Wall St mixed after dovish Fed minutes: ASX to open flat


Mixed finish on Wall St recovering from a morning slump as investors combed through the Fed minutes and keep an eye out on mounting tensions between Ukraine and Russia.

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Fed minutes vs geo-political tensions weigh on Wall St

The Australian sharemarket is set to rise after a mild recovery on Wall St.

US stocks closed mixed as investors combed through the minutes from the latest Federal Reserve meeting which we will talk about in a moment.

Earlier in the session, tensions between Russia and Ukraine remained top of mind for investors as geopolitics weighed on sentiment. NATO officials accused Russia of stationing troops at its border with Ukraine after Russia said it was pulling troops back. However, there was no real clear sign that Russia had actually stuck to his comments after 130,000 troops amassed alongside that border over the weekend.

Iran’s nuclear top negotiator tweet leads oil prices lower

Yesterday traders heard from President Biden which soothed markets and helped buoy the stable performance on Wall St. Though given the lack of clarity, these concerns have crept back in today. Despite this, oil prices crept lower after Iran’s nuclear top negotiator tweeted, “after weeks of intensive talks, we are closer than ever to an agreement; nothing is agreed until everything is agreed, though. Our negotiating partners need to be realistic, avoid intransigence and heed lessons of the past 4yrs.” The crude bulls were not ready to charge ahead towards US$100 with the tweet as a reason for the small decline.

US retail sales surge in December

Additionally, we received fresh economic data which showed that consumer spending bounced back in January despite 40-year high inflation. Retail sales jumped 3.8 per cent last month, more than economists were expecting, after a steep revision in December. It is the biggest surge in retail sales in ten months with a broad-based rise across the categories. Given the revision in the December numbers, consumers were hit more than economists thought which meant that January’s figures flagged quite a buoyant recovery.

Fed meeting minutes - dovish in nature

Meanwhile, the minutes from the January Fed meeting provided some colour, though nothing explicit around what they might do with their balance sheet. This is something we have been keeping an eye out on as it’s another means to help tighten financial conditions other than a series of interest rate hikes.

There weren’t any real surprises as the Fed knows they need to act to curb inflation. Consumer prices are up 7.5 per cent from a year ago, producer prices are up 12.7 per cent in the same period as of January, and when comparing this to their long term goal of 2 per cent inflation for price stability, the data-dependent central bank knows that they need to do something about it.

All in all, the minutes were somewhat dovish and investors were relieved that there was no colour that would indicate an aggressive rate hike cycle or an immediate balance sheet runoff.The Fed does foresee pricing pressures increasing into the year but they are not rushed into making any decisions around raising interest rates.

Iron ore price

Elsewhere, I know we have been focusing a lot on the price of oil. Today, I would like us to pivot our attention to iron ore. We have seen the volatility of the iron ore price as of late and this has been underpinned by moves from China’s government. Recently there have been officials checking at commodity exchanges and ports to help minimise disinformation in the market in a bid to stabilize the iron ore market.

A note from UBS this morning pondered on the notion around how far traders will push up iron ore prices to exit loss-making positions. The question followed checks which revealed that some traders may be pushing up prices to exit large unrealized losses following 60 per cent price decline in the second half of last year. Points that were observed were increases in inventories as a result of the price collapse and the average price of iron ore from when it was US$148 a tonne versus US$85 a tonne.

Given the backdrop, a mixed finish on Wall St was a good outcome as investors balance between all the moving parts.

Figures around the globe

At the closing bell, the Dow Jones lost 0.2 per cent to 34,934, the S&P 500 added 0.1 per cent to 4,473 while the Nasdaq closed 0.1 per cent lower at 14,124.

Across the S&P 500 sectors there were two losers, communication services and information technology, down 0.2 per cent. Energy bounced back to the best performer, up 0.8 per cent followed by materials and industrials.

The yield on the 10-year treasury note fell 2 basis points to 2.03 per cent, gold rose on a weaker greenback.

Across the Atlantic, European markets closed lower amid UK inflation edging higher to 5.5 per cent on an annualised basis in January, the highest reading since March 1992.

Paris fell 0.2 per cent, Frankfurt lost 0.3 per cent and London’s FTSE closed 0.1 per cent lower.

On the London Stock Exchange, Rio gained 1.1 per cent, BP added 1.6 per cent and Shell jumped almost 2 per cent.

Asian markets closed mixed. Tokyo’s Nikkei gained 2.2 per cent, Hong Kong’s Hang Seng added 1.5 per cent while China’s Shanghai Composite rose 0.6 per cent.

ASX enjoyed a buoyant day again this week

Yesterday, the Australian sharemarket jumped 1.1 per cent higher at 7,285 with energy and materials as the laggards, and healthcare as the winner thanks to the performance by CSL (ASX:CSL).

Biotech firm CSL (ASX:CSL) posted a $2.46 billion in its half-year net profit, down 5 per cent, as the pandemic inhibited the biotech’s ability to collect plasma which is a core part of its business. However, the company was able to offset its revenue through strong flu vaccines sales in several continents. CSL declared an interim dividend of $US1.04 per share which was the same amount paid compared to the prior corresponding period, though if you adjust it for currency movement, the interim dividend is an increase. The blood products giant believes that its ability to collect plasma as restrictions ease is set to underpin its outlook. Shares jumped 8.5 per cent to $263.69.

Liontown Resources (ASX:LTR) revealed its 5-year supply deal with Tesla starting in 2024 on the basis that the Kathleen Valley Project starts lithium production by 2025. The conditional agreement is set to enable Tesla to buy 100,000 dry metric tonnes in the first year which has been earmarked to increase to 150,000 dry metric tonnes following that.

