Nasdaq leads fall on Wall St, Block, BHP, GrainCorp, Coles, Wesfarmers, MQG on watch: ASX to fall

Market Reports

by Melissa Darmawan

A mixed finish around globe with a hawkish tone from central banks such as the Fed and RBA spooking investors, leading to sell off on Wall St. Asian markets to resume trade today. A deep dive on the RBA statement and what stocks to look out for today on the ASX. CSL (ASX:CSL) to pay eligible shareholders today.

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

The Australian sharemarket is set to fall after Wall St snapped its two-day winning streak.

Tech shares lead decline after hawkish Fed remarks

US stocks pulled back with the Nasdaq basically giving up the rally it had yesterday, accelerating to session lows in a month that is historically a buoyant period for stocks

At the closing bell, the Dow Jones fell 0.8 per cent to 34,641, the S&P 500 lost 1.3 per cent to 4,525 and the Nasdaq dropped 2.3 per cent to 14,204.

Across the S&P 500 sectors, information tech is back in the loser’s corner down 2.4 per cent, while consumer discretionary led the losses as well as energy stocks. In this mixed performance, investors bought into defensive shares with utilities, healthcare, consumer staples, and property edging higher.

Why red today?

The reason why the market has see-sawed is due to the unknowns remaining unresolved and fears mounting that a recession could be possible amid an aggressive rate hiking cycle.

Deutsche Bank became the first bank to say that it does see a recession as early as next year as the Federal Reserve hikes rates to fight hot and persistent inflation.

This comes after JP Morgan’s CEO Jamie Dimon pointed out the three major factors that are set to weigh on the economy over the next several decades and how it may lead to a very high risk in the future yesterday.

Mr Dimon cited the points about the war in Ukraine and the humanitarian crisis, as well as inflation and rising interest rates or borrowing costs as well as the economic recovery from the pandemic was of concern. He also noted that the circumstances are completely different from what the country has dealt with in the past, adding that while it is possible for each factor to be resolved peacefully, the US must be prepared for potential negative outcomes.

The 10 year treasury yield hit its highest level in more than two years today, following the indications that the Fed would take a more aggressive approach to fight higher prices with the yield curve inverting again today briefly after multiple times recently, a sign of a slowdown in economic growth.

The yield on the 10-year treasury note settled at 2.55 per cent after rising 15 basis points, while the 2-year landed at 2.51 per cent.

Federal Reserve Governor Lael Brainard said that the US central bank’s task to suppress inflation pressures is “paramount” and flagged that the balance sheet reduction could start as soon as next month, spooking investors after she said that further tightening could follow if needed.

To explain why there were renewed fears is to compare what happened during the heat of the pandemic. Easy monetary policy helped boost the equity markets and the prices on bonds with yields lower, so to put it simply, traders expect the reverse would happen if there is a tightening of policy.

Investors are also looking ahead to the Fed’s latest meeting minutes in the next 24 hours for further signals on the central bank's monetary policy. A lot of eyes will be scanning for clues, hints, and any further colour on the Fed's path forward for raising rates and specifically where it sees inflation heading like it was yesterday with the RBA’s statement.

Zelenskyy at the UN accuses Russia of war crimes

Elsewhere, more accusations of Russian war crimes mount with the loudest coming from Ukraine's President Zelenskyy, calling for members of the Russian military to be responsible for these horrific atrocities in his country to be seen as war crime charges in his speech to the UN.

European countries prepare to target Russia’s coal with new sanctions while the US and allies plan to ban new investments in Russia. It would be the first time the EU as a whole would ban imports of a Russian energy supply.

All 27 members must approve the sanctions before it can take effect with leaders remaining divided on whether to ban Russian oil and gas imports across the board. The reason being is that much of the EU relies on Russia for their energy needs. However, Lithuania was the first EU country to fully ban gas imports from Russia in response to the war.

