S&P 500 rises on Amazon earnings, ANZ mulls on increasing share buyback: ASX to dip

Market Reports

by Melissa Darmawan

The S&P 500 and Nasdaq Composite rose on Friday, pushing major stock indexes to weekly gains.  It’s a big week ahead with Asia reopening, inflation, consumer and business sentiment reports are due, and major players report company earnings.

The Australian sharemarket is set to fall after profit results continued.

S&P 500 rises on Amazon earnings

US stocks closed mixed on Friday as Wall St turned to earnings after whipsaw January. Investors hoped that tech titans would provide a sign of relief at the start of the week, initially it did.

Google parent Alphabet crushed ad search revenue, thanks to the “shift to eCommerce” and “strength of the overall economy”, said chief financial officer Ruth Poorat, but then Meta unveiled its results which erupted a meltdown, sending its shares cratering over 26 per cent on stalled Facebook user growth. Mark Zuckerberg blamed it on growing competition, as “apps like TikTok are growing very quickly”.

After Meta disrupted the sanguine moment, Amazon capped off the week by posting strong cloud earnings and hiked the price for Amazon Prime, sending its stock higher.

Wild swings happens on the ASX too

If you think that 20 per cent swings only happen on Wall St, let me remind you that companies do not need to be a billion dollar tech giant to see that percentage move. Last month, Adairs (ASX:ADH) sank over 20 per cent, after the bed and homewares company flagged to shareholders that store closures are likely to see a 50 per cent dent for its half year, before tax and interest earnings from last year’s $60 million to $33 million.

January jobs report stuns investors

If this dramatic performance isn’t enough for you, the US job numbers stunned market participants with 467,000 new jobs added versus an expectation of a negative number, and December figures were revised higher adding another 311,000 jobs. The surprisingly strong nonfarm payroll report skyrocketed treasury yields and the greenback, adding more fuel to the inflation story.

Team hawk or dove?

Then back home, the dovish Reserve Bank of Australia reassured market participants that they were a “patient” central bank, while the Bank of England was on the other side with another rate hike, and on the other side was the European Central Bank showing hints of hawkishness, entertaining which camp they belong to amid Eurozone’s inflation print above five per cent.

Wait, there’s more! We can’t discount the mounting tension between Russia and Ukraine and the start of the Beijing winter Olympics, with Russia continuing to build up its troops around the Ukraine border.

Now with quantitative tightening on the horizon, data-dependent central banks have said that it's all about being “nimble”, and “patient”.

So how do markets respond to surprises?

So how do markets respond to surprises and unease? They quickly assume the worst, and they get volatile. They dance between the words, put down bets, and major indexes see-saw. It has been a rough condition for risk assets in this wild week amid the 10-year treasury yield jumping to its highest level since December 2019.

The big tech name earnings are behind us, while we still have other companies on tap. Nevertheless, till investors receive the formal announcement around interest rate hikes as central banks monitor supply chain issues and the state of the economy, we are up for more choppiness as investors determine if they need to dip-buy or sell-the-rally.

Numbers on Wall St

At the closing bell, the Dow Jones lost 0.1 per cent to 35,090, the S&P 500 added 0.5 per cent to 4501 while the Nasdaq gained 1.6 per cent to 14,098.

Across the S&P 500 sectors, it was a mixed market. Consumer discretionary was the best performer, up 3.7 per cent, lifted higher by Tesla, followed by financials, up 1.7 per cent supported by that rising treasury yield, then energy, up 1.6 per cent, and information technology. Materials was the worst performer, down 1.7 per cent, followed by real estate and utilities.

The yield on the 10-year treasury note rose 8 basis points to 1.91 per cent, gold rose on a stronger greenback.

Figures around the globe

Across the Atlantic, European markets closed lower. Paris lost 0.8 per cent, Frankfurt fell 1.8 per cent and London’s FTSE closed 0.2 per cent lower.

On the London Stock Exchange, Rio fell 0.1 per cent, BP added 3.4 per cent and Shell gained 3.9 per cent.

In Asian markets, Tokyo’s Nikkei added 0.7 per cent, Hong Kong’s Hang Seng gained 3.2 per cent and China’s Shanghai Composite was closed.

ASX snaps 3-week losing streak

On Friday, the Australian sharemarket closed 0.6 per cent higher at 7,120, snapping a three week fall. Over the week, the XJO rose 1.9 per cent. The local bourse was helped by a broad-based rally and a flat close from communication services.

When it comes to the best performer, Liontown Resources (ASX:LTR) closed 6.2 per cent higher at $1.46 after the battery metals explorer raised $12.9 million through its share purchase plan. This comes after institutional raising of $450 million. It was followed by shares in News Corporation (ASX:NWS) and PointsBet Holdings (ASX:PBH).

In the loser’s circle was Seek (ASX:SEK) amid several broker downgrades, closing 3.8 per cent lower at $28.31. UBS notes that they see upside to the company’s earnings guidance, though to reflect changes to valuation multiples, the target price falls to $32 from $36 and the neutral rating is unchanged. It was followed by shares in ARB Corporation (ASX:ARB) and Adbri (ASX:ABC).

