Tech rally reignites as banks lead Dow's fall, Oil bull run continues: ASX to rise

Market Reports

by Melissa Darmawan

Wall St closes mixed as earnings season kicks-off after a mouthful of fresh economic data and earnings from bank behemoths. European & Asian markets fell tracking losses from Wall St earlier in the week. ASX snapped its 3-week winning streak.

The Australian sharemarket is set to rise following a mixed close on Wall St.

Tech recovery as banks lead Dow’s fall

Technology names bounced back on Friday but not enough to arrest the slide of the Nasdaq for its third straight week, the S&P 500 and Dow Jones slipped for its second week, while the yield on the 10-year treasury note rose for its fourth straight week.

Oil bull run continues, Nickel price at 10-yr highs

Meanwhile, oil prices rose on a four week winning streak against the backdrop of a falling greenback, supply problems, and geopolitical tensions. Prices of industrial metals remain firm buoyed by China’s demand while Nickel prices are at 10-year highs. The world’s biggest nickel producer, Indonesia is considering an export tax as part of its broader move to shift away from shipping raw materials.

All in all, markets have been choppy so far for 2022 as investors readjust their portfolio, amid the Fed preparing to remove its unprecedented stimulus that has helped fuel the market in the past two years.

The technology rally this year has been short-lived on concerns that rising interest rates to suppress hot inflation will hit growth stocks, putting pressure on their valuations which are based on future growth. Investors climbed the wall of worries that higher interest rates will eat away at the value of their future earnings.

Market participants digested a mouthful of economic data around the state of inflation sitting at four decade highs, and to cap off the week, they were plated with fresh retail sales and consumer sentiment figures.

Inflation surge weighs on retail spending & manufacturing

In December, retail spending fell 1.9 per cent, worse than the expectations of a 0.1 per cent decline with digital sales falling by 8.7 per cent as per the Commerce Department. December’s loss followed record retail sales starting with a 1.8 per cent monthly gain in October.

Analysts believed that consumers took the warning about the supply chain disruptions in stride, and went on an earlier shopping spree to save any disappointment. Also weighing on sales was the emergence of the Omicron variant, and also inflation while industrial production unexpectedly fell.

Consumer sentiment falls to decade lows on bitter price

Elsewhere, the preliminary January consumer sentiment fell sharply to its second lowest level in a decade to 68.8 in January, compared to 70.6 in December as per the University of Michigan with pricing pressures in front of the minds of Americans. All this deepening the same concerns that investors have climbed the wall of worries with.

Banks profit falls but Wells Fargo impresses

Quarterly profits fell by double-digit percentages at JPMorgan Chase and Citigroup while Wells Fargo reversed the trend reporting an 86 per cent rise in profit.

Bucking the news locally about the crackdown in the casino arena, US casino operators rallied after Macau’s government capped the number of new casino operators allowed to operate. Melco Resorts soared 16.6 per cent, Las Vegas Sands sky rocketed 14.2 per cent and Wynn Resorts closed 8.6 per cent higher.

Wall St numbers

At the closing bell, the Dow Jones lost 0.6 per cent to 35,912, the S&P 500 gained 0.1 per cent to 4,663 while the Nasdaq closed 0.6 per cent higher at 14,894.

Across the S&P 500 sectors, energy soared 2.4 per cent as the best performer, information technology was second best at 0.9 per cent followed by communication services, and consumer staples. The rest closed lower with cyclicals leading the declines. Real estate was the laggard, down 1.2 per cent followed by financials, and materials.

The yield on the 10-year treasury note rose 8 basis points to 1.79 per cent, gold fell on a firmer greenback.

European & Asian markets fall on inflation talk

Across the Atlantic, European markets closed lower amid the ECB saying that they would take any measures necessary to bring inflation back towards its 2 per cent target.

Paris lost 0.8 per cent, Frankfurt fell 0.9 per cent and London’s FTSE lost 0.3 per cent lower despite Britain’s economy growing by a stronger-than-expected 0.9 per cent in November.

On the London Stock Exchange, BHP fell almost 1 per cent, Rio lost 1.3 per cent, BP gained 1.3 per cent and Shell closed 0.8 per cent higher.

Asian markets closed lower. Tokyo’s Nikkei fell 1.3 per cent, Hong Kong’s Hang Seng lost 0.2 per cent and China’s Shanghai Composite closed almost 1 per cent lower.

ASX 200 snaps 3-week winning streak

On Friday, the Australian sharemarket slumped 1.1 per cent at 7,394. Over the week, it snapped a three week winning streak to close 0.8 per cent lower.

The technology sell-off on Wall St transcended to the local market with the sector losing almost 4 per cent. Consumer staples have continued to be sold off amid the supply chain disruptions with losses across the board, while utilities was the only sector to buck the trend with a marginal rise lifted by AGL Energy.

