Wall St sinks on interest rate jitters, Tech rout continues: ASX to fall

Market Reports

by Melissa Darmawan

Wall St sinks as Dow snaps winning streak on meeting minutes. Global indexes were mixed in anticipation ahead of the December FOMC minutes to be released. Rising 10-year treasury yields weighed on tech shares.

The Australian sharemarket is set to fall after a mixed close around the globe in the lead up to the meeting minutes from the Fed.

US stocks sell-off on meeting minutes reaction

Wall St closed lower with the Dow snapping its winning streak after stocks accelerated to session lows. Market participants turned their attention to the minutes which showed that Fed officials entertained the idea of a faster timetable for rate hikes this year, and as soon as March.

Fed meeting minutes flag chance of earlier rate hikes

Something that was unveiled in the minutes, is the focus on shrinking the balance sheet after the lift-off on interest rates. This is another conversation, but for now, it’s about how to reduce the portfolio of bonds and assets by not allowing the maturity of a bond coupon to continue, to close-off a book entry on the balance sheet, said in the simplest way possible.

Minutes of the December 14-15 meeting said “participants generally noted that, given their individual outlooks for the economy, the labor market, and inflation, it may become warranted to increase the federal funds rate sooner or at a faster pace than participants had earlier anticipated”.

“Some participants also noted that it could be appropriate to begin to reduce the size of the Federal Reserve’s balance sheet relatively soon after beginning to raise the federal funds rate,” the minutes said.

Now we received fresh economic news in the private payroll space. The optimism from the figures which started the session helped the Dow initially continue its winning streak, till the meeting minutes eclipsed the momentum.

Private businesses adds 807k jobs

The private sector added 807,000 jobs in December beating expectations. Businesses with more than 500 employees added the most roles. The services sector had the biggest increase with the most gains in the hospitality and leisure with 246,000 roles. However, these numbers have taken into account the waning out of the Delta-variant effect and without the Omicron impact.

Today’s performance is the first steep sell-off for the year after the S&P 500 and the Dow reset record highs. Market participants are now looking at a new normal as we live with the virus, transitioning from a pandemic to an endemic phase amid persistent and hot inflation.

Wall St numbers

At the closing bell, the Dow Jones lost 1.1 per cent to 36,407, the S&P 500 fell 1.9 per cent to 4,701 while the Nasdaq closed 3.3 per cent lower at 15,100.

Across the S&P 500 sectors, losses across the board. Real estate, information technology and communication services led the drag by the 3 per cent band. Consumer staples shed the least 0.03 per cent, followed by utilities, with energy snapping its winning streak to close a hairline lower.

The yield on the 10-year treasury note rose 4 basis points to 1.70 per cent, fixed income investors selling these bonds as prices are inversely related to the yield, as gold dipped on a firmer greenback.

European markets clinch higher ahead of minutes

Across the Atlantic, in the lead up to the news on Wall St, European markets closed higher after lacking conviction in direction.

Paris added 0.8 per cent, Frankfurt added 0.7 per cent and London’s FTSE added 0.2 per cent.

Meanwhile, Germany’s service sector contracted in December with the purchasing managers index falling to 48.7 points from 52.7. The first time that this index has fallen below the 50-level mark in eight months. A reading above 50 means expansion, and below means contraction.

The stall in the recovery was attributed to the country hit by a fourth wave of Covid-19. There were health restrictions reintroduced which limited business activity, in particular exports. However, in broader Europe, it came in at 53.1 in December, down from November's 55.9 indicating growth at a slower pace.

Asian markets mixed on tech drag amid China’s crackdown

Asian markets closed mixed. Tokyo’s Nikkei gained 0.1 per cent, Hong Kong’s Hang Seng lost 1.6 per cent, while China’s Shanghai Composite closed 1 per cent lower as a tumble in the tech space dragged after Beijing passed new rules that tighten controls on tech companies. A move to get a grip on any monopolies in the sector.

The country’s top market regulator also unveiled fines against Chinese tech giants for failing to properly report about a dozen deals. This followed the jitters around the outlook for further policy easing while China’s factory activity rebounded surprising market participants.

Meanwhile, China Mobile was flat in its Shanghai debut after the company raised US$7.64 billion in China’s biggest IPO in a decade.

ASX 200 falls on tech rout

Yesterday, the Australian sharemarket closed 0.3 per cent lower at 7,566 after investors climbed the wall of worries on digesting over 35,000 cases in NSW in anticipation of these meeting minutes.

The local bourse was dragged down by technology stocks eclipsing the rally in energy, and material stocks to close at session lows.

