Inflation shock ignites Wall St sell-down, RBA testifies before Parliament today: ASX to fall

Market Reports

by Melissa Darmawan

US major indexes tumbled after inflation showed a faster-than-expected rise in prices, igniting the 10-year treasury yield above 2%. Mixed finish on European markets, Asian & ASX rose.  

The Australian sharemarket is set to fall after Wall St snapped two days of gains.

Inflation shock ignites US shares sell-down

US stocks closed at session lows triggered by hotter-than-expected inflation. Treasury yields rose and equities fell on concerns about the Federal Reserve lifting interest rates aggressively to suppress inflation.

Tech heavy names were under pressure as the yield on the 10 year treasury rose above 2 per cent, touching pre-pandemic levels back in 2019. Investors are bracing themselves for a 50 basis point hike in March, followed by full percentage point rises by July - so a front loaded cycle.

US inflation rate jumps to a 40-year high 

The consumer price index data showed that the everyday price of goods spiked 7.5 per cent in the past 12 months in January. This is its biggest annual gain in 40 years. The price rise was across all categories, before it was fuel costs, electricity and rent as the biggest contributors but now, it’s collectively across the board.

However, the Fed is still accommodative at the moment by adding to the balance sheet through buying assets, so it will be interesting to see how they will hike rates amid this.

The central bank was looking to move on a more gradual tightening cycle to minimise the chances of a monetary policy mistake. Now that core inflation is way above the Fed’s target, average per hour earnings after inflation are falling, the pressure on the Biden administration is mounting. President Biden’s approval rating dipped below 40 per cent for the first time since he took office, according to an average of recent national polls.

Adding to the political pressure, there is also resistance around fiscal packages. The Build Back Better program has stalled on concerns that it will ignite more pricing pressures.

RBA wraps up bond buying program

Comparing moves with our local central bank, yesterday marked the day that the Reserve Bank of Australia stopped its bond buying program after flagging its intention in the first Board meeting this year. This sent a clear signal around the RBA’s intention to raise interest rates, not immediately. The central bank has made clear that they are a “patient, but it highlights the difference in how each central bank and how they’ve communicated its path to normalisation.

The sell-down deepened after Federal Reserve Bank of St Louis President James Bullard said in an interview that “I'd like to see 100 basis points in the bag by July. I was already more hawkish but I have pulled up dramatically what I think the committee should do".

I liked what Reuters said to describe the market “within minutes, Bullard's view became the market's view… with some bets on an even steeper rate hike path”.

Share price closes higher after ASX earnings update

To take the edge off what’s just happened, turning to the local bourse, so far 24 of the ASX 200 companies have unveiled their earnings results. Out of the 24, 50 per cent of the company’s share price closed higher on the day of the release, with an average daily gain of 0.4 per cent according to CommSec.

We’re in for a treat today, let’s take a look at the numbers.

Numbers on Wall St

At the closing bell, the Dow Jones lost 1.5 per cent to 35,242, the S&P 500 fell 1.8 per cent to 4,505 while the Nasdaq dropped 2.1 per cent to 14,186.

Across the S&P 500 sectors, consumer staples were the only winner adding 0.4 per cent, the rest closed lower with real estate, information technology and utilities falling in the order of 2.9 to 2.6 per cent.

The yield on the 10-year treasury note rose 13 basis points to 2.05 per cent, gold lost on a firmer greenback. Also, if we continue to see yields rise, gold is likely going to see weakness.

Figures around the globe

Across the Atlantic, European markets closed mixed. Paris lost 0.4 per cent, Frankfurt added 0.1 per cent, and London’s FTSE gained 0.4 per cent led by a 6 per cent jump in AstraZeneca on a bullish forecast for 2022 sales.

On the London Stock Exchange, Rio gained 2.4 per cent, BP added 0.1 per cent and Shell lost 0.5 per cent.

Asian markets closed higher. Tokyo’s Nikkei and Hong Kong’s Hang Seng gained 0.4 per cent while China’s Shanghai Composite added 0.2 per cent.

ASX gains for 3-days straight

Yesterday, the Australian sharemarket closed 0.3 per cent higher at 7,288 posting its third straight day of gains, underpinned by a tech and miners surge with an impressive rally by National Australia Bank (ASX:NAB), helping offset weakness across the sectors.

