Wall St gains, Inflation rises, Jobless claims fall, Why CBA is a sell: ASX to open higher

Market Reports

by Melissa Darmawan

A mixed closed across the globe as inflation, economic and company earnings take the spotlight as investors weigh on Covid-19 concerns versus the economic recovery.

The Australian sharemarket is set to rise with the SPI futures pointing to a 0.4 per cent gain.

Dow and S&P close at record highs

Wall St closed higher with the Dow Jones and S&P 500 nudged to a new record high while the Nasdaq improved for the first day in three.

Investors digested new economic data that paints a conflicting picture of the U.S. economy. Americans filing for first time unemployment benefits fell, but hot inflation numbers piggy-backed from yesterday’s consumer inflation numbers.

Weekly jobless claims fell amid surging job openings

Jobless claims dropped for a third straight period by 1.3 per cent to 375,000 from 380,000 the week prior as per the labor department. A sign that the labour market is trying to mend after the pandemic, however, those numbers came after Monday’s U.S job openings report which hit a record high.

Job openings shot up by 590,000 to 10.1 million on the last day of June as per the job openings and labor turnover survey, or JOLTS report this week. On Friday, July job’s report showed that hiring rose at its fastest pace adding 943,000 jobs even on Covid-19 concerns.

Despite these numbers moving in the right direction, the jobs market is not doing as well as what economists had hoped for.

Covid-19 is the wild card

However, the wild card is how the delta-variant will impact the labour market where we might see some bumpy jobless claims reports in the near future.

The total number of claimants is likely to drop as states roll off government unemployment benefits ahead of the September expiration date which coincides with back to school dates.

Producer prices jump after consumer prices rose at a slower pace

To more inflation data, producer price index rose to a record 7.8 per cent annually in July, up 1 per cent amid increased consumption, its highest annual increase in more than a decade. Inflation at the wholesale level jumped 1 per cent, exceeding the 0.6 per cent expectation from economists, but matched an increase of the previous month.

Investors are concerned that this inflation is not slowing as much as hoped, while the Fed Reserve continues to believe that inflation is transitory as the economy reopens from the pandemic. Headline inflation of 5.4 per cent is well above the annual 2 per cent target set by the Fed.

Consumer price index looks at what you pay for goods and services like groceries, while the producer price index gives us an indication of the cost companies need to pay, so they go hand in hand.

Wall St gains

At the close, the Dow Jones just made it adding 0.04 per cent to 35,500. The S&P 500 gained 0.3 per cent to 4,461 and the Nasdaq closed 0.4 per cent higher at 14,816.

The yield on the 10-year treasury note was flat at 1.36 per cent amid the news.

Across the S&P 500 sectors, mega-cap Technology stocks and Healthcare rose over 0.6 per cent while Real Estate, Financials and Consumer Discretionary advanced.

Energy was the worst performer, down 0.5 per cent after the International Energy Agency said the spread of the Covid-19 delta variant would hamper the recovery in global oil demand. Industrials and Materials closed lower with the remainder sectors, while Utilities closed flat.

Disney & Airbnb report with warning

Disney closed 0.7 per cent higher but jumped more than 4 per cent after-hours. The theme park entertainment giant smashed their fiscal third-quarter earnings with subscriber growth for Disney+ coming in at 116 million crushing Wall St expectations of 114.5 million. Their earnings per share came in at $0.80 adjusted versus expectations of $0.55 with revenue at US$17.02 billion versus US$16.76 billion.

Airbnb rose 2 per cent ahead of their earnings results but fell over 4 per cent after the closing bell after giving a warning around Covid-19 concerns. Meanwhile, revenue came in at US$1.34 billion, up nearly 300 per cent year-over-year.

European close mixed on U.K. GDP growth

Across the Atlantic, European markets closed mixed. Paris added 0.4 per cent, Frankfurt rose 0.7 per cent while London’s FTSE slipped 0.4 per cent from an 18-month high despite the U.K economy bouncing back.

