Wall St mixed as Fed holds rates, Rio Tinto returns lofty dividends, Why Xero is a buy: ASX to rise

Market Reports

by Melissa Darmawan

The Australian sharemarket is set to rise with the SPI futures pointing to a 0.3 per cent gain.

Major benchmarks around the globe closed mixed in anticipation of the US Federal Reserve’s outcome. European markets saw green across the board on positive travel news while in Asian markets, indexes slightly improved.

Fed to let inflation run hot, keeps interest rate unchanged

The Federal Reserve has decided to keep their interest rates unchanged and said they’re not in a position to stop their asset purchases program, though notes the economy continues to strengthen. The Fed also said that the rise in inflation was transitory due to the supply chain bottlenecks. Investors were looking for clues as to when the Fed would start tapering purchases and could have got the hint that they might look at doing towards the end of the year.

Wall St closes mixed, defensives retreat

The S&P 500 just missed keeping onto its gains, closing flat, the Dow Jones Industrial Average fell 0.4 per cent to 34,931 while the tech-heavy Nasdaq gained 0.7 per cent to 14,763.

The 10-yr treasury yield ticked lower to 1.2 per cent.

Across the S&P 500 sectors, there were more losers than winners with Energy adding 1 per cent, Communication Services added 0.8 per cent followed by Healthcare and Materials. Defensives retreated with Consumer Staples lagged the most by 0.9 per cent followed by Utilities. Technology dipped 0.1 per cent.

Facebook, Spotify, Shopify, Pfizer & Boeing reports

Facebook sharply fell 5 per cent after reporting US$29.1 billion in revenue beating expectations, though the social media giant reports a slight miss in their monthly active users. They’ve also flagged that their year-over-year revenue is set to decelerate which could be why investors are dumping their positions.

Spotify subscribers grew 20 per cent year-over-year to US$165 million due to a jump in podcast listeners with podcast ad revenue growth up 627 per cent surpassing expectations. Shares fell over 5 per cent.

eCommerce giant Shopify’s revenue tipped over the US$1 billion mark for the first time, up 57 per cent from a year ago thanks to the increased demand in shopping due to the pandemic rebound. Shares fell over 1.1 per cent.

Pfizer rose 3.3 per cent on strong revenue growth due to its Covid-19 vaccine and other medicines. The vaccine-maker has also raised its sales and profit forecasts for the year.

Boeing jumped 4.2 per cent after the plane maker surprised the market with a quarterly profit, its first since 2019.

Europe sees travel stocks take off on quarantine easing

Across the Atlantic, Paris gained 1.2 per cent while Frankfurt added 0.3 per cent. London’s FTSE also added 0.3 per cent after England scrapped quarantine for vaccinated EU and US travellers. Travel stocks took-off over 4 per cent.

In the miners space, Rio Tinto added 1.4 per cent while BHP rose 0.3 per cent.

Asian shares claw back losses after panic-selling

Asian shares closed mixed as Tokyo’s Nikkei lost 1.4 per cent, China’s Shanghai Composite lost 0.6 per cent while Hong Kong’s Hang Seng added 1.5 per cent slowly erasing losses after a panic sell-down triggered by China’s regulatory crackdown.

Recap on China’s tightening grip

To recap what happened, over the weekend Chinese officials announced a reform of one of its hottest sectors in its economy, private sector education, in a bid to target massive amounts of foreign investment.

They put a ban on companies making profits, raising capital or going public and slammed restrictions on them from teaching foreign subjects, importing foreign textbooks and recruiting foreign teachers.

Anxiety mounted among investors on fears that the latest scrutiny on education, tech and property sectors could sweep over to other industries such as health care, in a bid to reduce inequality. The rebound was helped by China’s state-run media reassuring investors.

China’s education players and tech giants rose

Beaten down stocks trailed back with education players advancing. New Oriental Education and Technology Group rose 9.7 per cent while Koolearn Technology gained 9.2 per cent.

While in the tech space, internet giant Tencent gained 0.3 per cent while Alibaba rose 1.8 per cent.

ASX retreats after record run

Yesterday, the Australian sharemarket closed 0.7 per cent lower at 7,379, its biggest loss in more than a week, after a record run the past few days though in the bigger scheme of things, the local bourse has been climbing for 9 straight months. Investors digested local inflation numbers and extended lockdown news for Greater Sydney which saw the index come under pressure.

Losses were across the board with Property as the only advancer, up 0.8 per cent. Technology was the biggest loser, down 2.1 per cent followed by Energy, shed 1.4 per cent after its run so far.

Local economic news

The Australian Bureau of Statistics has scheduled the international trade prices for the June quarter.

Westpac group economists expect the export price index will come in sharply higher at 9.0 per cent due to surging commodity prices. A forecast of 1 per cent is for the import’s index is tabled on the back of higher energy prices.

AGMs/Trading updates

Today, Macquarie Group (ASX:MQG) have pencilled in their AGM while Fortescue Metals (ASX:FMG) are set to release their fourth quarter production update.

Company news

Mining giant Rio Tinto (ASX:RIO) is set to spoil their investors with a 262 per cent boost in their dividend after a stellar half-year, thanks to strong commodity prices.

The miner posted a record first-half profit of $US12.2 billion along with skyrocketing consolidated sales revenue of US$33.1 billion, up 71 per cent compared to the prior corresponding period.

The iron ore giant also flagged their footsteps into the lithium space signalling their large-scale entry into the fast-growing battery materials market.

Shares in Rio Tinto (ASX:RIO) closed 0.2 per cent lower at $132.22 yesterday.

Broker moves

Credit Suisse rates Xero (ASX:XRO) as a buy with a raised target price of $160. The broker has lifted its target price from $130 maintaining Xero as its top tech stock in its sector.

Their average revenue per unit is set to continue its momentum in FY21 to tailwinds in FY22, led by near term price rises.

The broker is upbeat on the Planday opportunity and believes their subscriber growth future remains strong.

Earnings forecasts have been upgraded given two months of strong sales growth since the broker last reviewed the stock.

Shares in Xero (ASX:XRO) closed 1.4 per cent lower at $139.13 yesterday.

Ex - Dividend

Gryphon Capital Income Trust (ASX:GCI) is paying 0.77 cents unfranked.

Commodities

Iron Ore has gained 11 cents to US$202.68.
Iron Ore futures are pointing to 0.3 per cent gain.
Gold has gained $0.60 to US$1805 an ounce.
Silver has added $0.23 to US$24.88 an ounce.
Oil was up $0.74 to US$72.39 a barrel.

Currencies

One Australian Dollar at 7:45 AM has strengthened against the greenback buying 73.74 US cents, 53.02 Pence Sterling, 81.04 Yen and 62.25 Euro cents.

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