Wall St rally, AGL's rating gets upgraded: ASX to rise


Wall St and European stocks rose amid rising bond yields. Asian markets closed mixed on inflation concerns while ASX recovered from session lows, closing in the red.

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

U.S stocks recovers as Nasdaq outperforms

U.S. stocks climbed back into the black after a rough day yesterday. The Dow erased their losses as tech titans bounced back. The Nasdaq is the outperformer today, a turnaround from yesterday despite the yield on the 10-year treasury note rising 5 basis points.

We have seen that when bond yields rise, especially at this rate like last week, technology stocks underperform while banks shine. Higher bond yields help banks lift interest rates, a more attractive outlook for them while tech’s future profit is squeezed.

Today, it’s a different story as inflation worries amid the energy crunch have calmed for now.

In economic news, the U.S. trade deficit widened by more than expected in August. The trade balance stood at a deficit of US$73.3 billion. Meanwhile, activity in the services sector moved fractionally higher in September, according to the Institute for Supply Management. The index came in at 61.9 from 61.7 in August, on strong demand despite the supply chain woes and skilled labour shortages.

Elsewhere, energy prices continue to climb while natural-gas soared on worries of a supply shortfall coming into Winter.

The rebound amid a wall of worries has boosted investor’s sentiment ahead of the jobs report this Friday. Uncertainty still remains around inflation, the energy crisis, let alone Evergrande’s fate to name a few. Let’s see if the indexes can climb back to their record highs.

Rally on Wall as bond yields surge while gold dips

At the closing bell, the Dow Jones gained 0.9 per cent to 34,315, the S&P 500 added 1.1 per cent to 4,346 while the Nasdaq closed 1.3 per cent higher at 14,434.

The yield on the 10-year treasury note rose to 1.53 per cent, while gold dips on a weaker greenback.

Across the S&P 500 sectors, cyclicals stood out. Financials rose 1.8 per cent, communication services added 1.6 per cent followed by technology. Only two losers with real estate down 0.9 per cent and utilities closing 0.2 per cent lower.

European markets shrug off inflation growth

Across the Atlantic, European markets closed higher. Paris gained 1.5 per cent, Frankfurt added 1.1 per cent and London’s FTSE closed 0.9 per cent higher lifted by banks, life insurance and energy stocks, shrugging off inflation concerns.

Miners were mixed in U.K. trade. BHP lost 0.5 per cent, Rio fell 0.1 per cent while oil players rose. BP added 1.8 per cent and Shell jumped 2.2 per cent.

Asian markets mixed on inflation worries

Asian markets closed mixed. Tokyo’s Nikkei lost 2.2 per cent after the new Prime Minister hinted at raising the capital gains tax rate.

Hong Kong’s Hang Seng bucked the trend rising 0.3 per cent while China’s Shanghai Composite was closed.

ASX 200 falls on tough tech day

Yesterday, the Australian sharemarket closed 0.4 per cent lower at 7,248 after a tough day, as tech shares sank while energy stocks outperformed.

The local bourse traded more than 1 per cent lower, erasing almost all of Monday’s gains but rallied in the afternoon following Governor Philip Lowe’s optimistic outlook, saying that Australia would return to its “pre-Delta path in the second half of next year”.

RBA prompts rally

As expected, interest rates stayed at record lows of 0.10 per cent and stuck to its asset purchases program of $4 billion per week.

In his rate statement, Dr Lowe commented that inflation was running at 1.75 per cent, below the central bank’s inflation target. Dr Lowe also emphasised they would not raise rates until inflation was within its target of 2 per cent, which he noted would not be before 2024.

On the horizon is the concern on the surge in house prices. It was noted, however, he didn't give any clues that it would influence the central bank’s monetary policy.

Technology tumbles as energy powers up

Technology tumbled 3 per cent as the worst performing sector as shares in buy-now, pay-later giant Afterpay (ASX:APT) closed 5 per cent lower at $113.60. Its lowest level since its $39 billion takeover offer from U.S. payments giant Square that was announced two months ago.

In other tech stocks, Appen (ASX:APN) fell more than 5 per cent to $8.50, Zip Co (ASX:Z1P) tumbled 4.8 per cent to $6.52, and Tyro Payments lost 4.4 per cent to $3.73.

