Nasdaq jumps as US stocks extend rally, NAB's net interest margin falls: ASX to rise

Market Reports

by Melissa Darmawan

Major global indexes were in positive territory amid earnings cheers. Supporting the tech driven rally on Wall St was an ease in treasury yields as investors crowd at the 10-year treasury auction. ASX gains for 2nd day to a fresh two week high. National Australia Bank (ASX:NAB) unveils declining net interest margin. 

The Australian sharemarket is set to rise after a strong finish on Wall St.

Nasdaq jumps as US stocks extend rally

Investors were in positive spirits as US stocks gained for the second day, ahead of the key inflation data. Easing government bond yields helped the tech heavy Nasdaq outperform as risk-on mode continued. Today’s session was a strong and sustainable rally versus the choppy session the day before.

During the session, there was a 10-year treasury note auction which was very interesting. So the U.S. government holds several treasury note auctions to finance the public debt. Before the auction at 5am AEST this morning, the yield was at 1.93 per cent and after it fell to 1.90 per cent, so three basis points.

Investors crowd at 10-year treasury auction

The difference with this particular auction was that investors submitted bids 2.68 times the amount offered, a level exceeded only two other times for that maturity going back to early 2017, according to Bloomberg. So why is this important to know? It’s understanding the psychology around these retail fixed income investors, what they’re thinking.

They’re not looking at what the Fed is doing this year or next, they’re looking further out to 2024 and beyond after the central bank hikes interest rates and trims its balance sheet. It’s a sign that fixed income investors might see a recession coming in 12-24 months and that bets are on that the Fed might make a monetary policy mistake, given that the contributors to inflation are more on the supply side than demand.

After the yield on the 10-year treasury hovered at 1.97 per cent, the highest in three years, fixed income investors clearly do not want it to break over the 2 per cent mark before the inflation data comes out.

Fed presidents diffuse fears on aggressive rate hike

Amid this, stocks linked to the reopening of the economy rallied on news that states are relaxing mask mandates. Also supporting the gains was Atlanta Fed President Raphael Bostic, saying that the economy may be on “cusp” of an inflation slowdown, diffusing fears of an overly aggressive Fed hike. While Cleveland Fed President Loretta Mester believes that inflation is going to moderate by mid year.

So ahead of the inflation print in the next 24 hours, there is a lot of optimism around the economic outlook ahead despite the current environment.

Numbers on Wall St

At the closing bell, the Dow Jones gained 0.9 per cent to 35,768, the S&P 500 added 1.5 per cent to 4587 while the Nasdaq advanced 2.1 per cent to 14,490.

Across the S&P 500 sectors the rally was across the board. Communication services was the best performer, up 2.4 per cent followed by real estate also at 2.4 per cent, then information technology. Consumer staples, utilities and energy added the least.

The yield on the 10-year treasury note closed at 1.95 per cent after the auction, gold rose on a weaker greenback.

Figures around the globe

Across the Atlantic, European markets closed higher. Paris gained 1.5 per cent, Frankfurt jumped 1.6 per cent and London’s FTSE closed over 1 per cent higher, the highest point since January 2020 boosted by upbeat corporate updates.

On the London Stock Exchange, Rio gained almost 1 per cent, BP advanced 2.8 per cent and Shell added 1.6 per cent.

Asian markets closed higher. Tokyo’s Nikkei added 1.1 per cent, Hong Kong’s Hang Seng jumped 2.1 per cent and China’s Shanghai Composite gained 0.8 per cent.

ASX wins for 2nd day to fresh 2-week high

Yesterday, the Australian sharemarket closed 1.1 per cent higher at 7,268, extending the wins for the second day to a fresh two-week high.

Materials and energy sectors closed lower while information technology stocks switched higher.

Contributing to the heavy volumes was Sydney Airport (ASX:SYD) after the Supreme Court gave its tick of approval of its takeover by a consortium of superannuation funds and infrastructure investors. After 20 years being listed on the ASX, yesterday marked the last day for the Airport as market participants traded the stock in preparation for its delisting.

