Tech rout ignites Wall St's tumble on treasury take-down: ASX to fall


Wall St tumbles on rate hike jitters led by technology shares as investors digested disappointing fourth quarter results deepening nervous sentiment. Energy rallied to 7-year highs. Back home, consumer confidence sunk to 30-year lows. Afterpay's (ASX:APT) last day of trade before jumping off the Block.

The Australian sharemarket is set to fall after we saw a storm on Wall St.

US stocks tumbled as technology names led the rout, as higher interest rates continued to spook investors, after nearly two years of unprecedented monetary stimulus and ultra low interest rates. Goldman Sachs posted disappointing results which was a big weight on the market while the 10-year treasury yield climbed to its highest level since January of 2020, this is before the pandemic. So the expectation is that the Fed will be raising rates this year and that the economy is improving, despite the surge in Covid-19 cases.

Fed is playing “catch up”

The theme behind this all is what I call the game of “catch up”. In the past couple of weeks we received a lot of news from the Fed. Behind their words, they realised that the market was right, and their expectations on inflation were behind the curve. They also indirectly told us that the country is close to or at full employment, and now, they’re focusing on combating inflation. Since they’re playing catch-up, the market is reacting to this lag. We’ve been expecting yields to go up, with analysts forecasting a yield on the 10-year treasury note of 2 per cent, and three interest rate hikes, some even think it’s four.

Last Friday, we talked about the insured unemployment rate in the weekly jobless claims data, so this is the number of people who are receiving unemployment benefits as a percentage of the labour force. It showed that we’re not far off from the Fed’s unemployment target rate of 3.5 per cent, and given that the Omicron wave is set to abate, the Fed appears to be comfortable to let this roll and focus on inflation.

China’s Xi urges West not to lift global interest rates

The question is how will this play out and impact the wider economy, especially with China. Yesterday afternoon, China’s President Xi Jinping unveiled an extraordinary intervention, urging Western nations not to raise interest rates, claiming such a move could “challenge global economic and financial stability”. So even in China, they have concerns if they’re able to keep up, when rate hikes lift off given the scene they are in with their zero Covid policy.

Microsoft to buy Activision Blizzard for US$68b

Meanwhile, Wall St reacted to some news from a few companies. Microsoft has unveiled its plans to buy the video game studio Activision Blizzard. Shares in Microsoft fell 2.4 per cent while Activision soared 26 per cent, and that is usual when it comes to deals. The stock getting bought gets a pop on the share price on hopes that the deal will go through, while the company making the offer falls. This is an all-cash deal, no debt, with Microsoft valuing Activision shares at a premium of US$95 a share. That's a total of US$68.7 billion in cash that Microsoft is set to pay. Like all M&As we have been following, the deal is pending regulatory and shareholder approval, with the buyout expected to close around June next year. Microsoft is the second largest tech company in the US just behind Apple, so let’s see how this all plays out as Apple is also sitting on a bit of cash, and this move could set the bar for further M&As in the sector.

Goldman Sachs falls on Q4 results

To the banks, Goldman Sachs fell 7 per cent after reporting mixed results in its latest quarter, including a miss on earnings largely attributed to a huge rise in expenses. These banks are needing to pay up for talent in the current environment. Goldman Sachs posted solid revenue growth due to rising fees in their investment banking arm. Goldman was actually the sole advisor on this Microsoft-Activision deal, so those fees are set to come in. These banks are slated to benefit from rising interest rates, but it seems that not everyone is entirely behind this given the fall in share price.

Elsewhere, global oil prices have risen to their highest levels in seven years after attacks in the Middle East, so energy producers back home, are slated to be on the rise again.

Numbers on Wall St

At the closing bell, the Dow Jones lost 1.5 per cent to 35,368, the S&P 500 fell 1.8 per cent to 4,577 while the Nasdaq closed 2.6 per cent lower at 14,507.

Across the S&P 500 sectors, we have that bright spot. Look at that, energy up 0.4 per cent with the other sectors closing lower. Information technology was the worst performer by 2.5 per cent, followed by financials at 2.3 per cent, then communication services.

The yield on the 10-year treasury note, jumped 11 points to 1.88 per cent, gold dipped on a firmer greenback.

European mixed while Asian falls on inflation jitters

Across the Atlantic, European markets closed lower. Paris lost 0.9 per cent, Frankfurt lost 1 per cent and London’s FTSE fell 0.6 per cent.

On the London Stock Exchange, BHP added 0.1 per cent, Rio added 0.9 per cent, BP gained 0.5 per cent and Shell closed 1.5 per cent higher.

Asian markets closed mixed. Tokyo’s Nikkei fell 0.3 per cent amid the Bank of Japan maintaining its monetary policy stimulus and raised its inflation forecast, Hong Kong’s Hang Seng lost 0.4 per cent and China’s Shanghai Composite closed 0.8 per cent higher.

ASX falls as consumer confidence sinks to 30-year lows

Yesterday, the Australian sharemarket closed 0.1 per cent lower at 7,409 after opening in positive territory to close at session lows. Healthcare was the weakest sector, and materials were the strongest on a mixed finish.

Investors digested the ANZ consumer confidence reading which fell 7.6 per cent to its worst January result in 30 years. Sentiment fell as some Aussies went back to work, but the Omicron variant had a bit to do with it, with shortages in PCR and rapid antigen tests, vaccine availability for kids weighing. Supply chain issues were also front of mind leading to bare shelves in supermarkets.

