Wall St slides, President Biden & Xi talk, Credit Suisse cuts Qube Holding's rating: ASX to fall

Market Reports

by Melissa Darmawan

Talks between U.S. President Biden and China President Xi Jingping boosted investor sentiment while producer prices weighed. Asian markets rallied while the ASX fell for the week after bumping higher on Friday. Gold suffered its first weekly loss while treasury yields climbed. Credit Suisse cuts Qube Holdings’ rating but hikes price target.

The Australian sharemarket is set to fall with the SPI futures pointing to a dip of 0.4 per cent.

Presidents of the largest economies speak, boosts sentiment

On Friday, Wall St closed lower on their holiday shortened week after starting the session looking optimistic. The morning jump was a mere tap before selling resumed again. The week ended on a weak note as the S&P 500 capped its first weekly loss in three weeks. This was compounded by the twenty year anniversary of the September 11 attacks amid jitters on the climb in Covid-19 cases. Despite the retreat, stocks are still near record highs by around one per cent.

The major indexes started on a positive note after investors saw President Biden taking steps to smooth out tensions with China’s President Xi Jinping. The presidents of the two largest economies spoke for two hours touching on a broad range of matters from aerospace to climate change. Hong Kong’s Hang Seng rose as their engagement boosted investor’s sentiment.

Apple’s defeat, producer inflation heats up drags on Wall St

However, the outlook changed after investors were rattled on Apple’s defeat against Epic Games. A federal judge said that the iPhone maker must allow developers to provide other payment options. With the potential revenue likely to go elsewhere, shares in Apple tanked 3.3 per cent while Google App owner Alphabet fell 1.9 per cent. Meanwhile, other app makers rose with the likes of Activision Blizzard adding 2 per cent while Spotify rose 0.7 per cent on the news.

Investors also mulled on some negative economic data which could pressure the Fed to pull back on tapering their asset purchases program sooner. For the month, producer inflation rose 0.7 per cent since July, above expectations of 0.6 per cent. This followed a rise of 1 per cent in both June and July as per the Labor Department. Year-on-year, it rose 8.3 per cent, marking the biggest annual increase in 11 years.

Wall St retreats but still 1% away from record high

At the close, the Dow Jones lost 0.8 per cent to close at 34,608, the S&P 500 also fell 0.8 per cent to 4,459 and the Nasdaq closed 0.9 per cent lower at 15,116.

In the bond market, the yield on 10-year treasury note ticked up to 1.34 per cent from 1.30 per cent capping off three straight weeks of gains.

Across the S&P 500 sectors, losses were across the board. Utilities fell the most at 1.6 per cent, followed by real estate at 1.2 per cent, then technology at 1 per cent. Energy scratched lower by 0.04 per cent with materials just behind at 0.05 per cent.

European markets mixed, as miners rise

Across the Atlantic, European markets closed mixed after the strength of the Eurozone recovery prompted a slow down in their pandemic stimulus. Paris fell 0.3 per cent, Frankfurt closed 0.1 per cent lower and London’s FTSE added 0.1 per cent.

Heavyweight miners rose to offset losses in financials as the Presidents spoke. Rio Tinto added 2 per cent while BHP closed 1.1 per cent higher.

Asian markets sees optimism in the air

Asian markets closed higher, Tokyo’s Nikkei added 1.3 per cent on hope of further stimulus by Prime Minister Yoshihide Suga’s successor.

Hong Kong’s Hang Seng gained 1.9 per cent on clarification that China’s approval of new games has slowed but not stopped, and China’s Shanghai Composite closed 0.3 per cent higher on Friday.

ASX 200 pushes higher as metals climb

On Friday, the Australian sharemarket closed 0.5 per cent higher at 7,407, as a surge in material and metal stocks pushed the index higher. Despite the improvement from Thursday’s decline, the local bourse fell 1.6 per cent over the week.

Gains across the heavyweight miners were led by Fortescue Metals (ASX:FMG) adding 2.6 per cent while BHP (ASX:BHP) marginally added 0.6 per cent. Meanwhile, its peers boosted the index with the likes of South32 (ASX:S32) up 5.9 per cent, Alumina (ASX:AWC) surged 6.3 per cent while Mineral Resources jumped 5.6 per cent higher, as the price of base metals rose.

