Tech rout underpins sell-the-rally mode ahead of Fed meet, Digital currency report airs: ASX to fall

Market Reports

by Melissa Darmawan

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Tech led declines ahead of the Fed meeting next week after late sell-off on Wall Street. US Central bank unveils its digital currency report. China cuts interest rates for 2nd month in a row. ASX snaps 2-day losing streak on sparkling gold.

The Australian sharemarket is set to fall after a storm emerged again on Wall Street.

Wall Street gains erode to session lows

US stocks eroded to session lows as earnings season continues. The buy-the-dip mentality then moved to the sell-the-rally mode as interest rate lift-off continued to eclipse the minds of market participants.

The Dow moved in a 820 point range, something you do not see very often. It was trading as high as 400 points earlier in the day, then fell 320 points. This shows the continued volatility ahead of the Fed’s first meeting next week with expectations on raising interest rates in March.

The Nasdaq extended yesterday’s losses to 12 per cent from its recent high and is on track for its worst month of 2020. All major indexes are heading towards weekly losses with one more trading day left in the week.

Investors shrugged off the weekly jobless claims rising to a three month high, while existing home sales fell to a four month low.

Wall St opened coming off the news in China after the country cut its interest rates for the second month in a row. The move is set to help boost the housing demand on lower borrowing costs, a pivot which bodes well for steel making miners back home.

Fed unveils central bank digital currency report

In afternoon trade, traders digested a highly anticipated report from the Federal Reserve on their view around issuing a US digital currency. The report not only covered the pros and cons, but it also looked at the benefits and risks, and did not state their position on whether central bank digital currencies, so CBDC, should be issued. Look at it as a report of reflections, views, as if you’re mulling over an idea. They are requesting public comment for the next 120 days and offered 20 different questions they would like people to comment on.

To give you a sense of some of the discussion points included the benefits of having digital currency and how it would be free from credit and liquidity risk. Having a CBDC would streamline currency and make cross border payments cheaper,  plus preserve the US dollar dominance. Other benefits included promoting financial inclusion for those who don’t have bank accounts. On the flip side, it would change the US financial system and bank intermediation ecosystem such as the availability of credit which would contribute to higher operating costs and rates if deposits are not in bank accounts. The ownership of bank accounts would be under the central bank even if they’re intermediated, and new measures would need to be considered to handle financial crimes, like money laundering. The report is available here.

The late afternoon sell-off three weeks into the new year has taken all of us for a ride. Amid the iron ore price punching, BHP shareholders voted in favour of scrapping its dual listing with over 97 per cent voting in favour of the ASX to be the home of the soon to be largest company on the bourse.

Numbers on Wall St

At the closing bell, the Dow Jones lost 0.9 per cent to 34,715.39, the S&P 500 fell 1.1 per cent to 4,483 while the Nasdaq closed 1.3 per cent lower at 14,154.

Across the S&P 500 sectors, utilities was the only bright spot by 0.2 per cent. The rest closed lower led by consumer discretionary, materials, and information technology.

The yield on the 10-year treasury note fell 1 basis point to 1.82 per cent, gold dipped on a weaker greenback.

Figures from around the globe

Across the Atlantic, European markets closed mixed. Paris added 0.3 per cent, Frankfurt added 0.7 per cent amid German producer prices surging to 24.2 per cent over the year in December, while London’s FTSE fell 0.1 per cent dragged down by oil majors, BP lost 1.3 per cent and Shell closed 1.7 per cent lower.

Asian markets closed mixed after moves from the PBoC. Tokyo’s Nikkei gained 1.1 per cent, Hong Kong’s Hang Seng added 3.4 per cent and China’s Shanghai Composite closed 0.1 per cent lower.

ASX snaps 2-day losing streak on gold sparkle

Yesterday, the Australian sharemarket closed 0.1 per cent higher at 7,342 after gold miners won the hearts of investors outperforming in a session fronted with the nation’s December employment figures.

The unemployment rate in December fell to 4.2 per cent, its lowest in 13 years, beating consensus forecasts of 4.5 per cent. It was boosted by 65,000 new jobs added into the economy as the recovery from the Delta lockdowns continued. The figures spurred economists to forecast the RBA to end its quantitative easing program in February, with rate hikes brought forward to August this year.

The local bourse snapped its two-day losing streak in a week where choppy moves have been pronounced. Materials was the best performer accelerating with pride appreciating by 3 per cent, supported by a boost in commodity prices amid news from China.

Shares in Fortescue Metals Group (ASX:FMG) galloped 4.7 per cent at $21.39, while BHP Group (ASX:BHP) added 3.1 per cent at $48.01, while shares in Rio Tinto (ASX:RIO) closed 3.2 per cent higher at $113.41.

