Wall St reverses 3-day losing streak on tech rebound: ASX to rise

Market Reports

by Melissa Darmawan

Wall St reverses 3-day losing streak as Russia-Ukraine tensions cool. Technology shares back in favour while energy stocks fall. Wrap up of Tuesday's session on the ASX.

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Good morning. Crude prices crater. I’m Melissa Darmawan for Finance News. This is your market outlook.

Wall St snaps 3-day losing as Russia-Ukraine tensions cool

The Australian sharemarket is set to lift after a strong rally on Wall St.

US stocks held onto its gains after three straight days of losses as investors kept a close eye on tensions between Russia and Ukraine. The situation appears to be easing after days of escalation. Buildup of troops along the border was escalating over the weekend even as diplomatic talks began which started to give slivers of hope. Russian officials said that they're pulling back some troops from the border of Ukraine, however, the Kremlin denies that the troops are preparing for a ground invasion.

The bond market sell-off resumed as risk appetite appeared amid this backdrop. The 10-year treasury yield is now back above the 2 per cent level with expectations that it will stay there for now. This supported tech shares’ bounce after the recent volatility.

Supplier prices jump on inflation high

Wall St also digested another touch point on inflation with producer prices jumping 9.7 per cent gain from the same time a year ago as per the Bureau of Labor Statistics. This measures the prices businesses pay for goods and services. In January, it rose 1 per cent which is the biggest gain in eight months and above the 0.4 per cent rise that was expected. This comes after investors digested consumer prices at fresh 40-year highs. It appears that the peak is near, however for the everyday person, sigh of relief are far and few between.

RBA meeting minutes

Meanwhile, minutes from the Reserve Bank meeting this month were quite interesting.

To give some context let’s review what has happened. Before parliament last week, Governor Philip Lowe cited that under certain circumstances, a rate hike later this year is "plausible". Prior to this, he spoke at the National Press Club where he said that “over time and as conditions allow”, policymakers will “need to navigate a return to more normal settings of monetary policy”.

So, if you then look at the minutes, there was a slight surprise. Slow wages growth is giving the RBA permission to be “patient" on a rate hike, despite what markets are pricing in.

So wages growth is a closely watched item by the central bank and an indicator to keep an eye out on.

Crude oil prices craters on tight oil market

In energy news, profit-taking was inevitable after Russia’s defence ministry said that some troops are starting to return to their bases after completing drills. Talks between German Chancellor Scholz and President Putin also supported market expectations that the chance of invasion is set to abate. Nevertheless, the oil market remains tight despite mounting tensions and technicals show that the US$100 a barrel is still in sight.

Figures around the globe

At the closing bell, the Dow Jones gained 1.2 per cent to 34,989, the S&P 500 added 1.6 per cent to 4,471 while the Nasdaq closed 2.5 per cent higher at 14,140.

Across the S&P 500 sectors, energy and utilities were the only losers by 1.4 and 0.6 per cent respectively. Information technology was the clear winner, up 2.7 per cent followed by consumer discretionary. The rest closed higher.

The yield on the 10-year treasury note rose six basis points to 2.05 per cent, gold dipped on a weaker greenback.

Across the Atlantic, European markets closed higher. Paris gained 1.9 per cent, Frankfurt added almost 2 per cent and London’s FTSE closed over 1 per cent higher.

Asian markets closed mixed. Tokyo’s Nikkei and Hong Kong’s Hang Seng both lost 0.8 per cent while China’s Shanghai Composite added 0.5 per cent.

ASX dips on technology gain

Yesterday, the Australian sharemarket closed 0.5 per cent lower at 7,207 on a mixed finish with technology leading the gains while energy stocks led the fall.

BHP (ASX:BHP) dipped 0.3 per cent to $48.18 as investors grew concerned over rising operational costs versus its first-half financial year 2022 operating earnings, and fully franked interim dividend of US$1.50 ($2.11) a share. As noted in January's quarterly production report, inflationary pressures continue to plague. Reinforcing this point, the miner raised financial year 2022 cost guidance for its coal operations in Queensland.

CEO Mike Henry said that he expected a degree of permanency in the cost increases yet plans to keep a tight grip on expenses to maximise the benefit of rising commodity prices.

Net debt of US$6 billion beat estimates of US$9 billion while the miner expanded its net debt target range to US$5 billion to 15 billion. Meanwhile, the sale of the petroleum assets to Woodside (ASX:WPL) is on track to be completed in the June quarter. However, BHP chief financial officer David Lamont flagged that capital management options would not be considered immediately after the deal.

In the iron ore mining circle, Fortescue Metals (ASX:FMG) dropped 5.1 per cent to $21.59 while Rio Tinto (ASX:RIO) closed 2.3 per cent lower at $118.75.

