Wall St lifts for 3rd day, Ominous signs for house prices on looming rate hike: ASX to rise

Market Reports

by Melissa Darmawan

Wall St gains for day three to kickstart February. EV push by Ford on plans to fork out US$20b. Breakdown of the RBA rate outcome and economic forecasts, plus what it means for property and share markets. Governor Philip Lowe to talk at 12.30pm AEST today.

The Australian sharemarket is ready to rise after a consolidation on Wall St.

US stocks rise for 3rd day on see-saw performance

US stocks rallied into the close after another choppy session. The major indexes were pushed and pulled by a mix of economic news and profit results. It’s the third day of gains, for the first day in February. The S&P 500 is up five per cent for the past 3 trading days, while today energy and financials took the spotlight.

EV push by Ford on plans to fork out US$20b

Sparking some interest in the EV space, Ford shares rose 1.7 per cent at US$20.66 after the car giant is set to spend up to US$20 billion to shift its focus to electric vehicles. Bloomberg reports that the company has been in talks on a partial spin-off of its EV business with former Apple and Tesla executives, or plans to use this US$20 billion to equip its factories around the world to make EVs.

This move followed our highly anticipated meeting by the RBA yesterday. Let’s spend some time on what happened and what it means.

RBA policy rate outcome

The Reserve Bank kept its benchmark cash rate at 0.1 per cent at its first policy meeting for the year. The central bank confirmed its plans to scrap its quantitative easing program on 10 February, next Thursday, which was widely expected amid the slew of strong economic data.

In a statement, governor Philip Lowe said it was "...likely to be some time yet before aggregate wages growth is at a rate consistent with inflation being sustainably at its target", a key prerequisite for a rise in official rates.

He did acknowledge that inflation sped up faster than the central bank had expected, prompting the RBA to upgrade its economic forecast and set the scene for a potential 2022 rate hike.

The Reserve Bank stepped up its forecast for economic growth to 4.25 per cent this year, with an unemployment rate to fall below four per cent later in the year. 

So we talked about what signal it would mean around the bond buying program, when the US Federal Reserve met last week. It appears that the RBA took a leaf out of the Fed outcome from last week and set market participants expectations on their decision.

Our central bank closed off its statement with these quotes, “ceasing purchases under the bond purchase program does not imply a near-term increase in interest rates”, and “the Board is prepared to be patient as it monitors how the various factors affecting inflation in Australia evolve”. Key word here is “patient”.

The data-dependent central bank spurred economists to forecast when the RBA will expect to hike rates. With consensus sitting in August this year, there are economists forecasting the rate hike in November but the middle ground is August.

What does this RBA outcome mean for the share & property markets?

So what does this all mean for the sharemarket, mortgages and even your back pocket?

If we take the middle ground consensus of an August rate hike, it means that we have six more months inclusive of February of easy monetary in force. This bodes well for equity markets and means that the bull is likely to continue to run its course, though at a slower pace. However, given that we know rate hikes are imminent, volatility is going to stick around, and it’s not going away anytime soon. It feels like we’ve run a marathon and we are only in month two of 2022!

From a property market perspective, this sector tends to be hamstrung to changes in monetary policy. The household debt to income ratio is at record highs as of January reinforced by the eco data yesterday by CoreLogic and the Australian Bureau of Statistics.

However, APRA has been on the front foot, in October last year, they raised the bank’s serviceability buffer to 3.0 per cent from 2.5 per cent to cushion the blow on rising interest rates.

AMP economist Shane Oliver has forecast home prices to peak in the September quarter and fall 5 to 10 per cent in 2023.

Let’s see what other colour unveils when Dr Lowe speaks today.

Number on Wall St

At the closing bell, the Dow Jones gained 0.8 per cent to 35,405, the S&P 500 added 0.7 per cent to 4549 while the Nasdaq jumped 0.8 per cent to 14,346.

Across the S&P 500 sectors, only three losers with utilities lagging by 1.3 per cent, then real estate and consumer staples. Information tech added the least at 0.2 per cent, while energy was the best performer, up 3.6 per cent followed by materials and financials.

The yield on the 10-year treasury note was steady at 1.80 per cent, gold rose on a weaker greenback.

Figures around the globe

Across the Atlantic, European markets closed higher. Paris added 1.4 per cent, Frankfurt gained almost 1 per cent and London’s FTSE also added almost 1 per cent.

On the London Stock Exchange, Rio gained 3.2 per cent, BP added 2.7 per cent and Shell advanced 3.2 per cent.

In Asian markets, Tokyo’s Nikkei added 0.3 per cent on strong manufacturing data in January and lower than expected jobless rate in December.

Hong Kong’s Hang Seng and China’s Shanghai Composite were closed for Lunar New Year.

ASX pops after RBA outcome

Yesterday, the Australian sharemarket rallied to the close, up 0.5 per cent at 7,006. All sectors lifting higher with miners as the outlier.

BHP Group (ASX:BHP) was the worst performer on the ASX 200, closing 3.1 per cent lower at $44.93. It was followed by shares in Brambles (ASX:BXB) and Rio Tinto (ASX:RIO), while Appen (ASX:APX) was the best, closing 7.9 per cent higher at $10.38. It was followed by shares in Pendal Group (ASX:PDL) and Imugene (ASX:IMU).

