Wall St mixed, Iron ore price forecast to fall, Why Netwealth is a hold: ASX to edge higher


Major indexes globally mainly closed lower after investors digested minutes from the Federal Reserve around their timing to taper their bond purchases program, growing Covid-19 cases and China’s drive for "common prosperity". Weak commodity prices smashed the materials and energy sectors.

The Australian sharemarket is set to rebound with the SPI futures pointing to a gain of 0.5 per cent.

Dow Jones struggles for 3rd day, Nasdaq gains

The S&P 500 eked out a gain while the Dow Jones struggled for their third day in the red. Meanwhile, the Nasdaq gained. The markets were under pressure on fears of the spread of the delta variant crimping economic growth. Investors also mulled on the minutes from the Fed yesterday on the timing of tapering their bond purchases as they attempt to find their position on the outlook ahead.

Jobless claims fall to fresh pandemic low

Americans filing for first time unemployment benefits fell to a new pandemic low last week, with the figures trending in the right direction despite the spread of the delta variant.

First-time applications for unemployment benefits fell by 29,000 to 348,000 in the week last week according to the U.S. labor department. The lowest level of claims since the pandemic took hold of the country in March last year, beating expectations of 363,000 that economists expected. This comes as vaccine rates are on the rise amid the reopening play. New jobless claims have fallen for four straight weeks and are down more than 50 per cent since January, however, the figures are still elevated.

Goldman Sachs trims GDP leaving investors confused

Investors also digested America's GDP outlook after Goldman Sachs trimmed its forecast as supply chain disruptions and hot inflation caused by the Covid-19 delta variant continue to weigh. The bank anticipates America’s GDP rising 6 per cent this year, from a prior full-year forecast of 6.4 per cent.

However, the news comes after the U.S. Commerce Department’s quarterly services survey. The survey suggested that gross domestic product grew much faster than the 6.5 per cent annualized rate leaving investors confused. Nevertheless, economists at Goldman Sachs cut their third-quarter GDP growth estimate to a 5.5 per cent rate from 9 per cent.

Wall St mixed on technology gains on falling commodity prices

At the close, Dow Jones lost 0.2 per cent to 34,894, the S&P 500 eked out a 0.1 per cent to 4,406 and the Nasdaq added 0.1 per cent at 14,542.

Across the S&P 500 sectors, investors made a run from commodity and cyclical stocks and sought refuge in Technology, Utilities and Consumer Staples. Energy deep in the red, down 2.65 per cent while Technology added 1 per cent.

The yield on the 10-year treasury note fell to 1.24 per cent.

Macy & Kohl raises guidance, Robinhood crashes

Department stores Macy’s rocketed 13 per cent higher and Kohl’s surged over 8 per cent after they raised their profit guidance.

Robinhood crashed over 10 per cent after they warned investors that trading activity would slow down.

European markets falls on commodity prices

Across the Atlantic closed lower. Paris fell 2.4 per cent, Frankfurt dropped 1.3 per cent while London’s FTSE fell 1.5 per cent as mining and energy stocks weighed. The decline in commodity prices took a hit at BP and Shell, down over 4 per cent.

Heavyweight miners BHP dropped 2.5 per cent while Rio Tinto fell 2.7 per cent.

Asian markets takes a breather

Asian markets closed lower on worries around reduced central bank support and on fears of tighter regulation.

Tokyo’s Nikkei fell 1.1 per cent to hit a seven-month low amid news that Toyota Motor plans to cut its global output by 40 per cent next month due to chip shortages. Hong Kong’s Hang Seng sunk 2.1 per cent while China's Shanghai Composite dipped 0.6 per cent dragged by consumer staples and financial stocks.

E-commerce giant Alibaba sank 5.5 per cent while internet search giant Baidu fell 2.4 per cent.

ASX 200 falls for the 4th day

Yesterday, the Australian sharemarket closed in the red for the fourth day 0.5 per cent lower at 7,465. The index was pressured lower by mining stocks on the backdrop of reporting season.

Healthcare rose 2 per cent followed by Consumer Discretionary and Technology. On the other hand, Materials & Energy saw sharp declines, down 3.7 and 2.7 per cent respectively.

Shares in BHP tumbled for their fifth session in a row, sliding 6.4 per cent to a six-month low of $44.67. Rio Tinto has notched a nine-month low falling 5.7 per cent at $107.17 while the single commodity producer is at risk, Fortescue Metals sunk 6.1 per cent at $20.13.

The three major mining players, BHP (ASX:BHP), Rio Tinto (ASX:RIO) and Fortescue Metals (ASX:FMG) have reaped from the tailwinds of the rising iron ore prices following a surge in demand in China. Last year, the iron ore price was trading above US$200 a tonne which helped these mining giants payout monster dividends to shareholders.

Iron ore prices to ease, but remain well above US$100 a tonne in 2021

Now the wheels have turned and the outlook appears grim after these giants hit their 52-week high around a month ago. Iron ore prices are set to suffer their biggest monthly loss as China curbs on carbon emissions through reining in their limits on the output of steel. This means, choking the demand for the ingredient.

Nevertheless, according to the June report from the Office of the Chief Economist (OCE), they expects prices to ease from their current highs over the second half of 2021 but not to fall below US$100 per tonne until late in 2022 and average US$90 per tonne in 2023.

The OCE expects iron ore prices to ease, as production increases in Australia and Brazil over the remainder of 2021 following seasonal weather disruption in January-March. They also forecast demand from China to decrease due to government interventions and tighter control of Chinese steel exports.

It warns however that any attempt by Beijing to constrain Australian imports of iron ore could lead to higher-than-expected prices. Australian exports of coal and other commodities have been constrained from entering China since the second half of last year as diplomatic tensions between the two countries continue.

Local economic news

Today RBA assistant governor Christopher Kent is set to deliver a speech this morning.

Reporting season

There are eight big names reporting today. Adairs (ASX:ADH), Cleanaway (ASX:CWY), Cochlear (ASX:COH), Inghams (ASX:ING), MyState Bank (ASX:MYS), Stockland (ASX:SGP), Sydney Airports (ASX:SYD) and TPG Telecom (ASX:TPG).

Broker moves

Morgans rates Netwealth (ASX:NWL) as a hold with a price target of $17.75. Netwealth’s FY21 underlying profit growth of 23.5 per cent was slightly below Morgan's expectations due to a lower second half revenue margin.

The broker notes that the company’s cost growth is set to accelerate in FY22 which will improve the operating infrastructure allowing the business to scale efficiently over the medium-term. Morgans sees upside to its valuation emerging though retains its hold rating for now. After lowering earnings per share forecasts primarily on cost growth, the broker’s price target falls to $16.20 from $17.75.

Shares in Netwealth (ASX:NWL) closed 8.01 per cent higher at $15.38 yesterday.

Ex-dividend

Lendlease Group (ASX:LLC) is paying 12 cents unfranked.
Santos Ltd (ASX:STO) is paying 7.4973 cents fully franked.
Tamawood Limited (ASX:TWD) is paying 13 cents fully franked.

Commodities

Iron ore has dropped 13.5 per cent to US$132.66. Their futures are pointing to 2.3 per cent fall.

Gold has lost $1.30 to US$1783 an ounce while silver has fallen $0.19 to US$23.28 an ounce.

Oil has fallen for a 6th session, down 2.7 per cent at $1.77 to US$63.69 a barrel.

Currencies

One Australian Dollar at 7:35 AM was buying 71.49, US cents, 52.45 Pence Sterling, 78.50 Yen and 61.23 Euro cents

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