Sims (ASX:SGM) soared after the company unveiled a surprise $54 million on market buyback for its first-half financial year 2022 earnings. The scrap metal recycler posted its first-half financial year 2022 earnings well above its own guidance and estimates driven by higher sales volumes, prices and a strong margin performance. A net cash position of $45 million was short of estimates, but overall the result was strong. The company cited that strong market conditions had continued into the second half.

They were the best-performing stock, closing 13.7 per cent higher at $17.04. It was followed by shares in Brambles (ASX:BXB) and Seek (ASX:SEK).

The worst-performing stock was Beach Energy (ASX:BPT), closing 10.5 per cent lower at $1.46. It was followed by shares in Chalice Mining (ASX:CHN) and Mineral Resources (ASX:MIN).

Seek (ASX:SEK) jumped 6.1 per cent to $29.47 after first-half financial year 2022 earnings and an interim dividend beat expectations driven by continued strength in the employment market. The online recruiter said that strong market conditions persisted into the second half, leading to upgrading its financial year 2022 revenue and earnings guidance to levels above current consensus estimates.

Brambles (ASX:BXB) rose 6.2 per cent to $10 amid a story from the AFR that private equity giant KKR & Co were circling the global CHEP pallet pool operator. Neither party confirmed that they were in talks.

Seven West Media (ASX:SWM) tumbled 6.7 per cent to 69 cents after investors noticed the continuing lack of a subscription video on demand product, rather than its first-half financial year 2022 earnings and interim dividend that beat expectations.

Westpac (ASX:WBC) led the major banks lower, down 3.4 per cent to $23.07. ANZ Bank (ASX:ANZ) fell 1.4 per cent to $27.80, Commonwealth Bank (ASX:CBA) declined 0.6 per cent to $99.49, Macquarie Group (ASX:MQG) was down 0.2 per cent to $193.88 and National Australia Bank (ASX:NAB) closed 0.03 per cent lower at $30.42.

SPI futures

Taking all of this into the equation, the SPI futures are pointing to 1 per cent gain.

Local economic news

The National Skills Commission is set to release the skilled internet job vacancies for January.

Stockwatch

Our weekly stock to watch this week is Westpac (ASX:WBC). David Thang, Senior Private Wealth Adviser at Sequoia (ASX:SEQ) rates Westpac as a buy. From a technical angle, Westpac ticks a number of boxes.

Since printing a high of $27.12 in June 2021, the share price of Westpac spent the following seven months in correction phase, and has declined by 26.25 per cent to touch a recent low of $20.00 in January 2022. Positively, a confluence of support was respected as shown by the orange up arrow on the chart. This inflection point is made up of the 50 and 61.8 per cent Fibonacci retracements as shown by the grey and green horizontal line. The beginning of February saw the bulls take charge in lifting the share price of Westpac swiftly higher.

Should upward traction continue over the months ahead, then a broader advance towards a band of resistance sighted between $26.50 and $27.02 as highlighted by the light-blue rectangle could potentially be on cards.

Shares in Westpac (ASX:WBC) closed 3.4 per cent lower to $23.07 yesterday.



Reporting season


There are fourteen companies set to release an update.

Breville Group (ASX:BRG)
Corporate Travel Management (ASX:CTD)
CSL Limited (ASX:CSL)
Emeco Holdings (ASX:EHL)
Evolution Mining (ASX:EVN)
Fortescue Metals Group (ASX:FMG)
Nearmap (ASX:NEA)
Netwealth Group (ASX:NWL)
Orora (ASX:ORA)
Pro Medicus (ASX:PME)
Redbubble (ASX:RBL)
Santos (ASX:STO)
Treasury Wine Estates (ASX:TWE)
Vicinity Centres (ASX:VCX)

Ex-dividend

There are four companies trading ex-dividend today.

Commonwealth Bank of Australia (ASX:CBA) is paying 175 cents fully franked
Insurance Australia Group (ASX:IAG) is paying 6 cents unfranked
Microequities Asset Management Group (ASX:MAM) is paying 6 cents fully franked
New Energy Solar (ASX:NEW) is paying 1 cent unfranked

Dividend-pay

There is one company set to pay eligible shareholders today, Partners Group Global Income Fund.

Commodities

Iron ore has lost 8.8 per cent to US$136.20. Its futures point to a 2.6 per cent fall.

Gold has lost $14.80 or 0.8 per cent to US$1855 an ounce. Silver is down $0.45 or 1.9 per cent to US$23.45 an ounce.

Oil has lost $3.55 or 3.7 per cent to US$91.91 a barrel.

Currencies

One Australian Dollar at 8:20 AM has strengthened since yesterday buying 71.52 US cents (Tue: 71.28 US cents), 52.83 Pence Sterling, 82.70 Yen and 62.97 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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