Block (ASX:SQ2) soared 6.1 per cent to $171.20 after the US payments giant drew out a plan on how Afterpay's buy now, pay later product would work with its Square app used by merchants.

Boral (ASX:BLD) rose 5.8 per cent to $6.21 after it unveiled a $3 billion capital return to shareholders, equivalent to $2.72 per share, following the sale of its North American building products business, its 50 per cent stake in Meridian Brick, and its Australian building products operation. The payout is slated to be made on 7 February and it is set to be structured at a $2.65 per share capital reduction, with an unfranked dividend of 7.0 cents per share. The ATO has confirmed that no part of the capital reduction would be treated as a dividend for taxation purposes.

Mineral Resources (ASX:MIN) bucked the materials sector fall, rising 3.6 per cent to $57.40 after the iron ore and lithium producer appointed Santos chief executive officer Kevin Gallagher to its board as a non-executive director.

Macquarie (ASX:MQG) led the gains in the banks by 2.7 per cent at $188.62, National Australia Bank (ASX:NAB) added 1.9 per cent to $27.64, Westpac Banking Corporation (ASX:WBC) rose 0.5 per cent to $20.40 and Commonwealth Bank of Australia (ASX:CBA) added 0.2 per cent at $93.93, while ANZ Bank (ASX:ANZ) closed flat at $26.53.

Energy stocks were mixed with Woodside Petroleum (ASX:WPL) closing down by a hairline of 0.04 per cent at $25.06, Beach Energy (ASX:BPT) fell 0.7 per cent at $1.47, and Santos (ASX:STO) closed 0.6 per cent higher at $7.18.

Gold stocks rose led by Newcrest Mining (ASX:NCM) up 3.5 per cent to $22.30, Northern Star (ASX:NST) added 2.2 per cent at $8.47, and Evolution Mining (ASX:EVN) closed 2 per cent higher at $3.57. 

SPI futures

Taking all of this into the equation, the SPI futures are pointing to 0.8 per cent rise.

Local economic news

Today the RBA Governor Philip Lowe is slated to deliver a speech at the National Press Club in Sydney at 12.30pm AEDT.

Stock watch
 
Our weekly stock to watch this week is Aurizon Holdings (ASX:AZJ). David Thang, Senior Private Wealth Adviser at Sequoia (ASX:SEQ) rates Aurizon Holdings Limited as a buy. From a technical angle, Aurizon Holdings Limited is bullish for a number of reasons.

Since printing an all-time high of $6.11 in September 2019, it would seem that buyers had decided to leave the building. The share price has fallen 45.91 per cent to print a recent low of $3.30 in December 2021.

Positively, a zone of support was respected between the $3.30 and $3.40 region as shown by the orange rectangle. This is made up of the 78.6 per cent Fibonacci retracement as shown by the green horizontal line and previous support witnessed in February 2016 and March 2020.

Though, it is still early days, the bullish engulfing candle formed at the end of trading in December 2021 signals a weakening of the long-term downtrend.

Should buyers remain in control over the months ahead, then a broader advance towards a band of resistance sighted between $4.37 and $4.40 as highlighted by the light-blue rectangle could be on the horizon.

Shares in Aurizon Holdings (ASX:AZJ) closed 1.4 per cent higher at $3.57.  



Ex-dividend

There are two companies trading ex-dividend today.

Djerriwarrh (ASX:DJW) is trading 6.75 cents fully franked
Nickel Mines (ASX:NIC) is trading 2 cents unfranked

Dividend-pay

There is one company set to pay eligible shareholders today, Tower (ASX:TWR).

Trading updates

Amcor (ASX:AMC)
Ava Risk Group (ASX:AVA)
BWP Trust (ASX:BWP)
Dotz Nano (ASX:DTZ)
Pinnacle Investment Management Group (ASX:PNI)

Commodities

Iron ore was unchanged at US$141.75 a tonne due to the Chinese New Year holiday.

Gold has gained $5.20 or 0.3 per cent to US$1,802 an ounce. Silver is up $0.24 or 1.1 per cent to US$22.64 an ounce.

Ahead of the OPEC+ meeting, oil has added $0.25 or 0.3 per cent to US$88.40 a barrel.

Currencies

One Australian Dollar at 8:20 AM has strengthened since Monday (70.68 US cents), buying 71.31 US cents, 52.71 Pence Sterling, 81.77 Yen and 63.25 Euro cents.

Disclaimer

The views, opinions or recommendations of the commentators in this presentation are solely those of the author and do not in any way reflect the views, opinions, recommendations, of Sequoia Financial Group Limited ABN 90 091 744 884 and its related bodies corporate (“SEQ”). SEQ makes no representation or warranty with respect to the accuracy, completeness or currency of the content. Commentators may hold positions in stocks mentioned. The content is for educational purposes only and does not constitute financial advice. Independent advice should be obtained from an Australian Financial Services Licensee before making investment decisions. To the extent permitted by law, SEQ excludes all liability for any loss or damage arising in any way including by way of negligence.

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