Wall St gains on tech surge after turbulent Jan, RBA meets today: ASX to rise


Broker upgrades boost Tesla, Netflix and Spotify on Wall St. S&P 500 marked its worst month since 2009 while the Dow recorded its worst month since March 2020. RBA set to meet today on the backdrop of a slew of economic data.

The Australian sharemarket is ready to rally after Wall St saw a glimmer of green.

US stocks rally on final day of turbulent month

US stocks surged to session highs closing the final day higher after a turbulent month. The late afternoon rally trimmed losses but not enough, the S&P 500 marking its worst month since 2009, with the Dow recording its worst month since March 2020.

January’s performance has been underpinned by volatility ignited by concerns on the path forward for interest rate hikes by the Fed. Buy-the-dip was then offset by sell-the-rally with unprecedented swings.

The minutes from the last FOMC meeting triggered off the bond market with the equity market waking up to the risk that bonds initially saw. In the middle of December last year, we came away from the Federal Reserve meeting feeling it was somewhat dovish. Then the minutes were released and it was like a wakeup call. From 2022, it's been a game of predicting when they’ll start to trim their balance sheet, how many rate hikes could we expect, with the number of interest rate lift-off increasing from two hikes to now five. Not to mention, by how much.

We’ve seen the rotation from growth stocks to value names with money moving from the stronger hand to the weaker hand, for that trajectory to then reverse and jump around. We saw the Dow move in a 1,000 plus point range, the S&P 500 swung in a two and a quarter percentage point range every single day last week as a jitters mount and what it means for stocks with valuations based on future profit growth.

Sony eyes Bungie for $5.1b spree as takeovers continue

The video gaming space is getting a bit of attention after Sony unveiled its plans to buy video game developer Bungie valued at $5.1 billion (US$3.6 billion). The deal comes after Microsoft announced plans to buy Activision Blizzard for $99 billion (US$70 billion). Shares in Sony closed 4.5 per cent higher at US$111.66.

Bullish calls for Tesla, Spotify, & Netflix

Tesla received a bullish upgrade from Credit Suisse with shares in the EV car maker closed 10.7 per cent higher at US$936.72. Analysts cited the recent dip in the share price as an opportunity for long term investors. The broker also added that the stock has an attractive growth story and gave it a price target of US$1,025. Spotify and Netflix both received broker upgrades with shares soaring amid this.

Despite the optimistic finish, vulnerability on Wall St remains as company earnings continue until we receive our next clear signal on the interest rate path forward.

Numbers on Wall St

At the closing bell, the Dow Jones gained 1.2 per cent to 35,132, the S&P 500 advanced 1.9 per cent to 4515 while the Nasdaq jumped 3.4 per cent to 14,240.

Across the S&P 500 sectors, every group advanced. Consumer discretionary was the best performer by 3.8 per cent, thanks to Tesla, followed by information technology, up 2.7 per cent, then communication services. Energy added the least at 0.4 per cent.

The yield on the 10-year treasury note was near flat at 1.78 per cent, gold rose on a weaker greenback. It appears the US dollar has eased after a rebound in the gold price.

Figures around the globe

Across the Atlantic, European markets closed mixed ahead of ECB and Bank of England policy meetings on Thursday. Paris added 0.5 per cent, Frankfurt gained almost 1 per cent and London’s FTSE closed flat.

On the London Stock Exchange, Rio dropped 3.7 per cent and BP fell 0.7 per cent. Shell Plc, formerly Royal Dutch Shell fell 0.5 per cent after it began trading with a unified share structure under the code SHEL. BHP will no longer be listed after shareholders voted to make the ASX its primary home.

Asian markets closed higher amid China’s manufacturing sector growing at a slower pace in January on increased Covid-19 restrictions. Tokyo’s Nikkei added 1.1 per cent, Hong Kong’s Hang Seng gained 1.1 per cent and China’s Shanghai Composite was closed for Lunar New Year.

ASX falls after worst January in 14-years

Yesterday, the Australian sharemarket closed 0.2 per cent lower at 6,972 after closing off its worst first month in 14 years. The local bourse had a mixed finish dragged down by banks while technology stocks ascended.

Ansell (ASX:ANN) downgraded its financial year 2022 earnings guidance by 26 per cent to 29 per cent, citing soft demand and higher freight and labour costs in the first half partly offset by price rises. Unaudited EBIT is down about 25 per cent from the first half to the second half of last calendar year.

