Wall St slides lower on soft inflation, Zip Co's price target gets cut: ASX to fall

Market Reports

by Melissa Darmawan

A mixed market across the indexes around the globe despite soft U.S. inflation data ahead of the Federal Reserve meeting next week. Investors remain nervous around the tapering timeline and tax hikes to fund President Biden’s spending plan. Climbing cases of Covid-19 in the U.S. and China weighing on consumer sentiment. Back home, RBA’s tune underpinned the afternoon surge on the ASX.

The Australian sharemarket is set to retreat with the SPI futures pointing to a fall of 0.6 per cent.

Wall St slides lower on soft inflation

Wall St closed lower despite the earlier jump in the session after softer inflation numbers sent stocks higher. The short-lived enthusiasm turned to a sell-down as investors' doubts kicked in on the potential taper delay.

U.S. consumer prices rose to a lower-than-expected 0.3 per cent last month as per the Labor Department, the smallest increase in seven months. A sign of an inflation slowdown which plays to the Fed’s transitory tune. The figures come ahead of their meeting next week.

Investors also digested talks around a tax hike for large companies to fund the US$3.5 trillion budget. This was compounded by concerns on the resurgence of Covid-19 cases in the U.S. and in China, the two largest economies in the world.

The yield on the 10-year treasury note plunged by five basis points to a near 1.28 per cent, while gold prices spilled over the US$1,800 mark.

At the close, the Dow Jones lost 0.8 per cent to 34,578, the S&P 500 fell 0.6 per cent to 4,443 and the Nasdaq closed 0.5 per cent lower at 15,038 with Apple shares pressuring the index lower, down 1 per cent after their unveiled their new product range.

Across the S&P 500 sectors, losses were across the board with energy weighing the most, down 1.6 per cent followed by financials, down 1.4 per cent then industrials. Healthcare shed the least at 0.1 per cent followed by technology and utilities.

European markets reacts to rising Covid-19 cases in China

Across the Atlantic, European markets closed mixed as luxury stocks tumbled with the likes of Richemont falling 3.5 per cent, Burberry down 1.8 per cent and LVMH closing 1.6 per cent lower on concerns of a Covid-19 outbreak in China.

Meanwhile, jewellery retailer Pandora surged 6.8 per cent higher after increasing its earnings outlook and share buyback plan.

Paris lost 0.4 per cent, Frankfurt added 0.1 per cent and London’s FTSE fell 0.5 per cent weighed down by miners and banks. 

BHP dived 2.6 per cent while Rio Tinto fell 2 per cent on the back of broker price targets being slashed.

Asian markets sees tech & property sector under pressure

Asian markets closed mixed. Japan’s Nikkei added 0.7 per cent to a 31-year high as cyclicals climbed amid a rise in vaccination rates. This was fuel on top of further stimulus ahead of the vote this month.

China’s Shanghai Composite fell 1.4 per cent while Hong Kong’s Hang Seng sunk 1.2 per cent after the technology sector fell for the third day in four trading sessions, after Beijing’s latest crackdown. The index has struggled to erase losses from last Wednesday’s peak.

The Hang Seng was also pressured lower by China’s second largest property developer China Evergrande plunging 11.8 per cent to a six year low after warning of a liquidity crisis, protesters outside its headquarters amid a decline in property sales.
 
 ASX 200 enjoys RBA speech on rates

Yesterday, the Australian sharemarket rallied to the closing bell closing 0.2 per cent higher at 7,437 closing higher for their third straight day. Investors’ confidence grew after RBA Governor Philip Lowe said he could not understand why financial markets were pricing in the lift in the cash rate for next year.

Dr Lowe reiterated that he would only lift the cash rate once wage growth was rising at an annual pace of at least 3 per cent, and inflation sitting comfortably within two to three per cent.

Prior to his speech, residential property prices for the June quarter rose 6.7 per cent, the strongest quarterly growth in 18 years since the Bureau of Statistics started reporting on the figures.

Dr Lowe addressed concerns around the climb in property prices. He said housing prices were 19 per cent higher compared to pre-pandemic levels, and Australian stock prices were elevated by 10 per cent. However, when asked about the RBA lifting the cash rate to cool the property market, he said it was “not on the agenda”.

Across the sectors, energy stocks were the clear winner, up 4.5 per cent followed by utilities and property both adding 1.1 per cent. Materials and financials advanced. The worst performer was industrials down 1.1 per cent with technology not far behind at a dip of 0.9 per cent followed by healthcare. The rest closed in the red.

The best performing stock in the ASX 200 was Beach Energy (ASX:BPT), closing 7.2 per cent higher at $1.11 followed by shares in Chalice Mining (ASX:CHN) and Woodside Petroleum (ASX:WPL).

The worst-performing stock was Brambles (ASX:BXB), closing 8.3 per cent lower at $11.24 after shareholders digested the US$50 million spend on short-term “transformational costs”. This was followed by shares in Uniti Group (ASX:UWL) and Monadelphous Group (ASX:MND).

Local economic news

Today the September consumer confidence report from the Westpac - Melbourne Institute is due with Covid-19 challenges to weigh on confidence.

Broker moves

Macquarie rates Zip Co (ASX:Z1P) as underperform with a price target of $5.70. The broker notes an increased risk appetite is driving elevated bad debt write-offs, particularly from QuadPay where these were around 25 per cent of closing receivables and around 1.8 per cent of total transaction value in the second half of FY21.

The elevated bad debts, reduced customer growth and softened web traffic prompted the broker’s outlook to remain cautious. Moreover, the buy-now pay-later provider will be cycling very strong months in the December quarter. The rating is maintained and the target price is reduced to $5.70 from $6.15.

Shares in Zip Co (ASX:Z1P) closed 2.7 per cent lower at $6.84 yesterday.

IPOs

There is one company slated to make its debut on the ASX today. Keep an eye out for Copper Search (ASX:CUS).
 
Ex-dividend

Costa Group Holdings (ASX:CGC) is paying 4 cents fully franked
Cimic Group Ltd (ASX:CIM) is paying 42 cents 20 per cent franked
Data#3 Limited (ASX:DTL) is paying 9.5 cents fully franked
Earlypay Ltd (ASX:EPY) is paying 1.3 cents fully franked
Lovisa Holdings Ltd (ASX:LOV) is paying 18 cents 50 per cent franked
MLG OZ Ltd (ASX:MLG) is paying 1.71 cents fully franked
PM Capital Asian Opportunities Fund (ASX:PAF) is paying 2.5 cents fully franked
PM Capital Global Opportunities Fund (ASX:PGF) is paying 5 cents fully franked
Plato Income Maximiser (ASX:PL8) is paying 0.45 cents fully franked
Pro-Pac Packaging (ASX:PPG) is paying 0.3 cents fully franked
Regis Healthcare Ltd (ASX:REG) is paying 4.63 cents 50 per cent franked

Commodities

Iron ore has lost 1.8 per cent to US$121.67. Their futures are pointing to 2.9 per cent fall.

Gold has gained $12.70 or 0.7 per cent to US$1,807 an ounce while silver has added $0.09 or 0.4 per cent to US$23.89 an ounce.

Oil was up $0.01, so steady to US$70.46 a barrel on concerns if flooding from storm Nicholas could lead to a hampered output.

Currencies

One Australian Dollar at 7:10 AM has weakened from yesterday buying 73.20 US cents, 53.04 Pence Sterling, 80.29 Yen and 62.02 Euro cents.

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