S&P 500 recovers early fall, CSL, Rio, WPL, Cimic, HomeCo Daily Needs REIT on watch: ASX to rise


If you would like listening or watching the outlook report, it's a different version to this so click here in 15 minutes. Thanks for tuning in!

Wall St bounced back, snapping 2-days of losses after investors mull on the hawkish minutes from the Federal Reserve yesterday. US stocks headed into the green by mid-afternoon amid the S&P 500 and the CBOE’s Volatility Index both hitting key technical levels in the afternoon and both turned around at the same time, according to Asbury Research strategist John Kosar. Oil major Shell to write off up to US$5 billion in assets.

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

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

Wall St, oil prices bounce back

US stocks bounced back after two days of losses in another volatile session. Dip buyers emerged after investors weighed minutes from the Fed’s latest meeting released yesterday, saying it would take a more hawkish tilt to combating inflation.

At the closing bell, the Dow Jones added 0.3 per cent to 34,584, the S&P 500 gained 0.4 per cent to 4,500 and the Nasdaq rose 0.1 per cent to 13,897.

Taking a look at the sectors for the S&P 500, energy back in the winner’s corner up 1.4 per cent, while consumer staples was the best performer, gaining 1.8 per cent followed by materials. Real estate was the worst performer, down 0.9 per cent, followed by communication services, utilities, and financials. The rest closed higher on a mixed performance, you can see a mixed sentiment there by investors.

In the treasury market, there was a steepening in the yield curve, the 10-year note rose by 4 points to 2.65 per cent but the 2-year yield dipped by 4 points to a near 2.46 per cent..

The why

Concerns are mounting over whether the Fed’s plans to raise borrowing costs to fight the highest prices seen in 40 years will put the economy into a recession.

St. Louis Fed President James Bullard called for an even more hawkish approach to monetary policy after the March minutes were released. Bullard says that the Fed is making progress in raising rates to combat inflation, but is “behind the curve”, calling for the Fed to hike its short term borrowing rate to around three and a half per cent by the end of the year. That would be a full three percentage point gain from where the Fed’s fund rate currently stands.

"I would like to get there in the second half of this year...We have to move," to get ahead of inflation running at triple the Fed's 2 per cent target, Bullard said. "We are talking about bigger moves than we have made in a long time."

Russia suspended from UN Human Rights Council

Elsewhere, Russia was suspended from the United Nations Human Rights Council after the UN General Assembly voted to ban the country amid accusations of war crimes by Russian soldiers in Ukraine. It is also the second country to have its membership rights stripped at the human rights council, which was established in 2006. Libya was banned in 2011 when upheaval in the north African country overturned its longtime leader Muammar Gaddafi. Meanwhile, Ukraine is appealing to Western countries for help as Russia forms a new offensive in the eastern part of the country.

The penalties on Russia from the US are growing after Congress voted to ban imports of Russian oil, gas and coal. The bill is now set to go to President Biden for a signature. The legislation codifies an executive order from the president last month that banned energy imports from Russia, making it harder for a future president to undo that measure.

Well, Congress also voted to suspend Russia's ‘most favoured nation’ trading status and the move means that tougher tariffs can be placed on Russia. It is a formal confirmation of cutting ties with the country.

Oil major Shell to write off up to US$5 billion in assets

Meanwhile, as the US takes action, companies are moving out of Russia despite the heavy financial impact. The self-sanctioning continues in response to the war. Shell announced plans to write off about US$5 billion in assets after suspending operations in the country. It's the first time we're hearing from a western oil giant about the impact of its own Russian withdrawal. Shell will further outline the impact of this in the earnings reports coming up next month.

Oil prices are on the rise again from a three week low reached in the prior session as concerns grow about the global supply chain. Western nations and the International Energy Agency pledged that they will release more oil from reserves as a crisis in Ukraine goes on.

Jobless claims improve to levels since 1968

In fresh economic news, jobless claims fell to their lowest levels since 1968, coming in at 166,000, reinforcing the narrative of a strong labour market and data to show that the country can withstand an aggressive rate hiking cycle and give the breathing space for the Fed to focus on fighting inflation.

