Whipsaw action pushes Wall St lower, Nasdaq leads decline: ASX to rise

Market Reports

by Melissa Darmawan

Whipsaw action marks another volatile session Wall St. Investors continued to mull on the comments from Fed Chair Jerome Powell amid US GDP coming in better than expected. ASX hits correction territory on Thursday.

The Australian sharemarket is set to rebound after another session of wild swings.

Whipsaw action erases early gains to close lower

US stocks closed lower after they started solidly in the green, as volatility continued to underpin the performance for 2022.

Now, for most of the morning, the major indexes were higher, then two hours before the closing bell, the gains fizzled away. So a big reversal, a story we have been seeing not for this week, but throughout January as traders take risk off the table. They are piling into bonds, dumping gold and stocks as we see wild market action continue.

The Dow was up around 600 points and then fell by seven points and around 7 per cent off its record high. We are in correction territory for the Nasdaq and the S&P 500.

Investors mulled on the comments from Fed Chair Jerome Powell yesterday about hiking interest rates throughout the year, as well as digesting new economic data which was quite positive. Even though the interest rate remained unchanged, the Fed is paving the way to raise rates for the first time of this pandemic putting markets on edge.

US GDP grows faster than expected 4Q 2021

Okay, so let’s talk about the growth of the US economy. It grew 6.9 per cent on an annualized basis in the last quarter of 2021, coming in better than economists estimated, and well above the previous quarter as per the Bureau of Economic Analysis.

The growth in the third quarter was squeezed due to the Delta variant, but as we saw in the holiday period, consumer and business spending helped fuel growth despite the Omicron variant going rampant. There was a rotation from Americans buying durable goods to spending it on services, a trend if it continues, will help ease supply chain constraints.

For a full 2021, the economy grew 5.7 per cent, the strongest annualized pace since 1984 supported by a combination of monetary stimulus, fiscal stimulus in play that has been a help to the economy amid persistent supply chain constraints and inflationary pressures.

Jobless claims falls as Omicron impact appears to wane

We also received jobless claims this morning which were actually lower for the first time in a month, but still elevated at 260,000 for the week ending January 22, and came in below expectations. The figure I like to watch is the insured unemployment rate, so that is the number of people receiving unemployment benefits as a percentage of the labour force. That came in at 1.2 per cent for the week, seasonally adjusted unchanged from the previous week's unrevised rate. Though on a four week moving average, it's sitting at the lowest level since 1973 as per the Bureau of Statistics. The numbers this week is a sign that the impact of the Omicron variant on the labour market is starting to abate, and that virus didn't cause a tumble in the jobs market. The indicators are pointing in the right direction and the job market looks healthy, something the Fed looks at closely.

Tesla posts record profit on soaring EV car delivery

Alright, let’s take a look at some stocks, Tesla after the EV giant beat estimates and reported a record profit amid this chip shortage, however, the company did say it's not going to produce any new models this year. Shares sank 11.5 per cent at US$829.10. The company said that the supply chain disruptions are limiting factory capacity, saying that it is likely to continue throughout this year. It shows that the pressure on the supply chain is weighed down by the shortage in labour.

Rising costs weigh on McDonald’s profits

Elsewhere, shares in McDonald's closed 0.4 per cent lower at US$247.74 after missing estimates as rising costs weigh. Digital sales surpassed US$18 billion for the quarter as the fast food giant raised prices to offset rising costs. The fast food giant expects inflation for commodities and labor to continue into this year. A tune that we are not unfamiliar with given that many companies are paying more to attract and even retain talent.

The dissipated rally has reminded us that this whipsaw action is not going to be here for some time. Apple shares lost steam ahead of the earnings results, so we will see how the Nasdaq will cope in the next session.

Between now and the March Fed meeting, “choppiness” could be our “consistency” until we receive the Fed cuts its bond buying program and calls its first interest rate lift-off for real.

Numbers on Wall St

At the closing bell, the Dow Jones closed down by a hairline, 0.02 per cent to 34,161, the S&P 500 fell 0.5 per cent to 4,327 while the Nasdaq dropped 1.4 per cent to 13,353.

Across the S&P 500 sectors, a mixed finish. Consumer discretionary led the losses by 2.3 per cent, followed by real estate, and industrials. Financials and technology were in the red also. Energy led the gains by 1.3 per cent, followed by utilities and consumer staples.

The yield on the 10-year treasury note dipped 4 basis points, gold fell on a firmer greenback.

Figures around the globe

Across the Atlantic, European markets closed higher. Paris added 0.6 per cent, Frankfurt climbed 0.4 per cent and London’s FTSE gained 1.1 per cent.

On the London Stock Exchange, BHP gained 1.9 per cent, Rio added 2.5 per cent, BP fell 0.4 per cent and Shell rose 0.5 per cent.

Asian markets closed lower. Tokyo’s Nikkei fell 3.1 per cent, Hong Kong’s Hang Seng lost almost 2 per cent and China’s Shanghai Composite closed 1.8 per cent lower.

ASX hits correction territory on looming rate hikes

Yesterday, the Australian sharemarket closed 1.8 per cent lower at 6,838.30 falling for its fourth straight day, after closing in correction territory. The early rally was short-lived, led by a deep sell-off in technology shares while energy and utility stocks bucked the trend.