The best performing stock of the week was AGL Energy (ASX:AGL) amid a few broker notes citing key metric forecasts lifting. Citi has stamped the stock with a target price of $8.30 from $7.30 after raising it from $6.70 mid August last year. Also with the rise in US treasury yields and the tech weakness we have been seeing, the rotation into defensive names like AGL appeared to have been on the agenda helping utilities eke out that gain as the bright spot on the market.

The worst performing stock was Pro Medicus (ASX:PME) sliding south by 13.9 per cent amid a note from Morgans. The broker decided to downgrade its rating to reduce but due to a quick sell-off in the share price, the broker reverted back to a hold with a target price of $54.49. Morgans cites that even though the shares are still trading on a high price to earnings multiple, the broker sees continued strong growth underpinned by its strong and competitive product offering paired with long-term contracted revenues.

On Friday across the resources, Rio Tinto (ASX:RIO) fell 1 per cent lower, BHP Group (ASX:BHP) dipped 0.4 per cent lower, and Fortescue Metals (ASX:FMG) closed 0.1 per cent lower. Santos (ASX:STO) lost 1.4 per cent, Beach Energy (ASX:BPT) shed 0.7 per cent lower, and Woodside Petroleum (ASX:WPL) closed 0.3 per cent lower.

Gold miners shone with Northern Star (ASX:NST) lifted 1.1 per cent, Evolution Mining (ASX:EVN) added 0.3 per cent, and Newcrest Mining (ASX:NCM) eked out a 0.04 per cent gain.

Banks closed lower led by Westpac Banking (ASX:WBC) down 1.3 per cent, Commonwealth Bank (ASX:CBA) fell 1.2 per cent, Macquarie Group (ASX:MQG) lost 1 per cent, National Australia Bank (ASX:NAB) dipped 0.6 per cent, and ANZ Banking (ASX:ANZ) just dipped lower by 0.04 per cent.

Afterpay (ASX:APT) cratered 9.2 per cent, Xero (ASX:XRO) tumbled 5.1 per cent, Appen (ASX:APX) dived 3.6 per cent, and Wisetech Global (ASX:WTC) closed 2.9 per cent lower.

In company news, Pendal (ASX:PDL) nose dived 15.8 per cent at $5 after the fund manager reported net outflows for the December quarter o f$6.9 billion, attribute to two UK institutional redemptions at $5.1 billion. Total funds under management fell to $135.7 billion from $139.2 billion over the quarter.

Star Entertainment (ASX:SGR) lost 1.9 per cent at $3.54 after the anti-money laundering watchdog expanded its investigation of the Sydney casino to other casinos in the group. They have not decided on what action it might take against embattled casino operator.

Shares in Michael Hill (ASX:MHJ) rose 1.1 per cent at $1.44 after the jewellery retailer provided a positive trading update which compromised of a near 10 per cent rise in shop sales during the December quarter, with a 28 per cent surge in digital sales despite 2381 lost store trading days.

Plus-sized women’s clothing retailer City Chic (ASX:CCH) soared 11.7 per cent to $4.99 after reporting a near 50 per cent leap in first half sales growth. The fashion retailer notched a higher spend on inventory to build up stock for the northern hemisphere summer season amid supply chain disruptions.

ResMed (ASX:RMD) jumped 3.6 per cent at $34.79 amid several brokers raising their target prices on the sleep apnoea device maker. After a weak trading update from rival Philips helped flag revenue upside for ResMed. Philips told the market the recall of its Respironics range of sleep machines grew to a ballpark figure of 5.2 million from 3 to 4 million. Analysts also cited that the pace of repairs and replacements of the affected machines were slower than expected. This fares well for ResMed, with the company potentially able to maintain its strong revenue performance in the first quarter of financial year 2022 into the second quarter.

SPI futures

Looking ahead, the SPI futures are pointing to a 0.4 per cent rise.

There are no local economic news, but keep an eye out for China’s GDP figures and U.S. markets are closed for the Martin Luther King Junior holiday

Ex-dividends

There is one company going ex-dividend today. Turners Automotive (ASX:TRA) is paying 4.79 cents, 85 per cent franked.

Commodities 

Iron ore has lost 0.9 per cent to US$126.75 a ton. Its futures are pointing to a fall of 1.5 per cent.

Gold lost $4.90 or 0.27 per cent to US$1,817 an ounce. Silver was down $0.24 or 1.1 per cent to US$22.92 an ounce.

Oil has bucked the trend adding $1.70 or 2.1 per cent to US$83.82 a barrel.

Currencies

One Australian Dollar at 8:15 AM has weakened since Friday buying 72.25 US cents, 52.77 Pence Sterling, 82.39 Yen and 63.23 Euro cents.
 

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