They were the worst-performer closing 14.3 per cent lower at $26.76. It was followed by shares in NIB Holdings (ASX:NHF) and PointsBet Holdings (ASX:PBH).

The best-performing stock in the ASX 200 was Block (ASX:SQ2), closing 8.1 per cent higher at $161.41. It was followed by shares in ARB Corporation (ASX:ARB) after the 4WD accessories retailer guided to a first-half financial year 2022 pre-tax profit ahead of analysts forecast, followed by Zip Co (ASX:Z1P),

Meanwhile, the banks had a hard time with ANZ Bank (ASX:ANZ) dived 3.4 per cent to $26.53 after the bank flagged a potential new capital notes issue, National Australia Bank (ASX:NAB) dropped 1.9 per cent to $27.13, and Westpac closed 1.6 per cent lower to $20.30.

Commonwealth Bank (ASX:CBA) fell 2 per cent to $93.74 after the nation’s largest bank reported a 32-basis point increase in its common equity tier-one capital ratio following completion of the sale of a 55 per cent stake in its Colonial First State division. The bank also cited insurance losses of $85 million from bad weather events in October, and is set to reclassify some items in its financial statements in their next half year results next week.

Meanwhile, National Australia Bank lost 1.9% at $27.13 amid a downgrade in its target price from a broker, while Macquarie (ASX:MQG) closed 1.8 per cent lower at $183.62.

SPI futures

Turning to the SPI futures, taking all of this into consideration, it’s pointing to a 0.6 per cent gain.

Local economic news

Today the Reserve Bank is set to meet for the first time this year on the backdrop of inflation at 7.5 year highs, and jobless rate at 13 year lows. Economists expect the RBA to maintain the cash rate at a record low of 0.10 per cent, wind up its bond buying program after 15 months and revise its inflation forecast upward.

To recap on the data points, the unemployment rate dropped to 4.2 per cent in December 2021, while inflation rose 2.6 per cent for the December quarter. These figures are enough to warrant a rate hike, however, Governor Philip Lowe said that he wants to see unemployment at 4.0 per cent and inflation sustainably around 2.5 per cent before lift-off. Also another variable that is watched is wages growth. Currently it is sitting at 2.2 per cent. Dr Lowe would like to see it rise to 3 per cent, otherwise, the rise in inflation is transitory.

On several occasions, the central bank has repeatedly said they will not raise rates until 2024, but with unemployment falling and inflation rising more quickly than the bank expected, the RBA is in a position to bring forward its forecast.

There are a few trains of thought here - what are economists forecasting, what is the market pricing in, and what is the central bank thinking. The market is pricing in a rate hike for July, the economists are forecasting a rate hike in August, and the RBA has us on tenterhooks between now and this afternoon, tomorrow, and Friday. 

Meanwhile, like with the start of a new month, the economic data is on tap, especially today.

The CoreLogic home value index for January is expected to rise 0.9 per cent after posting a 21 per cent rise in 2021, the fastest growth since June 1989 as per Westpac economists. They have also cautioned that January housing data should be treated with extra caution as many markets were essentially closed. The litmus test will come from mid this month once the Sydney and Melbourne auction markets fully reopen.

Demand for home loans in December is also due from the Australian Bureau of Statistics with economists' forecasts a massive range from a 0.8 per cent decline to a 8 per cent rise.

And finally, retail trade figures for December are expected to fall two per cent following two extremely strong months after lockdown restrictions eased.

Ex-dividend

There is one company trading ex-dividend today

NB Global Corporate Income Trust (ASX:NBI) is paying 0.8049 cents unfranked

Trading updates

Ava Risk (ASX:AVA)
Credit Corp (ASX:CCP)
Centuria Industrial REIT (ASX:CIP)
AXP Energy (ASX:AXP)
Cobre (ASX:CBE)

Commodities

Iron ore has lost 4.2 per cent to US$141.75. Its futures are closed due to the Lunar New Year celebration in China.

Gold has gained $13 or 0.7 per cent to US$1799.60 an ounce. Silver is up $0.19 or 0.9 per cent to US$22.49 an ounce.

Oil has added $1.52 or 1.8 per cent to US$88.34 a barrel.

Currencies

One Australian Dollar at 8:20 AM has strengthened since Monday (69.92 US cents), buying 70.68 US cents, 52.58 Pence Sterling, 81.37 Yen and 62.92 Euro cents.

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