Volatility remained on the cards as market participants cement the reality of the idea of a lift-off in interest rates on high-flying growth stocks with valuations based on future profit growth.

The highly anticipated outcome from the Fed followed from news back home that Australia’s trimmed annual inflation figures climbed to seven year highs, with economists forecasting interest rate hikes to be brought forward from 2024, and the end of the bond purchase program in the first board meeting of 2022 next Tuesday.

Across the Tasman, traders also digested New Zealand’s annual inflation rate jump to 5.9 per cent, its highest in 32 years as pressure looms on the NZ Reserve Bank to continue hiking interest rates.

As traders mull on the imminent withdrawal of the massive monetary stimulus that has kept the financial system afloat in cash since the pandemic hit, the early rally was short-lived as the fall deepened for the technical definition of a “correction” to emerge. The record high of 7,628 in August last year was countered by a 10.4 per cent close from this peak.

Meanwhile, BHP (ASX:BHP) jumped 1.4 per cent higher at $45.67 after the UK court gave its tick of approval for the miner’s plan to unify its listing on the ASX. Contributing to the high volume day, fund managers, ETF providers contributed to the turnover ahead of the last day of trade for its Plc stock on London’s FTSE. Shares in Rio Tinto (ASX:RIO) popped 2.1 per cent at $109.29, while Fortescue Metals Group (ASX:FMG) closed 0.1 per cent lower at $19.48.

The energy sector propped up the market supported by the price of crude as geopolitical concerns over Ukraine induced fears of tight supply. This helped Beach Energy (ASX:BPT) be the best-performing stock in the ASX 200 closing 8.8 per cent higher at $1.42. It was followed by shares in Platinum Asset Management (ASX:PTM) and AusNet Services (ASX:AST).

The worst-performing stock in the S&P/ASX 200 was Evolution Mining (ASX:EVN) , closing 11.3 per cent lower at $3.46. It was followed by shares in Silver Lake Resources (ASX:SLR) and Codan (ASX:CDA).

Elsewhere, banks broadly fell with ANZ Banking Group (ASX:ANZ) adding 1.1 per cent at $27.07 while its peers tanked. Macquarie Group (ASX:MQG) dived 3.1 per cent at $179.80, Commonwealth Bank of Australia (ASX:CBA) fell 1.8 per cent at $93.78, National Australia Bank (ASX:NAB) lost 0.4 per cent at $27.25 while Westpac Banking Corporation (ASX:WBC) closed 0.3 per cent lower at $20.16.

Gold miners fell also as the price of the precious metal declined with Evolution Mining (ASX:EVN) dived 11.3 per cent at $3.46, Northern Star (ASX:NST) backpedalled 8.2 per cent at $8.52, while Newcrest Mining (ASX:NCM) dropped 5.9 per cent at $22.96.

SPI futures

Taking all of this into the equation, the SPI futures are pointing to a rise of 1.5 per cent.

Local economic news

The Australian Bureau of Statistics is set to release the producer price indexes for the December quarter, so these are the business inflation numbers. On an annualized basis, it's expected to come in at 3.1 per cent after it rose to 2.9 per cent in the September quarter, the highest in 8 years and the strongest annual pace in a decade.

Ex-dividend

There are four companies trading ex-dividend today

Gryphon Capital Income Trust (ASX:GCI) is paying 0.77 cents unfranked
Perpetual Credit Income Trust (ASX:PCI) is paying 0.3526 cents unfranked
Qualitas Real Estate Income Fund (ASX:QRI) is paying 0.6318 cents unfranked
360 Capital Enhanced Income Fund (ASX:TCF) is paying 3 cents unfranked

Dividend-pay

There are six companies set to pay eligible shareholders today

Australian Unity Office Fund (ASX:AOF)
Clime Capital (ASX:CAM)
Centuria Industrial Reit (ASX:CIP)
Centuria Office REIT (ASX:COF)
Metcash (ASX:MTS)
RAM Essential Services Property Fund (ASX:REP)

Quarterly updates

There are five companies set to release quarterly updates.

Champion Iron (ASX:CIA)
Megaport (ASX:MP1)
Newcrest Mining (ASX:NCM)
Pointsbet Holdings (ASX:PBH)
Resmed (ASX:RMD)

IPOs

There are two companies set to make their debut on the ASX. Keep an eye out for mining companies Belararox (ASX:BRX) and Firebrick Pharma (ASX:FRE).

Commodities

Iron ore has gained 0.5 per cent to US$138.75. Its futures are pointing to a rise of 2.6 per cent.

Gold has lost $36 or almost 2 per cent to US$1796 an ounce. Silver is down $1.07 or 4.5 per cent to US$22.74 an ounce.

Oil has lost $0.34 or 0.4 per cent to US$87.01 a barrel after it hit seven year highs, appears to be some exhaustion there amid the growing tension in Ukraine, and ahead of the OPEC+ meeting next week.

Currencies

One Australian Dollar at 8:20 AM has weakened since Thursday (71.13 US cents), buying 70.32 US cents, 52.56 Pence Sterling, 81.10 Yen and 63.09 Euro cents.

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