Covid-19 lockdown extends in China

Elsewhere, the lockdown in Shanghai got extended even as new cases were falling. Many in the city of 25 million people have expressed anger over the restrictions with no indication that they're going to end it anytime soon. As China is a big finance hub and distribution centre, the lockdown affects businesses around the world as the extension means that factories will remain closed for longer. Asian markets are set to resume today after being on leave due to a public holiday.

Tesla CEO joins Twitter board

So we can’t go past the news of what has happened with shares of Twitter, stocks closed 2 per cent higher after Elon Musk took more than a 9 per cent stake in the social media company that led to the 28 per cent surge in the share price yesterday. Well today, Tesla's CEO joined Twitter's board of directors.

Musk has continually criticised Twitter, calling for transparency in the algorithm and also declaring that he's a “free speech absolutist”. Musk also created a poll on what changes could be made such as an edit button on Twitter posting the tweet with a misspelling of the options of ‘yes’ and ‘no’ as a joke with more than 70 per cent of respondents in favour.
 


Figures around the globe

Across the Atlantic, European markets closed mixed. Paris fell 1.3 per cent, Frankfurt lost 0.7 per cent while London’s FTSE closed 0.7 per cent higher.

On the London Stock Exchange, Rio lost 0.2 per cent, BP added 1.4 per cent and Shell rose 0.2 per cent.

In Asian markets, Tokyo’s Nikkei added 0.2 per cent, while Hong Kong’s Hang Seng and China’s Shanghai Composite were closed.

ASX Tuesday wrap & RBA statement deep dive

Yesterday, the Australian sharemarket closed 0.2 per cent higher at 7,528.

The Reserve Bank left its cash rate at a record low of 0.1 per cent with the shine taken off the equities rally after traders realised that the word “patient” was omitted. The hawkish tilt in its post meeting statement signalled that interest rate lift-off is imminent as the data-dependent central bank continues to set its eyes on inflation and wage growth figures.

The tone sent the Australian dollar surging through to 76 cents to the greenback for its first time since June last year, however market participants have been looking past the RBA’s rhetoric for some time, pricing in a series of rate hikes from July this year through till the end of 2023. A situation which bodes well for the Aussie dollar to rally and a headwind for equities for the short term.

While the RBA acknowledged that the annual inflation rate is at 3.5 per cent with the rate at 2.6 per cent excluding volatile items - the preferred figure the central bank watches, the number is currently sitting within the RBA’s target of two to three per cent.

However, Governor Philip Lowe said that “higher prices for petrol and other commodities will result in a further lift in inflation over coming quarters,” a statement which shows that the RBA is yet to be swayed that pricing pressures have cooled.

“The board will assess this and other incoming information as it sets policy to support full employment in Australia and inflation outcomes consistent with the target.”

Meanwhile, market participants were expecting Dr Lowe to provide some colour of the federal budget in his statement which was not mentioned this time round.

Before shares lost steam, the index was trading as high as 0.8 per cent within striking distance of its all-time high set back in August, charged up by tech shares as the best performer, adding 3.5 per cent after investors saw shares in Twitter surge 27 per cent after Elon Musk bought a 9.2 per cent stake in the company worth US$3 billion.

Lifting global sentiment, shares in US Block advanced 8.7 per cent, a move that saw local Block (ASX:SQ2) jump 6.2 per cent to $191.44, Xero (ASX:XRO) rise 4.5 per cent to $108, Wisetech Global (ASX:WTC) gained 2.6 per cent to $53.21 while Altium (ASX:ALU) closed 3.2 per cent higher at $35.40.

Banks closed mixed with Commonwealth Bank (ASX:CBA) added 0.6 per cent at $104.36, Westpac (ASX:WBC) rose 0.6 per cent to $24.05, National Australia Bank (ASX:NAB) rallied 0.3 per cent to $32.18 while Macquarie Group (ASX:MQG) closed 0.5 per cent higher at $207.06. ANZ Bank (ASX:ANZ) bucked the trend, falling 0.3 per cent to $27.04.

Energy shares came in as second best as “possible genocide” in Ukraine spurred the US and EU to prepare fresh sanctions against Russia, sending oil prices higher.

