Wall St falls as traders shun stocks, AGL rejects takeover bid, A2M profit falls 50%: ASX to drop


Wall St falls as investors sell out of risk assets ahead of the long weekend. AGL Energy rejects bid from Brookfield & Cannon Brookes. Review of the week gone and the week ahead. 

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Investors shun stocks on mounting Ukraine tension

Red sea deepens on persistent tension. I’m Melissa Darmawan for Finance News. This is your market outlook.

The Australian sharemarket is set to fall amid US leaders insisting that a Russian invasion of Ukraine is imminent.

Risk was taken off the table as investors sold out of shares ahead of the long weekend in the US. Growth names continue to take it on the chin even as bond yields fell despite a stronger than expected rise in house sales in January, as tension persists between Russia and Ukraine, putting stocks under pressure.

With geo-political risk in the backdrop, investors questioned how to hedge against this tension as they kept their eyes on the newsflow. The move on Friday saw them buy treasuries, stay in cash, then choose a “re-evaluate later” mindset as they mulled on the likely headwinds.

Climbing wall of worries

Investors are not just climbing one wall of worries, they are climbing multiple. Other than Washington and Moscow sending mixed signals, investors are also receiving conflicting messages from Federal Reserve officials, questioning if they align their messages before their speeches. Amid multi-year inflation readings, the central bank is still buying bonds, so quantitative easing is still in force, and they’re attempting to comb through corporate earnings and company guidance, if it’s provided.

Search for stability & leadership in confusion

You wonder why there’s so much uncertainty, investors are looking for stability and leadership in this confusion. The flight to safety, outside buying into bonds, has seen market participants focus on value names. These are companies who have strong fundamentals and pricing power, so the ability to pass costs to customers without hurting sales. The reason being is that rising costs eats into profit margins. So a sector that has that ability to do that are consumer staples, and this was the only sector that closed higher on the S&P 500 on Friday.

When you look at our local market, even investors are pricing in aggressive moves from the Reserve Bank of Australia, thinking the same tightening cycle applied by the Fed will be seen here. Another symptom of investors feeling confused as they apply the same interest-rate goggles to our market. According to The Australian, Ian Harper, a member of the RBA policy making board said “financial markets are misguided in thinking Australia’s central bank will follow the US Federal Reserve when raising interest rates, adding that the RBA has good reasons to wait”. All this just highlights the jittery around the outlook.

AGL Energy rejects bid from Brookfield & Cannon Brookes

Meanwhile, AGL (ASX:AGL) has rejected a joint bid from founder of software giant Atlassian Mike Cannon-Brookes and Canadian asset management giant Brookfield to take control of the company. The offer was unveiled yesterday in an effort to accelerate the shut down of the energy giant’s coal-fired power stations.

The offer made over the weekend was valued at $7.50 a share which the board said that it materially undervalued the company, despite it being offered at a premium of 4.7 per cent to AGL’s closing price of $7.16 a share on Friday.

This comes after shares in Origin Energy (ASX:ORG) proposed plans to fast track the company’s exit from coal-fired power generation. The energy giant provided notice to the Australian Energy Market Operator about retiring the Eraring power station, brought forward from 2032. The closure notice is the first under the three-year notice rule introduced after the sudden closures of South Australian and Victorian generators.

The federal energy and emissions reduction minister, Angus Taylor, said the company’s announcement was “bitterly disappointing for all energy users” who “rely on affordable, reliable energy to proper”, the plant’s 400 workers and the Lake Macquarie community. He said the “early and sudden closure” would leave a “considerable gap in reliable generation” and could cause a spike in electricity prices as reported by The Guardian.

If you wanted to sum up last week, company earnings cushioned the blow from the technology rout as investors sell-now and question later.

Figures around the globe

At the closing bell, the Dow Jones lost 0.7 per cent to 34,079, the S&P 500 fell 0.7 per cent to 4,349 while the Nasdaq dropped 1.2 per cent to 13,548.