Could China’s lockdown worsen inflation?

A kryptonite to this are the supply chain issues which could worsen amid the lockdown in China. With no end date in sight, if the issues persist, runaway inflation could be on the cards, pulling the Fed to act. The inflation rate it’s at 7.9 per cent, imagine if it moves closer to 10 per cent? We have inflation figures due next week and currently its expected to come in at 8.3 per cent. To keep in mind, the central bank can influence the demand side but a lot of this is on the supply side. This situation could push the economy into recession if the bank's hiking interest rates are too steep to combat inflation.

Figures around the globe

Across the Atlantic, European markets closed lower. Paris fell 0.6 per cent, Frankfurt lost 0.5 per cent while London’s FTSE closed 0.5 per cent lower.

On the London Stock Exchange, Rio lost 0.3 per cent, BP fell 0.9 per cent and Shell dropped 2.1 per cent.

Asian markets closed lower. Tokyo’s Nikkei dropped 1.7 per cent, Hong Kong’s Hang Seng lost 1.2 per cent while China’s Shanghai Composite fell 1.4 per cent.

ASX Thursday wrap

Yesterday, the Australian sharemarket closed 0.6 per cent lower at 7,443 as spooked investors booked their profits on fears of the impact from an aggressive interest rate hiking cycle after a weak lead from Wall St. Technology titans left the session battered down for its second straight day along with the local bourse’s decline again. The Aussie sharemarket is on track to snap its three week winning streak.

Defensive players rose with consumer staples, utilities, and property rallying up to 0.6 per cent to 0.2 per cent while information tech posted a 3.4 per cent tumble from its 2.8 per cent fall from the prior session. Consumer discretionary lost 1.6 per cent, followed by energy down 1.3 per cent and materials, closing 0.7 per cent lower. The other sectors had their feet in the red bath also.

The individual winners included Fortescue Metals (ASX:FMG) rose 0.4 per cent to $21.75 after completing a $2 billion (US$1.5 billion) in senior notes offering more US$800 million for green projects and the balance to general corporate purposes.

Theme park operator Ardent Leisure (ASX:ALG) is set to exit the US entertainment sector after inking a deal to sell its Main Event business to Dave & Busters for $1.1 billion as per the AFR. Shares jumped 6.2 per cent to $1.38. The Aussie operator is slated to receive around $640 million in cash from the deal with the proceeds to be used to repay debt, fund growth in its theme parks business, and return around $0.90 per share, or $430 million, to Ardent shareholders. Following the sale, Ardent’s main business will be only theme parks.

Telstra’s (ASX:TLS) shares closed at session highs of 0.8 per cent to $3.96 after outgoing chief executive Andy Penn says the Digicel deal is set to go ahead after a controversial super tax in Papua New Guinea overshadowing the takeover, according to The Australian.

Magellan Financial Group’s (ASX:MFG) outflow eased to $1.1 billion from March 11 to 31, split between $500 million from retail and $600 million from institutional clients from the $5 billion during the period of February 25 to March 11. Shares surged on optimism as the best performer of the session, closed 11.4 per cent higher to $17.23.

High growth tech titans such as Block (ASX:SQ2), Wisetech Global (ASX:WTC), Xero (ASX:XRO), and Novonix (ASX:NVX) suffered heavy losses of up to 7 per cent with BHP (ASX:BHP) falling 0.7 per cent bucking the trend of Fortescue Metals while Macquarie Group (ASX:MQG) led the fall in the banking circle, closed 1.5 per cent lower.

In broker moves, Ord Minnett has retained its hold rating on ASX (ASX:ASX) and boosted its target price to $85.00 from $84.56. The move comes after the broker noted that derivative volumes fell in March while cash and capital raising transactions rose compared to a year ago, helped by market volatility and BHP making the ASX the primary home. Shares closed 0.8 per cent lower to $82.

Bell Potter retained its buy rating for Mineral Resources (ASX:MIN) and popped its price target by 21 per cent to $74.35. The move comes to reflect the miner’s lithium production plans. Shares closed 0.6 per cent lower to $60.01.

