Nasdaq falls on tech pullback, Fed tone uncertain, Why Ords downgrades PolyNovo: ASX poised to open lower

Market Reports

by Melissa Darmawan

The Australian sharemarket is poise to open lower with the SPI futures pointing to a 0.1 per cent dip.

Global stocks pulled back as US stocks shrugged off earnings results as bonds rally. European markets look to a sea of red dragged lower by energy stocks. Asian markets almost closed higher on China’s expansion.

Profit taking in tech as bonds rally on Powell's tone

Wall St closes mixed as investors mute their enthusiasm. U.S. stocks saw a shift into cyclicals from growth stocks as jobless claims showed further signs of economic recovery. Market participants put earnings season to the side as they looked to the Fed on inflation clues.

Unemployment benefits fell to 360,000 in the week ended July 10 from a seasonally adjusted 386,000 a week earlier. Last week’s applications is the lowest level for claims since March 2020

Concerns on a sooner than expected rate rise grew as Federal Reserve Chairman Jerome Powell said inflation was uncomfortably higher than the bank’s objectives concluding two days of testimony.

Mr Powell’s tone left investors worried as he sounded less confident about the economic outlook as he was grilled on the Fed’s pathway that was set out earlier this year.

The US 10-year treasury bond yields briefly spiked up to 1.35 per cent intraday before dropping back 5 basis points to 1.30 per cent on the back of this. Yesterday the 10-year closed at 1.35 per cent. Bond yields have been on the decline since March where the 10-year yield traded as high as 1.74 per cent at the end of March.

Wall St numbers

The Nasdaq closed 0.7 per cent lower at 14,543, the S&P 500 fell 0.3 per cent at 4,360 while the Dow Jones added 0.2 per cent at 34,987.

Technology and Communications were the biggest pressure on the market. Energy fell 1.4 per cent as oil prices continue to drop. Banks, which have been reporting mostly strong earnings results, fell as bond yields moved lower. Banks look to the 10-year Treasury note as it’s the benchmark for interest rates on consumer loans.

Morgan Stanley beats expectations, earnings season continues

On the earnings front, Morgan Stanley ended 0.4 per cent higher after reporting second-quarter results that beat expectations. UnitedHealth's rose 1.3 per cent as earnings beat expectations. Taiwan Semiconductor fell as low as 6 per cent before staging a comeback to close 0.2 per cent higher as reported earnings were close to estimates. The company did signal the global chip crunch may ease in the coming weeks.

Biotech company Biogen fell 6.6 per cent after two influential clinics refused to use its controversial Alzheimer's drug. Netflix lost 0.9 per cent on news that the streaming giant is planning to expand into video games.

Gloomy news in Eurozone, BoE may tighten policy

Across the Atlantic, European markets closed lower on gloomy news. London’s FTSE fell 1.1 per cent, Paris dropped almost 1 per cent and Frankfurt closed 1 per cent lower.

Retail sales began to soften in the third quarter due to bad weather in the UK. Costs rose due to Brexit and also global supply chain problems.

In London trade, drugmakers AstraZeneca fell 3.8 per cent and oil majors BP dropped 2.9 per cent while Shell lost 2.2 per cent as oil prices fell further. Shares in Rio Tinto rose by 0.9 per cent and BHP added 0.1 per cent.

A Bank of England policymaker said the central bank could tighten monetary policy "fairly soon" given the better than expected pace in the economic rebound. A further 48,553 cases of Covid-19 were confirmed across the UK ahead of the lifting most restrictions in England this Monday.

Asia markets react on China GDP growth

Asian markets closed mixed as China's GDP grew 7.9 per cent in Q2. Tokyo’s Nikkei lost 1.2 per cent, Hong Kong’s Hang Seng added 0.8 per cent and China’s Shanghai Composite gained over 1 per cent.

China’s gross domestic product rose 7.9 per cent in the second quarter compared with the same period last year, following an 18.3 per cent gain in the first quarter. The country has flagged that slowdown is expected in the world’s second-largest economy as export boom softens and the government cracks down on offshore activity.

ASX falls as snap lockdowns to begin

Yesterday, the Australian sharemarket fell 0.3 per cent at 7,336 as Victoria looked to bunker down for five days as the virus spread from its counterpart in NSW.

Investors shrugged off June employment figures which hit a record 10-year low unemployment rate of 4.9 per cent.

Losses were mainly across the board, led by Health Care, Technology and Property stocks with Materials and Utilities gaining while Consumer Discretionary closed flat.

On a positive note, Mining giants helped the index along with BHP (ASX:BHP) rose 1.1 per cent to $51.53 while Rio Tinto (ASX:RIO) added 2.2 per cent at $131.14 ahead of their operations report due today.

Gold & iron ore rise, oil falls

Gold has gained $4.00 to US$1829 an ounce while silver has added $0.12 to US$26.39 an ounce.
Iron Ore has gained 1.6 per cent to US$222.09. Its futures are pointing to 2.3 per cent gain.

Global oil prices fell by around 2.0 per cent on expected supply increase and a pending OPEC+ outcome. Oil was down $1.48 to US$71.65 a barrel.

Company news

Software company Integrated Research (ASX:IRI) released an upbeat trading update suggesting their earnings results are set to be ahead of the curve. The tech company expects their annual revenue to touch the higher range of its June guidance while their net profit is set to tip-over its initial forecast.

On the 21st of June, the IT infrastructure provider said that their annual revenue is expected to be in the range of $74.1 million to $79.1 million and annual profit after tax to be in the range of $4.1 million to $7.1 million on annual earnings revenue and profit after tax.

Additionally, the company’s bank account balance has grown over the last 12 months by 17 per cent. On the last day of the financial year, it sat at $5.5 million, up from $4.7 million compared to the same time in 2020.

The company attributes its outperformance to a number of deals inked towards the end of reporting season which helped boost revenue and profit results.

To add to the momentum, unrealised exchange gains over June were a contributing factor to profit exceeding the guidance.

Looking ahead, the company has unveiled new cloud-based products to help accelerate growth and subscription income.

The $330 million company has brought on new clients with their fresh cloud-based offering including “support for the Microsoft Teams and Zoom environments”. In June, a support service for Webex was introduced.

Annual results are pencilled in for 19 August this year.

Shares in Integrated Research (ASX:IRI) closed 2.4 per cent higher at $1.96 yesterday.

Broker moves

Ord Minnett downgrades Polynovo (ASX:PNV) to a hold with a reduced price target at $2.54.

The medical device company announced FY21 revenue of around $25.5 million, a 34 per cent growth over FY20. Despite strong figures, there is uncertainty regarding U.S. hospitals re-engaging and a lack of formal guidance which took the broker by surprise given robust commentary from its U.S peers.

Ord Minnett suspects FY22 will be lumpy with a wide range of potential outcomes. The broker resets base projections as they look ahead for a more stable and predictable environment. Due to this, the broker rating downgrades to hold from buy and the target price is reduced to $2.54 from $3.10.

Shares in Polynovo (ASX:PNV) closed 8.7 per cent lower at $2.10 yesterday.

Ex-Div

Bingo Industries (ASX:BIN) is paying 11.7 cents fully franked.

Commodities

Iron Ore has gained 1.6 per cent to US$222.09.
Iron Ore futures are pointing to 2.3 per cent gain.
Gold has gained $4.00 to US$1829 an ounce.
Silver has added $0.12 to US$26.39 an ounce.
Oil was down $1.48 to US$71.65 a barrel.

Currencies

One Australian Dollar at 7:45 AM was buying 74.25 US cents, 53.71 Pence Sterling, 81.56 Yen and 62.87 Euro cents.

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