX rises as BNPL players fall

Yesterday, the Australian sharemarket closed 0.3 per cent higher at 7,355 as buy now, pay later companies slumped as the local bourse rose. Afterpay (ASX:APT), Zip Co (ASX:Z1P) and their rivals tumbled after Bloomberg reported that Apple plans to allow users to repay Apple Pay purchases in instalments.

Zip Co lost 11.4 per cent to $7.32, Sezzle (ASX:SZL) shed 10.3 per cent to $7.96 while tech star Afterpay fell 10 per cent to $107.00.

Aside from this, all the other sectors climbed. Utilities rose 3.4 per cent, Consumer staples gained 0.1 per cent while Materials advanced by 0.7 per cent.

Seven Group's (ASX:SVW) interest in Boral (ASX:BLD) has increased to 48.41 per cent. Seven Group closed 3.5 per cent higher at $22.86. Boral closed 0.5 per cent lower at $7.35.

How will Apple Pay in 4 work & why is Goldman Sachs involved?

When it launches, a user will have the option to choose the Apple pay-later service. The user will have two options.

Apple Pay in four, similar to what you see now with rivals like Afterpay where you can split payments with no interest over 4 periods.

The second option is Apple Pay monthly instalments. This is for larger purchases that you might want to pay for over several months. In this situation, Apple will charge interest and this is where Goldman Sachs comes in. They will be the lender partnering with the tech giant.

Gold & iron ore rises, oil falls

To safe haven metals, gold has gained $15.10 to US$1825 an ounce while silver has added $0.13 to US$26.27 an ounce.
Iron Ore has gained 0.1 per cent to US$218.66. Its futures are pointing to 0.6 per cent fall.
Oil was down $2.12 to US$73.13 a barrel as Saudi Arabia and the United Arab Emirates apparently reached a compromise that would allow the UAE to increase its output.

Local economic outlook

Today the jobs data for June is to be released from the Australian Bureau of Statistics. The Melbourne Institute’s consumer inflation figures are also slated.

The unemployment rate fell to 5.1 per cent in May with the number of employed workers jumping higher by 115,000 to pre-pandemic levels.

Company news

Motor vehicle accessories provider ARB Corporation (ASX:ARB) provided a market update after market close yesterday.

The company has reported a 33.9 per cent increase in unaudited sales revenue to $623 million for FY 2021. The car parts company expects its full year profit before tax to be within the range of $145 million to $150 million. A jump of 85.5 per cent to 92 per cent on FY 2020’s $78.1 million.

Their results are slated to be released on 17 August. Shares in ARB Corporation (ASX:ARB) closed 1.2 per cent higher at $41.39 yesterday.

Broker moves

Macquarie rates Afterpay (ASX:APT) as a buy with a dropped price target of $130. Following hot on the heels of news announcements made by PayPal Australia and Apple’s buy now pay later offering, the broker sees competition intensifying in the sector was expected.

In broad perspective, Macquarie is anticipating a period of consolidation within the industry before a better outlook for the industry overall will once again emerge.

The broker stipulates that recent changes to forecasts have already factored in market share loss in Australia, partially reflecting the increasing competitive landscape provided by new entrants including Paypal, StepPay as well as Citi. Due to this, their price target has dropped to $130 from $140.

Shares in Afterpay (ASX:PTM) closed 9.6 per cent lower at $107 yesterday.

Ex div

Duxton Broadacre Farms Ltd (ASX:DBF) is paying 6.2 cents unfranked.

Commodities

Iron Ore has gained 0.1 per cent to US$218.66.
Iron Ore futures are pointing to 0.6 per cent fall.
Gold has gained $15.10 to US$1825 an ounce.
Silver has added $0.13 to US$26.27 an ounce.
Oil was down $2.12 to US$73.13 a barrel.

Currencies

One Australian Dollar at 7:45 AM was buying 74.84 US cents, 54.01 Pence Sterling, 82.31 Yen and 63.22 Euro cents.

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