The Office for National Statistics reported an output up 4.8 per cent in the second quarter, however, the update fell just short of the Bank of England’s prediction that GDP would expand by more than five per cent for the second period as the UK’s economy reopened and restrictions were lifted.

Rio Tinto tumbled 5.5 per cent after trading ex-dividend and BHP fell 1.4 per cent.

Asian markets close lower

In Asian markets, the region closed lower. Tokyo’s Nikkei fell 0.2 per cent, Hong Kong’s Hang Seng lost 0.5 per cent and China’s Shanghai Composite closed 0.2 per cent lower after Chinese regulators told insurers to curb improper marketing and pricing practices.

ASX 200 reset record high

Yesterday, the Australian share market clinched onto its gains closing 0.1 per cent higher at 7,588 at a record close for its sixth time in seven sessions, after a barrage of company earnings.

The runway of earnings results continued to impress investors which helped underpin the losses as profit taking was seen among a few major players.

Rio Tinto (ASX:RIO) fell 6.9 per cent after the mining giant went ex-dividend while Commonwealth Bank (ASX:CBA) snapped its 6-day winning streak.

Across the sectors, the winners and losers were almost head to head. Communication Services performed the best, up 2.3 per cent with Telstra (ASX:TLS) as a big contributor surging 3.6 per cent to close at $3.97. The telecom giant popped out a dividend despite their 11.6 per cent fall earnings for the financial year 2021.

Consumer Discretionary & Staples plus Industrials advanced over 0.6 per cent with gains in Materials and Energy. Utilities was the worst performer, down 1.7 per cent pressured lower by AGL (ASX:AGL) diving 5.5 per cent at $7.18 after posting a $2.1 billion loss for the FY21underpinned by the rising battle in renewable energy.

To find out more on the companies that reported yesterday, please join me at Stocks of the Hour here where I cover the results of National Australia Bank's (ASX:NAB) third quarter trading update along with headlines from Commonwealth Bank (ASX:CBA), Suncorp (ASX:SUN) and Westpac (ASX:WBC) and part two here where I cover Telstra, AGL and QBE.

Reporting season

Baby Bunting Group (ASX:BBN), Bailador Technology Investments (ASX:BTI) are slated today.

Broker moves

Citi downgrades Commonwealth Bank (ASX:CBA) as a sell with a price target of $94.50.The broker reports excess liquidity has enabled balance sheet normalisation for the bank with a $6 billion off-market buy-back, approximate 75 per cent dividend payout ratio and provision write backs.

Despite this, the broker notes excess liquidity is also having adverse effect on the ability to generate revenue. The broker expects only 1 per cent revenue growth in FY22, and notes underlying core earnings are declining. Citi has downgraded cash earnings forecasts for FY22 and FY23 by -6-7 per cent, and increased underlying cost growth.

The rating is downgraded to sell and the target price decreases to $94.50 from $96.75. Shares in Commonwealth Bank of Australia (ASX:CBA) closed 2.1 per cent lower at $105.88 yesterday.

Ex-Dividends

Scentre Group (ASX:SCG) is paying 7 cents unfranked
SSR Mining Inc (ASX:SSR) is paying 5.0696 cents unfranked
Suncorp Group Ltd (ASX:SUN) is paying 48 cents fully franked

Commodities

Iron ore has lost 1.5 per cent to US$162.96. Its futures are pointing to 3.4 per cent fall.

The precious metals have dropped with gold down $1.50 or 0.1 per cent to US$1752 an ounce while silver shed $0.37 or 1.6 per cent to US$23.12 an ounce.

Oil was down $0.16 or 0.2 per cent to US$69.09 a barrel.

Currencies

One Australian Dollar at 7:45 AM has soften against the greenback from yesterday buying 73.39 US cents, 53.15 Pence Sterling, 81.04 Yen and 62.55 Euro cents.
Investor event

Please join us at our next online investor event on Tuesday 24 August at 12.30pm with CEOs presenting from 5 different companies from resources to healthcare. Make your way to fnn.com.au to register for your free spot. 

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