Over the week, the S&P 500 fell 1.6 per cent, bringing its losses this year to 8.8 per cent. The Dow Jones lost 1.9 per cent, while the tech-heavy Nasdaq Composite declined 1.8 per cent.

Across the S&P 500 sectors, losses were across the board with consumer staples bucking the trend as the only winner, up 0.1 per cent. Information technology was the biggest loser by 1.1 per cent followed by industrials and communication services.

The yield on the 10-year treasury note dipped three basis points to 1.93 per cent, gold lost on a firmer greenback.

Across the Atlantic, European markets closed lower. Paris fell 0.3 per cent, Frankfurt lost 1.5 per cent and London’s FTSE closed 0.3 per cent lower.

Asian markets closed mixed. Tokyo’s Nikkei lost 0.4 per cent, Hong Kong’s Hang Seng lost 1.9 per cent while China’s Shanghai Composite added 0.7 per cent, as property stocks rallied amid eased mortgage rules for home buyers.

On Friday, the Australian sharemarket closed over 1 per cent lower at 7,222. Over the week, it closed 0.1 per cent higher.

SPI futures

Taking all of this into the equation, the SPI futures are pointing to a 0.7 per cent fall.

Local economic news

Let’s look ahead on what could move the needle. Today's flash purchasing managers’ index for February is due, US markets will be closed when it hits their Monday, so we will look to European markets for our lead, and Australia is set to welcome international tourists, so I guess there will be a lot of hugging and tears of excitement at the airport today.

Tomorrow the weekly consumer confidence figures from ANZ and Roy Morgan are due.

On Wednesday, this is a biggie with wage the Australian Bureau of Statistics set to release its wage price index for the December quarter, so the how much an employee is being paid. The RBA is looking closely at this figure as a precursor to potential monetary policy moves.

Thursday, the US will receive GDP figures for the December quarter and on Friday, the personal consumption expenditure print is out for January. Another inflation data point, though this one is closely watched by the Federal Reserve.

Company news

A2 Milk’s (ASX:A2M) profit has halved in the first six months of the year as China’s demand for infant-formula market fel amid the country's declining birth rate. The company’s revenue fell by 2.5 per cent to $616.4 million (NZ$660.5 million) while profit declined 50.3 per cent to $55.6 million (NZ$59.6 million). EDITDA tanked 45.3 per cent to $91.1 million (NZ$97.6 million). Keep an eye out for further updates. Shares closed flat at $5.30 on Friday.

Reporting season

Adairs (ASX:ADH)
Altium (ASX:ALU)
Ampol (ASX:ALD)
Bluescope Steel (ASX:BSL)
Endeavour Group (ASX:EDV)
Latitude Group Holdings (ASX:LFS)
Lendlease Group (ASX:LLC)
Nib Holdings (ASX:NHF)
Ooh!Media (ASX:OML)
Oz Minerals (ASX:OZL)
Reliance Worldwide Corporation (ASX:RWC)
Senex Energy (ASX:SXY)
Sonic Healthcare (ASX:SHL)
Super Retail Group (ASX:SUL)
The A2 Milk Company (ASX:A2M)
Viva Energy Group (ASX:VEA)

Ex-dividend

There are three companies trading ex-dividend today. As the reporting season comes to an end, not there yet but soon, this list of companies trading ex-dividend will grow.

Ansell (ASX:ANN) is paying 34.0686 cents unfranked
Santos (ASX:STO) is paying 11.9265 cents 70 per cent franked
Vicinity Centres (ASX:VCX) is paying 4.7 cents unfranked

Commodities

Iron ore has gained 2.2 per cent to US$133.50. Its futures point to a 1.2 per cent gain.

Gold has lost $2.20 or 0.1 per cent to US$1899.90 an ounce. Silver is up $0.12 or 0.5 per cent to US$24.04 an ounce.

Oil has lost $0.69 or 0.8 per cent to US$91.07 a barrel.

Currencies

One Australian Dollar at 8:00 AM has weakened since Friday (71.89 US cents), buying 71.69 US cents, 52.81 Pence Sterling, 82.47 Yen and 63.36 Euro cents.

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