They were the best performing stock, closing almost 18 per cent higher at $1.64. It was followed by shares in Imugene (ASX:IMU) and Treasury Wine Estates (ASX:TWE).

The worst-performing stock in the S&P/ASX 200 was Netwealth Group (ASX:NWL) after shareholders were surprised with the higher than expected costs for new staff and technology, with operating leverage out of sight this reporting period, closing 9.8 per cent lower at $13.40. It looks like the results also weighed on its platform peer, as shares in HUB24 (ASX:HUB) was the second worst performer followed by EML Payments (ASX:EML).

Treasury Wine Estates (ASX:TWE) poured an encouraging half year report despite the impact from import restrictions of Aussie wine into China. The impact from China was somewhat put aside. Wine-goggled investors mulled on the company's 16 per cent increase in net sales revenue per case and its 0.8 per cent earnings margin growth, thanks to its luxury and premium wine range. Earnings before interest, tax and material items contribution from China was $2 million, down $78 million a year ago. However if sales to China were excluded, Treasury’s earnings would have risen by 28.3 per cent.

Energy giant Santos (ASX:STO) fell 2.8 per cent to $7.19 despite reporting record cash flow and underlying earnings in the half year driven by higher oil and gas prices. Woodside Petroleum (ASX:WPL) closed 0.4 per cent lower at $26.63 while Beach Energy (ASX:BPT) closed flat at $1.46.

Fortescue Metals Group (ASX:FMG) led the iron ore players lower after trimming its half-year dividend, after steep price penalties on lower quality iron ore pushed its interim earnings lower, down 2 per cent to $21.15. BHP Group (ASX:BHP) fell 1.8 per cent to $47.33, while Rio Tinto (ASX:RIO) closed 0.2 per cent lower at $118.56.

On the gold front, Evolution Mining (ASX:EVN) fell 1.8 per cent to $4.01, Newcrest Mining (ASX:NCM) declined 0.6 per cent to $23.50 and Northern Star (ASX:NST) closed 0.2 per cent lower at $9.04.
Major banks closed higher except Commonwealth (ASX:CBA) down 0.9 per cent to $98.57, while Macquarie (ASX:MQG) rose 1.6 per cent to $196.99. ANZ (ASX:ANZ) gained 1.1 per cent to $28.10, Westpac (ASX:WBC) fetched 1 per cent to $23.29 while National Australia Bank (ASX:NAB) closed 0.7 per cent higher at $30.64.

SPI futures

Taking all of this into the equation, the SPI futures are pointing to a flat start, up 0.04 per cent.

Local economic news

The Australian Bureau of Statistics is set to release the labour force figures for January.

If we backtrack to last year, the jobs market was on a roll with over 366,000 jobs added in November and 64,800 new jobs in December. The unemployment rate fell to 4.2 per cent in December, its lowest level since 2008 with participation rate steady at 66.1 per cent.

The Omicron wave created disruptions to the economy in January where the “let it rip” approach saw millions in isolation and staff shortages. Adding another layer to January are the summer holidays where people tend to be on leave. Both these factors are set to impact the number of hours worked versus Aussies losing their jobs.

Due to these uncertainties, there is a wide range of forecasts from a loss of 60,000 jobs to a gain of 59,000 for January with expectations of the unemployment rate to dip to 4.1 per cent.

Despite this, job ads and vacancies continue to point to increased jobs growth in the months ahead. The countdown to 11.30am AEST begins.

Ex-dividend

There are three companies trading ex-dividend today

GPT Group (ASX:GPT) is paying 9.9 cents unfranked
Korvest (ASX:KOV) is paying 25 cents fully franked
Kelly Partners Group (ASX:KPG) is paying 0.363 cents fully franked

Dividend-pay

There are three companies set to pay eligible shareholders today

Katana Capital (ASX:KAT)
Mirrabooka Investments (ASX:MIR)
Qualitas Real Estate Income Fund (ASX:QRI)

AGM

Virgin Money UK (ASX:VUK)

Reporting season

There are 23 companies set to release results.

Challenger (ASX:CGF)
Cleanaway Waste Management (ASX:CWY)
Codan (ASX:CDA)
Crown Resorts (ASX:CWN)
Data#3 (ASX:DTL)
Domain Holdings Australia (ASX:DHG)
Goodman Group (ASX:GMG)
Growthpoint Properties Australia (ASX:GOZ)
Iress Limited (ASX:IRE)
Magellan Financial Group (ASX:MFG)
Monash IVF Group (ASX:MVF)
Newcrest Mining (ASX:NCM)
Origin Energy (ASX:ORG)
Ridley Corporation (ASX:RIC)
South32 (ASX:S32)
Tabcorp Holdings (ASX:TAH)
Telstra Corporation (ASX:TLS)
The Reject Shop (ASX:TRS)
The Star Entertainment Group (ASX:SGR)
Transurban Group (ASX:TCL)
Wesfarmers (ASX:WES)
Whitehaven Coal (ASX:WHC)
Woodside Petroleum (ASX:WPL)

Commodities

Iron ore has gained 3 per cent to US$140.30. Its futures point to a 1.1 per cent fall.

Gold has gained $17.10 or 0.9 per cent to US$1873 an ounce. Silver is up $0.29 or 1.2 per cent to US$23.68 an ounce.

Oil has lost $1.25 or 1.4 per cent to US$90.82 a barrel.

Currencies

One Australian Dollar at 8:25 AM has strengthened since yesterday (Wed: 71.52 US cents), buying 72.00 US cents, 52.97 Pence Sterling, 83.09 Yen and 63.26 Euro cents.
 

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