The technology sector tumbled 2.9 per cent pressured lower by Tyro Payments (ASX:TYR) after shares fell 6.9 per cent lower at $2.72 on appointing two new board members with executive leadership experience from Apple and Google.

Afterpay (ASX:APT) closed 4 per cent lower at $80.51 slumping to its lowest level since 6 October 2020. The share price has lost half its value from its all-time high of $160.05 from February 2021 and moved in tandem with US payments giant Block who is slated to be the Aussie darling’s new owner.

The three worst performing stocks were from the healthcare space which saw the sector notched the second loser of the session.

Pro Medicus (ASX:PME) closed 9.7 per cent lower at $56.95, followed by shares in Imugene (ASX:IMU), and Clinuvel Pharmaceuticals (ASX:CUV) while the best performer was Adbri (ASX:ABC) closing 4.8 per cent higher at $3.03, followed by shares in Santos (ASX:STO), and Brambles (ASX:BXB).

Meanwhile, energy stocks soared for the second day after OPEC+ agreed to continue to boost output by 400,000 barrels per day next month. They have pledged to continue with planned increases and may consider making adjustments if Omicron weighs on demand.

Santos (ASX:STO) rose 2.6 per cent, Origin Energy (ASX:ORG) up 1.5 per cent, Beach Energy (ASX:BPT) added 0.8 per cent while Woodside Petroleum (ASX:WPL) closed 0.4 per cent higher.

Meanwhile, miners firmed up with Rio Tinto (ASX:RIO) saw a 0.8 per cent gain, while BHP (ASX:BHP) and Fortescue Metals (ASX:FMG) closed 0.6 per cent higher.

Banks closed higher with Macquarie Bank (ASX:MQG) extending its record high from yesterday adding 2.1 per cent, Westpac (ASX:WBC) rose 0.8 per cent, National Australia Bank (ASX:NAB) and Commonwealth Bank (ASX:CBA) both gained 0.7 per cent while ANZ (ASX:ANZ) closed 0.2 per cent higher.

Precious metal players closed mixed with Newcrest Mining (ASX:NCM) rising 1.3 per cent, Northern Star (ASX:NST) added 0.5 per cent, while Evolution Mining (ASX:EVN) closed flat.

In company news, CIMIC’s (ASX:CIM) Leighton Asia has been awarded a $103 million contract to build a data centre campus for a technology firm in Indonesia. Construction is set to start this month and complete next year. Shares closed 0.2 per cent higher at $17.01.

Marine services provider MMA Offshore (ASX:MRM) has recently been awarded a number of new contracts including two significant long-term vessel contracts to the value of $74 million. There is also a potential value in excess of $91 million if the relevant option periods are exercised. Shares closed 12.5 per cent higher at $0.41.

Tyro Payments (ASX:TYR) welcomes two new board directors Claire Hatton and Shefali Roy starting today. Ms Roy was the chief operating officer and chief compliance officer at TrueLayer, while Ms Hatton spent seven years at Google Australia. Shares closed 6.9 per cent lower at $2.72.

After Johns Lyng (ASX:JLG) unveiled its plans to acquire US insurance provider Reconstruction Holdings in December last year, the building services group completed its $230 million capital raising and the acquisition as of 1 January this year. Shares closed 0.6 per cent lower at $8.84.

SPI futures

Looking ahead, the SPI futures are pointing to a 0.8 per cent fall.

Local economic news

IHS Markit is set to release the December survey of purchasing managers in the services sector.

Company news

Poker machines giant Aristocrat Leisure (ASX:ALL) has hit a roadblock in its $3.9 billion bid for Playtech as the British gambling software company continues talks with a rival bidder. The rival bidder, JKO Play has requested more time from the UK Takeover Panel and was granted an extension to 26 January. Shareholder meetings to approve the offer are adjourned to 2 February where it was initially scheduled for yesterday. Shares in Aristocrat Leisure (ASX:ALL) closed 0.3 per cent lower at $45.27.

Commodities

Iron ore has gained 0.4 per cent to US$120.40. Its futures are pointing to a rise of 2.9 per cent.

Gold lost $4.70 or 0.3 per cent to US$1810 an ounce, silver was down $0.28 or 1.2 per cent to U$22.78 an ounce.

Oil gained $0.09 or 0.1 per cent to US$77.08 a barrel.

Currencies

One Australian Dollar at 8:15 AM has weakened slightly since yesterday, buying 72.26 US cents (Wed: 72.33), 53.27 Pence Sterling, 83.89 Yen and 63.85 Euro cents.

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