Commonwealth Bank (ASX:CBA) soared 5.6 per cent at $99.56 after unveiling a share buyback of up to $2 billion, a move that was not forecasted by analysts. Cash earnings for the first half period came in 4 per cent ahead of market estimates, though it was deemed a low quality beat, given it was driven largely by non-interest income in the form of the final milestone payment from AIA for its purchase of the Comminsure life business and treasury income.

The interim dividend of $1.75 per share fell short of the $1.80 expectation while the net interest margin mimicked its peers, falling 17 basis points in the second half of 2021 amid lower fixed-rate spreads and the competitive mortgage landscape, weighing on margins. With interest rates set to rise, interest margins will remain under pressure - a tune that we have heard many times before.

Riding on the coat tails was Westpac Banking Corporation (ASX:WBC) added 2.4 per cent at $22.38, National Australia Bank (ASX:NAB) rose 2.4 per cent higher at $28.39, while shares in ANZ Banking Group (ASX:ANZ) closed 1.7 per cent higher at $27.42. Macquarie Group (ASX:MQG) eased from its 3.9 per cent climb on Tuesday, closing 1.9 per cent lower at $197.65.

Computershare (ASX:CPU) upgraded its earnings growth guidance to 9 per cent from 2 per cent for this financial year. The share registry provider said that expectations for more interest rate rises would bode well, stating that a 100 basis point hike would generate annualised earnings per share growth of US26 cents per share. They were the best performer, closing 11.2 per cent higher at $22.17. It was followed by shares in Imugene (ASX:IMU) and Commonwealth Bank of Australia (ASX:CBA).

The worst-performing stock in the S&P/ASX 200 was Mineral Resources (ASX:MIN) after the company’s financials saw an 80 per cent decrease in EBITDA to $156 million and net loss after tax of $36 million, down a further 108 per cent from the previous year. This meant the company’s statutory net profit after tax, income that includes ‘exceptional items’ landed at $36 million, a massive $500 million, or 96 per cent slump, in the prior corresponding period. They closed 8.9 per cent lower at $52.72. It was followed by shares in Bapcor (ASX:BAP) and Nanosonics (ASX:NAN).

For more action on yesterday’s session, join me here at “Sydney Airport departs the ASX lounge after 20 years, CBA leads bank rally”.

SPI futures

Looking ahead, the SPI futures are pointing to a 0.6 per cent gain.

Local economic news

The Australian Bureau of Statistics is set to release three key economic reports, monthly business turnover, weekly payroll jobs and wages, and small area building approvals data. What to keep an eye out for in these data points is how Omicron has played a role in the economy.

Company news

National Australia Bank’s (ASX:NAB) net interest margin fell by 5 basis points to 1.64 per cent during the first quarter of the year, the next bank in line to unveil tightening margins. Keep an eye out for more news. Shares closed 2.4 per cent higher at $28.39.

Ex-dividend

There is one company trading ex-dividend today, Virgin Money UK (ASX:VUK) is paying 1.8553 cents unfranked.

Dividend-pay

There is one company set to pay eligible shareholders today, Nickel Mines (ASX:NIC).

Trading updates

AGL Energy (ASX:AGL)
AMP (ASX:AMP)
ASX (ASX:ASX)
Cimic Group (ASX:CIM)
Downer Edi (ASX:DOW)
Mirvac Group (ASX:MGR)
Unibail-Rodamco-Westfield (ASX:URW)

IPOs

There is one company set to make its debut on the ASX today. Keep an eye out for Killi Resources (ASX:KLI) after raising $6,000,000.

Commodities

Iron ore has lost 2.1 per cent to US$146.75. Its futures point to a 0.4 per cent gain.

Gold has gained $5.90 or 0.3 per cent to US$1834 an ounce. Silver is up $0.09 or 0.4 per cent to US$23.29 an ounce.

Oil has added $0.66 or 0.7 per cent to US$90.02 a barrel after oil inventories fell 4.8 million barrels last week.

Currencies

One Australian Dollar at 8:20 AM has strengthened since yesterday, extending gains for a fourth day (Wed: 71.45 US cents), buying 71.82 US cents, 53.08 Pence Sterling, 82.97 Yen and 62.88 Euro cents. 

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