Energy was the best performer, up 2.4 per cent followed by utilities and consumer staples.

Bank stocks took a beating, with the financials sector closing 0.2 per cent lower after the RBA hinted at tightening their grip on mortgage-lending standards.

Commonwealth Bank of Australia (ASX:CBA) gained 0.3 per cent to $105.50, National Australia Bank (ASX:NAB) fractionally lost 0.1 per cent to $27.78 while Westpac (ASX:WBC) and ANZ (ASX:ANZ) closed over 0.5 per cent lower.

The best-performing stock in the S&P/ASX 200 was Gold Road Resources (ASX:GOR), closing 7.2 per cent higher at $1.33. It was followed by shares in Redbubble (ASX:RBL) and Silver Lake Resources (ASX:SLR).

The worst-performing stock in the S&P/ASX 200 was Sealink Travel Group (ASX:SLK), closing 6.3 per cent lower at $7.78. It was followed by shares in Appen (ASX:APX) and Afterpay (ASX:APT).

Woodside & Evolution stands-out

In company news, Woodside Petroleum’s (ASX:WPL) has awarded engineering group Worley (ASX:WOR) a two-year extension in their contract. Worley will continue to provide engineering and construction management support to the Karratha gas plant and Pluto LNG project in Western Australia. Worley closed 1.1 per cent higher while Woodside added 4 per cent.

Evolution Mining (ASX:EVN) is set to sell its Mt Carlton gold mine to fellow ASX-listed Navarre Minerals (ASX:NML) for a deal worth up to $90 million. The mine’s output lagged compared to the other mines in Evolution’s portfolio. Shares in Evolution Mining (ASX:EVN) closed 2.5 per cent higher at $3.71 yesterday and shares in Navarre Minerals (ASX:NML) were placed on a trading halt yesterday.

Local economic news

No economic news scheduled today.

Broker moves

UBS upgrades AGL (ASX:AGL) to a neutral with a target price of $6.00. The broker reviewed its higher capital costs to revenue headwinds, as lower electricity and gas prices weigh. The share price has tumbled over 50 per cent year to date. Despite the stock trading at a 5.5 per cent dividend yield, UBS has uncovered a few positive incentives to support the attraction of new marginal buyers, with upside from the rise in electricity prices hedged out until financial year 2023. The broker has cut financial year 2022 to 2024 estimates for earnings per share by two to four per cent to factor in a cost hike in oil-linked gas supply. Its target price is reduced to $6.00 from $7.60 and the rating is upgraded to a Neutral from a Sell. Shares in AGL (ASX:AGL) closed 2.7 per cent lower at $5.74 yesterday.

Ord Minnett rates Pinnacle Investments (ASX:PNI) as an accumulate with a price target of $17. The company has acquired an additional 10 per cent interest in Coolabah Capital while expanding its distribution footprint when acquiring Winston Capital. Funds under management rose 2 per cent since June at $91.2 billion as of August. This factored in a low margin, and the $3.9 billion mandate loss from the Omega affiliate. Target price is raised to $17.00 from $15.20. Shares in Pinnacle Investments (ASX:PNI) closed 3.3 per cent lower at $14.95 yesterday.

AGM

Meridian Energy (ASX:MEZ)

Dividend-pay

There are 10 companies slated to pay eligible shareholders dividends.

Adbri (ASX:ABC)
Big River Industries (ASX:BRI)
Enero Group (ASX:EGG)
Generation Development Group (ASX:GDG)
GWA Group (ASX:GWA)
Integral Diagnostics (ASX:IDX)
Iluka Resources (ASX:ILU)
Inghams Group (ASX:ING)
Mount Gibson Iron (ASX:MGX)
Sealink Travel Group (ASX:SLK)

Commodities

Iron ore has lost 0.5 cent to US$116.58.

Gold has lost $6.80 or 0.4 per cent to US$1761 an ounce while silver was down $0.01 or 0.06 per cent to US$22.63 an ounce.

Oil was up $1.56 or 2 per cent to US$79.18 a barrel.

Currencies

One Australian Dollar at 7:25 AM has strengthened from yesterday, buying 72.91 US cents, 53.53 Pence Sterling, 81.28 Yen and 62.87 Euro cents.

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