National Australia Bank (ASX:NAB) surged 4.5 per cent at $29.67 after the nation's second-largest lender posted first-quarter financial year 2022 cash earnings ahead of expectations. The bank reported a 12 per cent jump in quarterly cash earnings of $1.8 billion versus Morgan Stanley’s expectation of $1.6 billion, driven by home and business lending growth.

Meanwhile, Commonwealth Bank (ASX:CBA) jumped 1.2 per cent at $100.78 after several brokers, at least seven (that I read) raised their target prices and/or ratings following its first-half financial year 2022 result on Wednesday. UBS said that the nation’s largest bank’s first half earnings per share were 11 per cent above the consensus estimate and pre-provisioning operating profit was a 3 per cent beat.

The broker highlighted strong growth, up 8 per cent half-on-half in average interest earning assets, from growth in business banking and home lending. As a result, UBS raised its earnings per share forecasts, driven by stronger lending growth, lower credit impairment charges and increased buy-backs, partially offset by non-interest income cuts, keeping its rating as a neutral with a popped target price to $100 from $95.

In other banks, Westpac Banking Corporation (ASX:WBC) rose 1.1 per cent higher at $22.62, ANZ Banking Group (ASX:ANZ) added 1.1 per cent higher at $27.71 while Macquarie Group (ASX:MQG) bucked the trend, wiping off its gains from the past two days to close 2.2 per cent lower at $193.39.

Bapcor (ASX:BAP) had a stellar session amid several broker upgrades. Ord Minnett upgraded its rating for the company to a buy from a hold with a boosted price target to $8.60 from $7.20. The owner of Autobarn’s December-half result broadly met Ord Minnett's forecasts after suffering store closures, higher costs, supply-chain disruptions and investment in a new head office and Victorian distribution centre.

They were the best performing stock, closing 10 per cent higher at $7.15. It was followed by shares in Block (ASX:SQ2) and Megaport (ASX:MP1).

The worst-performing stock in the S&P/ASX 200 was Cimic Group (ASX:CIM) after reporting a 35 per cent drop in annual net profit to $402 million in 2021, closing 7.1 per cent lower at $15.89. It was followed by shares in ASX (ASX:ASX) and AGL Energy (ASX:AGL).

In other results, AMP (ASX:AMP) confirmed that they received “inbound enquiries” for its AMP Capital business after handing down a full-year net loss of $252 million for 2021, driven by impairment charges, transformation costs and remediation expenses. The wealth giant said that it was not “unusual at this point in a demerger preparation process" to attract interest. Shares closed 6 per cent higher at $1.07.

Miners closed mixed with shares in Fortescue Metals Group (ASX:FMG) galloping 4 per cent higher at $22.28, Rio Tinto (ASX:RIO) added 2.1 per cent at $118.96 while shares in BHP Group (ASX:BHP) didn’t manage to tip its nose over the green, closing 0.08 per cent lower at $48.28.

For more action on what happened in yesterday’s session, join me here for “Bang for the buck: ASX banks 3-day win”.

SPI futures

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

What’s ahead today

The Reserve Bank Governor, Phillip Lowe is set to appear before the House of Representatives Standing Committee on Economics.

Reporting season

Arena Reit (ASX:ARF)
Baby Bunting Group (ASX:BBN)
Insurance Australia Group (ASX:IAG)

Ex-dividend

There are three companies trading ex-dividend today

BKI Investment (ASX:BKI) is paying 4 cents fully franked
Janus Henderson (ASX:JHG) is paying 53.5815 cents unfranked
Plato Inc Max (ASX:PL8) is paying 0.5 cents fully franked

Dividend-pay

There is one company set to pay eligible shareholders today, Newmark REIT Management (ASX:NPR).

IPOs

There are two companies set to make their debut on the ASX. Keep an eye out for My Rewards International (ASX:MRI). They’re an employee and consumer rewards program provider. Also, SensOre (ASX:S3N), a mining company that uses artificial intelligence to help target minerals.

Commodities

Iron ore has gained 4.8 per cent to US$153.75. Its futures point to a 5.5 per cent gain.

Gold has lost $9.00 or 0.5 per cent to US$1,828 an ounce. Silver is down $0.15 or 0.7 per cent to US$23.19 an ounce.

Oil has added $0.33 or 0.4 per cent to US$89.99 a barrel.

Currencies

One Australian Dollar at 8:20 AM has weakened since yesterday buying 71.58 US cents (Thu: 71.82 US cents), 52.84 Pence Sterling, 83.10 Yen and 62.65 Euro cents.

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