In company news, JB Hi-Fi (ASX:JBH) surged 6.9 per cent to $49.84 after the electronics retailer reported a 9.4 per cent fall in after tax profit in the first half for financial year 2022, when total sales for fell 1.6 per cent to $4.8 billion in that period, casting concerns aside that the lockdowns in the eastern part of the nation were worse than anticipated.

Redbubble (ASX:RBL) reported a 25 per cent slide in first half gross profit with its share price tanking 22.4 per cent to $2.32. Financial year 2022 marketplace revenue, which is the group revenue minus artist commissions, is set to be “slightly below” underlying revenue from 2021, which was $497 million excluding $57 million worth of sales of fabric face masks.

Major banks fell led by Commonwealth (ASX:CBA) and Macquarie (ASX:MQG) both down 0.4 per cent. Westpac (ASX:WBC) fell 0.3 per cent, while National Australia Bank (ASX:NAB) and ANZ Bank (ASX:ANZ) both closed 0.1 per cent lower.

The best-performing stock in the S&P/ASX 200 was Imugene (ASX:IMU), closing 7 per cent higher at $0.38. It was followed by shares in JB Hi-Fi (ASX:JBH) and Liontown Resources (ASX:LTR).

The worst-performing stock in the S&P/ASX 200 was PointsBet Holdings (ASX:PBH), closing 3.7 per cent lower at $6.07. It was followed by shares in Virgin Money UK (ASX:VUK) and Zip Co (ASX:Z1P).

BHP is next after Rio’s update

Meanwhile, Rio Tinto (ASX:RIO) posted its weakest annual iron ore production for 2021 since 2015, at 321.6 million tonnes, just meeting its guidance for a minimum of 320 million tonnes. Shares closed 0.4 per cent lower to $109.65. Rio’s peers bucked the trend, closing higher as BHP (ASX:BHP) rose 1.2 per cent to $46.70, while Fortescue Metals (ASX:FMG) edged 0.1 per cent lower to $20.75.

Keep this in mind as BHP is set to get a bit of attention today and tomorrow. The miner is set to release its second quarter and December half year production and sales numbers, and tomorrow we find out about the approval to delist from London and make the ASX its primary home.

SPI futures

Now, taking all of this into the equation, the SPI futures are pointing to a 0.9 per cent fall.

Local economic news

The Australian Bureau of Statistics is set to release the building activity publication for the September quarter. Keep an eye out for the Westpac and Melbourne Institute set to release the consumer confidence for January.

Ex-dividends

There are four companies going ex-dividend today.

Alternative Investment Trust (ASX:AIQ) is paying 0.36 unfranked
Kelly Partners Group Holdings (ASX:KPG) is paying 0.363 fully franked
Plato Income Maximiser (ASX:PL8) is paying 0.5 cents fully franked
Spheria Emerging Companies (ASX:SEC) is paying 2.6 cents fully franked.

Dividends paid

BetaShares Australian High Interest Cash ETF (ASX:AAA)
Garda Property Group (ASX:GDF)
Magellan Global Fund (ASX:MGF)
Magellan Global Equities Fund Currency Hedged (ASX:MHG)
VanEck Australian Property ETF (ASX:MVA)
VanEck S&P/ASX MidCap ETF (ASX:MVE)
VanEck Australian Resources ETF (ASX:MVR)
VanEck Small Companies Masters ETF (ASX:MVS)
VanEck Australian Equal Weight ETF (ASX:MVW)
BetaShares Nasdaq 100 ETF (ASX:NDQ)
Partners Group Global Income Fund (ASX:PGG)
BetaShares Australian Financials Sector ETF (ASX:QFN)
BetaShares FTSE Rafi Australia 200 ETF (ASX:QOZ)
BetaShares Australian Resources Sector ETF (ASX:QRE)
BetaShares S&P 500 Equal Weight ETF (ASX:QUS)
Vanguard FTSE Asia Ex-Japan Shares Index ETF (ASX:VAE)
Vanguard Australian Fixed Interest Index ETF (ASX:VAF)
Vanguard Australian Property Securities Index ETF (ASX:VAP)
Vanguard Australian Shares Index ETF (ASX:VAS)
Vanguard International Credit Securities Index (Hedged) ETF (ASX:VCF)
Vanguard FTSE Europe Shares ETF (ASX:VEQ)
Vanguard Australian Government Bond Index ETF (ASX:VGB)
Vanguard FTSE Emerging Markets Shares ETF (ASX:VGE)
Vanguard MSCI Index International Shares ETF (ASX:VGS)
Vanguard Australian Shares High Yield ETF (ASX:VHY)
Vanguard International Fixed Interest (Hedged) ETF (ASX:VIF)
Vanguard MSCI Australian Large Companies Index ETF (ASX:VLC)
Vanguard MSCI Australian Small Companies Index ETF (ASX:VSO)

Commodities

Iron ore gained 2.7 per cent to US$127.30 a ton. Its futures are pointing to a rise of 4.3 per cent.

Gold lost $3.00 or 0.2 per cent to US$1,814 an ounce. Silver was up $0.60 or 2.6 per cent to US$23.52 an ounce.

Oil gained $2.17 or 2.6 per cent to US$85.99 a barrel.

Currencies

One Australian Dollar at 8:15 AM has weakened since yesterday buying 71.86 US cents (72.13 US cents), 52.85 Pence Sterling, 82.32 Yen and 63.44 Euro cents.
 

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