In company news, the parent of The Australian and The Daily Telegraph, News Corp (ASX:NWS) posted its highest ever quarterly revenue of $2.7 billion, a 13 per cent pop compared to the same time a year ago. Shares soared 5.7 per cent at $33.38. Newscorp also co-parents Foxtel with Telstra (ASX:TLS), with the pay tv company celebrating a 19 per cent rise to over 3.9 million paid subscribers primarily due to the Binge and Kayo streaming services. There are now over one million Kayo subscribers, compared to 648,000 in the prior year. However, News Corp said revenues in the subscription video services business decreased 3 per cent at $13 million, with rises at the Kayo and Binge businesses offsetting the decline in residential broadcast subscribers.

Meanwhile, News Corp owned REA Group (ASX:REA) declared a record dividend for the first half of the financial year, after a surge in revenue and profits. Revenue came in 37 per cent higher, EBITDA jumped 27 per cent, while after tax profit grew 31 per cent compared to the same time a year ago. The nation’s largest property listing provider unveiled an interim record dividend of 75 cents per share fully franked, up 27 per cent from the prior year. Though investors focused on its increased cost guidance for the full year, rather the earnings that came in ahead of expectations. Shares closed 0.4 per cent lower to $143.45.

Boral (ASX:BLD) tanked 41.8 per cent lower to $3.80 as the company traded without the rights to its recently announced $3 billion capital return. This was made up of a $2.65 per share capital reduction totalling $2.9 billion, and a 7 cents per share unfranked dividend totalling $77 million.

Pointsbet (ASX:PBH) jumped 5.1 per cent to $5.14 after regulators in Canada's Ontario gave its tick of approval as a licensed sportsbook in Ontario with the deal slated to be effective from April 4 this year.

Westpac (ASX:WBC) rose 2.1 per cent at $21.52 amid broker notes following the bank’s first- quarter financial year 2022 results. Interestingly, most brokers downgraded its target rating for the bank. However, the note from Morgans cited that while pressure on the net interest margin continues, the broker thinks the outlook looks less concerning. The broker said that Westpac has shown its ability to cut costs, and is Morgan’s preferred bank in the sector. Add rating retained with a price target $29.50.

For more detail on Friday’s action, join me here for “ASX wins gold, snapping 3-week fall”.

SPI futures

Taking all of this into the equation, the SPI futures are pointing to a 0.6 per cent fall.

Local economic news

It’s a big week ahead, we have markets in Asia reopening along with a big theme around inflation, consumer and business sentiment, and major players reporting company earnings.

Today, we have ANZ set to release its job ads for January and the Australian Bureau of Statistics set to release its retail trade figures for the December quarter.

The range is rather large once again, it just shows how difficult the landscape is at the moment given the ongoing emergence of new strains of Covid and its impact. Economists expect a fall of 3.8 per cent to a rise of 9 per cent.

Also keep an eye out for the private sector Caixin purchasing managers’ index in January. On Tuesday, we have business and consumer sentiment reports along with the US trade balance coming out, while on Wednesday, Westpac and the Melbourne Institute are set to release their consumer sentiment report for February.

It’s a big day on Thursday, the Commonwealth Bank (ASX:CBA) and AGL Energy (ASX:AGL) are set to release half year results. The Melbourne Institute has scheduled their February report on inflation expectations. Then later that evening, there will be inflation figures in the US with their CPI report.

On Friday, we can call it a breather before the weekend, IAG (ASX:IAG) is set to release its half year results.

Company news

ANZ Banking Group (ASX:ANZ) saw a drop in group net interest margin of 8 basis points over the first quarter, or 5 basis points on an underlying basis. The bank attributed the fall to "a lower exit rate at the full year" and "a continuation of the structural headwinds impacting the sector". Keep an eye out for more news. Shares in ANZ closed 0.1 per cent higher at $27.09 on Friday

Ex-dividend

There are two companies trading ex-dividend today.

Amcil (ASX:AMH) is trading 1 cent fully franked
Champion Iron (ASX:CIA) is trading 11.1099 cents unfranked

Dividend-pay

There are two companies set to pay eligible shareholders today.

Perpetual Credit Income Trust (ASX:PCI)
360 Capital Enhanced Income Fund (ASX:TCF)

Trading updates

Argo Investments Limited (ASX:ARG)
Charter Hall Long Wale Reit (ASX:CLW)
Fsa Group Limited (ASX:FSA)
Imdex Limited (ASX:IMD)
Mayfield Childcare Limited (ASX:MFD)
Mpower Group Limited (ASX:MPR)
Scidev Ltd (ASX:SDV)

Commodities

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

Gold has gained $3.70 or 0.2 per cent to US$1808 an ounce. Silver is up $0.10 or 0.5 per cent to US$22.48 an ounce.

Oil has added $2.04 or 2.3 per cent to US$92.31 a barrel.

Currencies

One Australian Dollar at 8:00 AM has weakened since Friday (71.42 US cents), buying 70.82 US cents, 52.31 Pence Sterling, 81.66 Yen and 61.78 Euro cents.

FNN Investor event

Our first investor event for the year is on Tuesday 22 February, a fortnight away at 12.30 AEST with Shaw & Partner’s market strategist Martin Crabb, and three CEOs presenting. Make your way to fnn.com.au to register for your free online spot.
 

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