Tech tantrum leads Wall St crash, BHP's next step, Aristocrat's rival withdraws bid: ASX to fall


Global indexes swum in a deep red sea as technology stocks sink. Market participants changed tone to a broad sell-down from a rotation between growth & value stocks. A breakdown of what BHP’s move back home means & what to expect. Playtech rival pulls pin on takeover bid leaving Aristocrat as the only suitor. Iron ore price rallies. Four-day trading week, Wednesday is Australia Day.

The Australian sharemarket is set to fall after a tumultuous finish on Wall St.

Nasdaq continues to fall as US stocks slump

US shares slumped on Friday, closing lower for a third straight week as traders’ sentiment was dealt another blow. 2022 has been far from smooth, with favorite positions going awry. The major indexes were deep in negative territory as the rotation from growth to value stocks shifted to a broad sell-down.

The depths of this major pullback erupted after expectations were changed by the Fed. The central bank swung to a hawkish tone and markets reacted. Now, traders are resetting and anchoring to a year of interest rate hikes to suppress hot inflation.

Stay at home stocks sink, tech index vulnerable

The tumble was compounded by a bed of disappointing earnings as companies underestimated rising labour costs, ambitious profit forecasts amid growing geopolitical risks. Stay at home stocks sunk with shares in Netflix cratering 22 per cent on an outlook of slower subscriber growth with Disney also sinking on selling spill-over by almost 7 per cent. The Nasdaq could come under further pressure if earnings from the likes of Apple and Microsoft disappoint this week.

On this backdrop, investors also digested the mixed outlook on global monetary policy. The Federal Reserve on Wednesday is expected to tighten, last week the European central bank stood their ground, while the People’s Bank of China loosened up.

BHP is coming home as dividend king prepares to deliver

Back home, over 97 per cent of BHP shareholders voted to scrap its dual listing after its $28 billion merger with Billiton in 2001. This means that the company will solely be on the ASX and say goodbye to the UK stock exchange.

The move is set to make company operations simpler and efficient, help grow shareholder value, and make it easier to distribute franking credits with a single global share price.

The process of merging the parent companies will be through the Aussie-listed company buying the London-listed company on a one-for-one share issue basis. Therefore, there will only be one class of shares rather than two, which is called BHP group limited shares. These shares will be available overseas, such as in New York, Johannesburg, London through a range of arrangements under only this class of shares, and of course, here in Australia.

Now, for this to go ahead, the UK court needs to give its tick of approval which is scheduled on the 25 January. If they give the green light, the collapse of the dual listing will occur by the end of this month.

What this means for the ASX is a few things, BHP will increase its weighting from 5.8 per cent to 9.6 per cent, and will be the largest weighted stock surpassing Commonwealth Bank (ASX:CBA) and CSL (ASX:CSL).

Though, there will also be added volatility on the ASX as fund managers/ETF providers will need to place trades to accommodate the change to the single class of shares that I mentioned earlier.

Meanwhile, we can’t forget the deal BHP inked with Woodside Petroleum (ASX:WPL) last year. The offer was to merge BHP’s oil and gas portfolio with Woodside to be the largest energy company on the ASX upon completion. The transaction is set to be complete for the second quarter of this year, subject to several approvals with the business made up of a 52/48 split between Woodside and BHP shareholders, respectively. Woodside will retain its listing on the ASX, and are looking at a secondary listing.

Inflation print ahead after jobless rate falls to 13-yr low

Looking ahead, it’s our turn to receive inflation figures on Wednesday and Friday. This follows the news that our unemployment rate in December fell to its lowest level in 13 years to 4.2 per cent. So it poses a very interesting conversation for the RBA’s next meeting in February when coupled with the inflation figures this week.

It’s a busy week ahead, volatility continues to underpin the markets, so fasten your seatbelts, let’s go for the ride!

Figures around the globe

At the closing bell, the Dow Jones lost 1.3 per cent to 34,265, the S&P 500 fell 1.9 per cent to 4,398 while the Nasdaq closed 2.7 per cent lower at 13,769. Over the week the Dow fell 4.6 per cent, the S&P 500 sank 5.7 per cent, and the Nasdaq dived 7.6 per cent. It was the worst week for the Dow since October 2020, and biggest week of falls for S&P 500 and Nasdaq since March 2020. 

Across the S&P 500 sectors, consumer staples eked out a gain. The rest closed in the red with communication services as the worst performer weighed down by Netflix, nose dived almost 4 per cent, followed by consumer discretionary, materials, and financials. Real estate just didn’t manage to keep its gains, backtracked by 0.04 per cent.

The yield on the 10-year treasury note fell 6 basis points to 1.77 per cent, gold fell on a firmer greenback.

Across the Atlantic, European markets closed lower. Paris lost 1.8 per cent, Frankfurt lost 1.9 per cent and London’s FTSE fell 1.2 per cent.

On the London Stock Exchange, BHP fell 3.2 per cent, Rio lost 2.2 per cent, BP lost 1.8 per cent and Shell closed 1.7 per cent lower.

Asian markets closed mixed. Tokyo’s Nikkei fell 0.9 per cent, Hong Kong’s Hang Seng added 0.1 per cent and China’s Shanghai Composite closed 0.9 per cent lower.

On Friday, the Australian sharemarket closed 2.3 per cent lower at 7,176. Over the week it closed 3 per cent or 218 points lower.

SPI futures

Taking all of this into the equation, the SPI futures are pointing to a 0.7 per cent fall.

Local economic news

Today the Markit flash purchasing managers index for January is due. This will give us an insight to the activity growth into the factory and services space.

Company news

The rival bidder facing Aristocrat Leisure’s (ASX:ALL) bid has dropped the pin on the deal to buy British gambling software group Playtech. The offer by JKO Play was withdrawn which means that Aristocrat is the only player on the table to proceed with a takeover of Playtech. The offer has been recommended by Playtech’s board with shareholders set to vote at the start of next month. Shares closed 3.4 per cent lower at $41.50 on Friday.

IPOs

There is one company set to make its debut on the ASX, keep an eye out for Virdis Mining and Minerals (ASX:VNM).

Ex-dividends

There are two companies going ex-dividend today. Mirrabooka Investments (ASX:MIR) is paying 3.5 cents fully franked and Thorn Group (ASX:TGA) is paying 7 cents fully franked.

Commodities

Iron ore is 2.8 per cent higher at US$137.40 a ton. Its futures are pointing to a rise of 1.3 per cent.

Gold fell $10.80 or 0.6 per cent to US$1,834 an ounce. Silver was down $0.40 or 1.6 per cent to US$24.32 an ounce.

Oil fell $0.41 or 0.5 per cent to US$85.14 a barrel.

Currencies

One Australian Dollar at 8:15 AM has weakened since Friday buying 71.78 US cents (Friday: US 72.76 cents), 52.98 Pence Sterling, 81.59 Yen and 63.29 Euro cents.
 

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