Across the sectors, gains were almost across the board as materials rebounded, gaining 1.7 per cent as the best performer. Only two sectors closed lower with healthcare as the worst performer, down 0.7 per cent followed by property closing 0.2 per cent lower.

In company news, energy giants Oil Search (ASX:OSH) and Santos (ASX:STO) signed the dotted line to power ahead with their merger. With the companies ready to consolidate, the next step is for their shareholders to give them the green light, along with the blessings from the regulator and the Papua New Guinea government.

Upon completion, it is expected that Oil Search shareholders will own 38.5 per cent while Santos (ASX:STO) will make up the rest at 61.5 per cent.

However, the sticking point for the merger could be with the Papua New Guinea government on worries about their country’s national interest.

Deputy Prime Minister Samuel Basil said “if the merger will result in the weakening of any Papua New Guinean shareholders or shareholder interests, reduction in market liquidity, potential for job losses, potential delisting from PNGX, and loss of local ownership of the company assets to a foreign interest, it is not in PNG’s national interest”.

Shares in Oil Search (ASX:OSH) jumped 2.2 per cent at $3.73 while Santos (ASX:STO) gained 0.5 per cent to $6.06.

Local economic outlook

Reserve Bank Governor, Philip Lowe’s speech on Tuesday will attract a bit of attention for any clues on the back of the current Covid-19 landscape.

The NAB business confidence figures are pencilled in on Tuesday while our usual consumer confidence report by ANZ-Roy Morgan is slated for Wednesday.

We also have our August jobs report on Thursday which is likely to show the impact from the current delta outbreak.

International economic outlook

In the U.S., it pivots from the labor market to inflation pressures with the consumer price report for August on Tuesday.

Likewise, in the U.K where August inflation figures are also slated on Wednesday.

In China, we will see a slew of economic data for August which is likely to show a slowdown slated also for Wednesday.

Broker moves

Credit Suisse downgrades Qube Holdings (ASX:QUB) to neutral with a price target of $3.55.

Qube Holdings has announced the acquisition of the Newcastle Agri Terminal for $90 million. The broker notes that although this is a small deal for the company, it allows Qube to provide grain export services through the Port of Newcastle.

Credit Suisse also notes that Qube is set to receive $1.3 billion in initial proceeds from the Moorebank sale. This is likely to generate $200 to 300 million in tax payments and $600 million in capital management.

Accounting for the acquisition, the broker upgrades the company’s earnings per share forecasts by 0.5 per cent and 2.0 per cent for FY22 and FY23, respectively.

The rating is downgraded to neutral from outperform and the target price increases to $3.55 from $3.30.

Shares in Qube Holdings (ASX:QUB) closed 1.2 per cent higher at $3.31 on Friday.

IPO

There is one company set to make their debut today. Keep an eye out for Legacy Minerals Holdings (ASX:LGM).

Ex-dividend

Chorus Limited (ASX:CNU) is paying 13.8916 cents unfranked
FFI Holdings (ASX:FFI) is paying 14 cents fully franked
Grange Resources (ASX:GRR) is paying 2 cents fully franked
Healius (ASX:HLS) is paying 6.75 cents fully franked
HUB24 Ltd (ASX:HUB) is paying 5.5 cents fully franked
Joyce Corporation (ASX:JYC) is paying 10 cents fully franked
L1 Long Short Fund (ASX:LSF) is paying 3 cents fully franked
Over The Wire Ltd (ASX:OTW) is paying 2.25 cents fully franked
Paragon Care Limited (ASX:PGC) is paying 1 cents fully franked
Regis Resources (ASX:RRL) is paying 3 cents fully franked

Commodities

Iron ore has lost 0.4 per cent to US$129.71. Their futures suggest a 0.6 per cent gain.

Gold has contracted, suffering its first weekly loss since early August, down $7.90 or 0.4 per cent to US$1,792 an ounce while silver fell $0.28 or 1.2 per cent US$23.90 an ounce.

Oil has added $1.58 or 2.3 per cent to US$69.72 a barrel on reports that OPEC+ will lower its 2022 oil demand growth forecast.

Currencies

One Australian Dollar at 7:40 AM has softened from Friday buying 73.52 US cents, 53.17 Pence Sterling, 80.82 Yen and 62.25 Euro cents.
 

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