Wall St mixed as FOMC meets, Citi rates Baby Bunting as buy: ASX to dip


Global markets bounced back with caution as Evergrande’s potential default continued to play on investor’s minds. Central bank meeting started with the FOMC in progress while Japan is slated.

The Australian sharemarket is set to drop with the SPI futures pointing to a fall of 0.2 per cent.

Wall St closed mixed after the meltdown yesterday with the Nasdaq closing in the black. Technology stocks were in favour after they rode the coattails of Uber as they provided a bullish earnings outlook. Investors bought into the dip as they await an update from the Fed, while the over reaction on contagion concerns from China’s property giant Evergrande eased.

Multi-dwelling homes heats up in August, single family homes drops again

The housing market was in focus as demand continues to weigh on homebuilders. According to the Commerce Department, Homebuilding rose more than expected in August. Housing starts jumped 3.9 per cent with a seasonally adjusted 1.6 million units. This was lastly driven by a rise in multi-dwellings.

Single family homes, which is the biggest share of the housing market fell for the second month at 2.8 per cent. Builders are struggling with issues with labour and land shortages to higher material costs. Demand is on the move in the low rate environment as investors get into the property market before the likely rate hike in the coming future.Fed starts meeting, focus on removing officials as trading on the job

Elsewhere the Fed have started their two-day policy meeting but their focus is on two of their members. Two advocacy groups are calling for Dallas Fed leader Robert Kaplan and Boston Fed President Eric Rosengren to be sacked over their trading activity while on the job.

Fed Chair Jerome Powell will address the trading guidelines for Fed members over these concerns. However, if tension mounts on scrutinizing their trading behaviour after their conduct review, the FOMC may lose two of their members.
Markets are expecting Fed to start tapering in November

On the tapering front, given the recent economic data, market participants are expecting the Fed to start tapering in November to US$15 billion per month. They are also expecting the tune to be reinforced that rate hikes will not kick off the moment tapering starts but will start as early as November next year.

Nasdaq gains, bond yields rise & gold rallies

At the close, the Dow Jones lost 0.2 per cent to 33,920, the S&P 500 fell 0.1 per cent to 4,354 while the Nasdaq marginally rose 0.2 per cent at 14,746.

The yield on the 10-year treasury note bumped higher by 2 basis points to 1.32 per cent, while gold shined again as the greenback firmed. Investors are running to the safe-haven metal given this backdrop.

Across the S&P 500 sectors, there were four winners to seven losers. Starting with the worst performer, materials dived 4 per cent followed by industrials, down 0.7 per cent and communication services shedding 0.3 per cent. Energy rose 0.4 per cent followed by healthcare, up 0.2 per cent and consumer discretionary and technology eking out a gain.

European markets rebounds as energy and travel stocks take-off

European markets bounced back tracking similarly to Wall St. Paris gained 1.5 per cent, Frankfurt added 1.4 per cent and London’s FTSE closed 1.1 per cent higher.

In U.K. trade, oil players BP rose 1.7 per cent while Shell jumped 3.3 per cent.

Mining giants were mixed. Rio Tinto shed 0.1 per cent while BHP rose 0.4 per cent.

Asian markets fall ahead of Japan’s central bank meeting,

Asian markets closed lower ahead of the central bank meetings in the U.S. and in Japan.

Tokyo’s Nikkei fell sharply by 2.2 per cent after their long weekend, their biggest one-day decline in three months, Hong Kong’s Hang Seng added 0.5 per cent and China’s Shanghai Composite was closed.

Evergrande sinks over 20% in a week while Sinic dives 88%

Property giant Evergrande has sunk over 20 per cent in their last five trading days ahead of their bond payment this week. Sinic, another property giant’s share price dived over 88 per cent in the same period. Investors are hoping that the property giants will be bailed out while others are waiting for it to collapse. We will wait and see what disruption could occur.

ASX 200 firms up defying volatile iron ore price

Yesterday, the Australian sharemarket closed 0.4 per cent higher at 7,274 after starting the week in the red. The day started on a grim note and firmed up defying the wobbly price in iron ore and contagion concerns in China.

For some, it was payday with BHP (ASX:BHP), Santos (ASX:STO) and Oil Search (ASX:OSH) pencilled in to reward shareholders. BHP was set to pay out a whopping amount of over $8 billion.

Taking a look at the sectors, gains were almost across the board with financials as the outlier. Energy rose the most at 1.5 per cent followed by technology at 1.2 per cent then consumer discretionary.

The best-performing stock in the ASX 200 was AusNet Services (ASX:AST), closing 9.8 per cent higher at $2.59. They received another attractive bid from rival APA Group at $2.60 per share versus the sweetened $2.50 per share that was offered the day before from Brookfield. This sent their stock tumbling 4.7 per cent at $8.46 as the worst performing stock as you can see there.

WiseTech Global (ASX:WTC) and Champion Iron (ASX:CIA) were the next best performers after AusNet.

To the other outliers in the session Nickel Mines (ASX:NIC) and Janus Henderson Group (ASX:JHG) closed lower.

Local economic news

Today we have the Reserve Bank Assistant Governor, Michele Bullock slated to deliver an online speech on Bloomberg’s Inside Track.

Company news

Pay-day continues as Challenger (ASX:CGF), Insurance Australia Group (ASX:IAG), Sandfire Resources (ASX:SFR), Sonic Healthcare (ASX:SHL), and Suncorp (ASX: SUN) have slated to reward shareholders today.

Broker moves

Citi upgrades Baby Bunting (ASX:BBN) to a buy with a raised price target of $5.98. The risk/reward tradeoff is seen to be more favourable following the fall in the share price since their financial year 2021 result.

Due to the non-discretionary nature of their products, Citi feels that BBN is well placed to report a relatively stronger AGM trading update compared to most listed retail peers.

Meanwhile, Ord Minnett forecasts gross margins to expand by 68 basis points in financial year 22. They have attributed their forecast to an increased share of their higher margin private label and exclusive product sales. Also their supply chain efficiencies has been factored in from their new national distribution centre in Melbourne.

The target price rises to $5.98 from $5.90 on higher market multiples.

Shares in Baby Bunting (ASX:BBN) closed 4.4 per cent higher at $5.50 yesterday.

Ex-dividend

Adbri Limited (ASX:ABC) is paying 5.5 cents fully franked.
COG Financial Services (ASX:COG) is paying 6 cents fully franked.
Enero Group Ltd (ASX:EGG) is paying 4.4 cents fully franked.
Ryder Capital Ltd (ASX:RYD) is paying 4 cents fully franked.

IPOs

We have two companies set to list on the ASX today. Keep an eye out for Widgie Nickel (ASX:WIN) and X2M Connect (ASX:X2M).

??Currencies

One Australian Dollar at 7:20 AM has weakened from yesterday, buying 72.32 US cents, 52.95 Pence Sterling, 79.03 Yen and 61.66 Euro cents.

Commodities

Iron ore is up 5 cents at US$93.03.

Gold continues to rally adding $14.40 or 0.8 per cent to US$1778 an ounce while silver has gained $0.41 or 1.8 per cent to US$22.61 an ounce.

Oil was up $0.27 or 0.4 per cent to US$70.56 a barrel.

 

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