Woodside Petroleum (ASX:WPL) added 2.8 per cent to $33.93, Santos (ASX:STO) rose 2.3 per cent to $8.10, while AGL Energy (ASX:AGL) closed 2.6 per cent higher to $8.24.

Mining giants continued with its breather as BHP (ASX:BHP) fell 1 per cent to $51.95 and Rio Tinto (ASX:RIO) falling 0.4 per cent to $120.24 while Fortescue Metals (ASX:FMG) eked out a gain of 0.09 per cent to $21.72.

Elsewhere, Mineral Resources (ASX:MIN) rallied 5.9 per cent to $59.67 after the company said “unprecedented global customer demand for lithium products” had prompted US-listed Albermarle partner to accelerate resuming production from the Wodgina mine in Western Australia.

SPI futures

Taking all of this into the equation, the SPI futures are pointing to a 0.6 per cent fall.

What to look out for today

With no economic news, keep an eye out for tech shares which could reverse its course from yesterday as the best performer to the worst. US Block shares closed 6.4 per cent lower so keep an eye out for local Block (ASX:SQ2) today.

In broker moves, Morgan Stanley reinstated the coverage for GrainCorp (ASX:GNC) to overweight with a $10 price target.

After the proposed merger with Pendal Group (ASX:PDL), Perpetual (ASX:PPT)’s share price recovered yesterday. Citi believes the merger would likely be earnings per share accretive by as much as mid to high single digits. The broker has retained its buy rating and target price of $40.

Oil and gold prices settled lower overnight which could see some weakness with the likes of Woodside Petroleum (ASX:WPL) and Evolution Mining (ASX:EVN).

Asian markets reopen today and the iron ore futures are pointing to a 3.5 per cent rise, which could bode well for BHP (ASX:BHP) and its circle today.

Coles (ASX:COL) could get a bit of attention today amid an AFR report that Wesfarmers (ASX:WES) sold a $500 million stake in the supermarket giant, which is equivalent to a 2.1 per cent stake in the company at a 1.8 per cent discount to the closing price yesterday of $17.75.

The European infrastructure fund of Macquarie (ASX:MQG) is set to sell Germany's Open Grid Europe as reported by Reuters.

Ex-dividend

There are two companies set to trade without its right to its dividend.

Clover Corporation (ASX:CLV) is paying 0.5 cents fully franked
Turners Automotive (ASX:TRA) is paying 5.5616 cents 85 per cent franked

Dividend-pay

There are 17 companies set to pay eligible shareholders today.

Austin Engineering (ASX:ANG)
Boom Logistics (ASX:BOL)
Big River Industries (ASX:BRI)
CSL (ASX:CSL)
Countplus (ASX:CUP)
Cleanaway Waste Management (ASX:CWY)
Emeco Holdings (ASX:EHL)
Humm Group (ASX:HUM)
Lifestyle Communities (ASX:LIC)
Macmahon Holdings (ASX:MAH)
Motorcycle Holdings (ASX:MTO)
New Energy Solar (ASX:NEW)
Pact Group Holdings (ASX:PGH)
Psc Insurance Group (ASX:PSI)
Qantm Intellectual Property (ASX:QIP)
Servcorp (ASX:SRV)
Ventia Services Group (ASX:VNT)

Commodities

Iron ore is at US$160.80. Its futures point to a 3.5 per cent gain.

Gold has lost $7.40 or 0.4 per cent to US$1927 an ounce. Silver is down $0.14 or 0.6 per cent to US$24.45 an ounce.

Oil has dropped $1.32 or 1.3 per cent to US$101.96 a barrel.

Base metals were mixed with alumina and zinc both falling 2.1 per cent.

Currencies

One Australian Dollar at 7:30 AM has strengthened from yesterday, buying 75.83 US cents (Tue: 75.47 US cents), 57.99 Pence Sterling, 93.71 Yen and 69.51 Euro cents.

Source: Bloomberg, IRESS, TradingView, UBS, Bourse Data, Trading Economics

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