Meanwhile, Northern Star (ASX:NST) soared 11.2 per cent at $9.73 riding the momentum of the price of the precious metal, after posting a solid December-quarter report, with better than expected group production, while sales offset higher than expected costs. Kalgoorlie Consolidated Gold Mines delivered higher than expected production which offset softer performances from Pogo and Carosue Dam. The company is also on track to meet its financial year guidance.

The gold miner notched the best performing stock closing 11.2 per cent higher at $9.73. It was followed by shares in Evolution Mining (ASX:EVN), and Chalice Mining (ASX:CHN).

The worst-performing stock in the S&P/ASX 200 was Kelsian Group (ASX:KLS), closing 5.7 per cent lower at $6.82. It was followed by shares in Uniti Group (ASX:UWL), and Webjet (ASX:WEB).

Woodside Petroleum (ASX:NST) jumped 1.5 per cent at $25.81 after posting higher realised prices for its liquefied natural gas in the December quarter, pushing the company's revenue for the period to a record high $4 billion (US$2.91 billion). Revenue beat expectations by 60 per cent, while the realised price of US$16 per million British thermal units for its liquefied natural gas cargoes surpassed expectations by 80 per cent. Production and sales volumes for the quarter fell short of expectations, with buoyant liquefied natural gas prices set to continue into the year.

Santos (ASX:STO) added 0.8 per cent at $7.26 after also posting a strong December-quarter report, as with rival Woodside (ASX:WPL) by a higher than forecast average realised price for its liquefied natural gas cargoes of US$13.64 metric million British thermal unit, up 33 per cent on the September quarter.

Netwealth (ASX:NWL) lost steam from session highs to close 0.2 per cent higher at $16.46. The investment platform provider posted strong net fund inflows of $3.6 billion in the December quarter. Funds under administration grew 9 per cent from the previous quarter to $56.7 billion.

Meanwhile, rival HUB24 (ASX:HUB) galloped 4.1 per cent to $28.55 amid several broker upgrades. Macquarie upgraded its rating to an outperform from neutral after net inflows for the second quarter beat estimates. The broker expects flow momentum will likely continue, and the company is positioned to benefit from a rising interest rate environment. The target price got a boost to $32.40 from $30.60 after the broker upgraded its forecast earnings.

Fertility care group Virtus Health (ASX:VRT) soared 7.7 per cent to $7.20 after revealing the news that they received a takeover offer from London-based investment firm CapVest Partners.

Rockmans and Katies’ owner Mosaic Brands (ASX:MOZ) flagged that first half earnings is set to “exceed broker estimates”, with online sales accounting for 40 per cent of revenue. Shares closed 3.3 per cent higher at 62 cents. Meanwhile, rival the owner of Just Jeans and Portmans Premier Investments (ASX:PMV) fell 3.2 per cent to $27.76.

Elsewhere, Block (ASX:SQ2) made its debut on the ASX following the $39 billion deal struck with Afterpay (ASX:APT) last year. Shares opened at $176.08 and added 55 cents.

Buy now pay later provider Zip Co (ASX:Z1P) posted $167.4 million in revenue for the December quarter, up 58 per cent from the year-earlier period notching a new record high however, came in below expectations. The Australia and New Zealand business performed well at the end of 2021 with user numbers improving and revenue growth assisted from a fee increase. Despite reasonable growth in customer numbers, total transaction value results in the US were lower than expected largely to lower usage per customer. Shares fell 1.4 per cent to $3.61.

SPI futures

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

Ex-dividend

There is one company trading ex-dividend today. Katana Capital (ASX:KAT) is paying 0.5 cents fully franked.

Dividend pay

CD Private Equity Fund I (ASX:CD1)
CD Private Equity Fund II (ASX:CD2)
CD Private Equity Fund III (ASX:CD3)
Charter Hall Social Infrastructure REIT (ASX:CQE)
Vanguard All-world Ex-US Shares Index ETF (ASX:VEU)

Ex-dividend

There is one company trading ex-dividend today. Katana Capital (ASX:KAT) is paying 0.5 cents fully franked.

Commodities

Iron ore is the only bright spot, after rising 2.6 per cent to US$133.65. Its futures are pointing to a rise of 2.8 per cent.

Gold lost $4.00 or 0.2 per cent to US$1,842 an ounce. Silver was up $0.29 or 1.2 per cent to US$24.53 an ounce.

Oil fell $0.06 or 0.1 per cent to US86.90 a barrel.

Currencies

One Australian Dollar at 8:15 AM has strengthened since yesterday (Thursday: 72.17 US cents), buying 72.26 US cents, 53.15 Pence Sterling, 82.49 Yen and 63.90 Euro cents.
 

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