UBS rates Insurance Australia Group (ASX:IAG) as a sell, trimming its price target to $4.10 from $4.20. The broker reviewed its forecast for the insurer and believes the consensus expectations are far above its ability to increase margins into financial year 2023. This comes on the back of rising prices, inflation. The recent floods are set to compound these claims cost pressures. The broker prefers QBE Insurance (ASX:QBE) and Suncorp Group (ASX:SUN). Shares in IAG closed 2.5 per cent lower at $4.27. Shares in QBE closed 2 per cent lower at $11.63 while shares in Suncorp bucked the trend and closed 0.2 per cent higher at $10.84.

Macquarie rates Polynovo (ASX:PNV) as an outperform with its price target of $1.60. The medical device company posted revenue growth of 59 per cent to $12.3 million in March. The broker believes the company will hit its fourth quarter sales in their flagship product Novosorb of $12.2 million and remains positive on the company as a medium to long term candidate. Shares closed 0.4 per cent lower at $1.12.

Citi rates Siteminder (ASX:SDR) as a neutral with a price target of $5. The broker observes that the migration of its existing customers to its new platform is set to chip away at its short-term gross margins but anticipates margin improvement in this current financial year to financial year 2024. Citi expects a 4 per cent margin growth from 81 per cent to 85 per cent in that period. The broker believes that the new platform will open up new selling opportunities due to its improved integration as it is designed to combine, digitise and simplify the ecosystem of booking channels, property management systems, and hotel related activities. Shares closed 3.6 per cent lower $4.81.

Investors closed off the session mulling over news that China paid for Russian coal and oil paid in yuan. The first cargoes are set to arrive this month, according to the Chinese consultancy Fenwei Energy Information Service Co. The deal is the first commodity order paid for in yuan since the US and Europe slapped sanctions on Russia and cut several of its banks off from the international financial system.

SPI futures

Taking all of this into the equation, the SPI futures are pointing to a 0.5 per cent gain.

What to keep an eye out for today

On the economic data front, the Australian Bureau of Statistics is set to release its monthly business turnover indicator report for February. Also, the Reserve Bank has scheduled its bi-annual financial stability review report.

Energy stocks could be in the spotlight after oil prices settled 0.6 per cent higher. Woodside Petroleum (ASX:WPL) is up almost 3 per cent for the week, so keep an eye out today and its circle of friends.

Annual general meetings on deck with Rio Tinto (ASX:RIO) and OZ Minerals (ASX:OZL), while GUD Holdings (ASX:GUD) is set to host its investor day.

In broker moves, Ord Minnett rates CSL (ASX:CSL) as an accumulate with a target price of $295. The blood collecting giant’s latest data on plasma collections flag that volumes continue to move higher despite low staff and donor challenges. The rate of recovery remains challenging, although the broker is confident CSL’s recovery is ahead of the industry, supported by its centre opening strategy. CSL remains the broker’s key preference in the healthcare sector given the strong earnings growth expected in financial year 2023 and financial year 2024, supported by a recovery in plasma collections and benefits from the Vifor acquisition.

Rio Tinto (ASX:RIO) has taken full control of an alumina refinery it owns with United Co. Rusal International PJSC in Australia, formally removing access to a key source of raw material for the Russian aluminium giant, according to Bloomberg.

CIMIC Group (ASX:CIM) will be removed from the ASX 200 and replaced with HomeCo Daily Needs REIT (ASX:HDN) as per S&P Global, as a result of the board approved, off-market takeover offer from HOCHTIEF Australia Holdings.

IPOs

There are two companies set to make their debut on the ASX today. Keep an eye out for Finder Energy Holdings (ASX:FDR) after raising $15 million at 20 cents per share. Also be on the watch out for Noble Helium (ASX:NHE) after raising $10 million at 20 cents per share.

Dividend-pay

There are 23 companies set to pay eligible shareholders today.

CTI Logistics (ASX:CLX)
Coronado Global Resources (ASX:CRN)
Civmec (ASX:CVL)
DDH1 (ASX:DDH)
Embelton (ASX:EMB)
Gryphon Capital Income Trust (ASX:GCI)
Generation Development Group (ASX:GDG)
Invocare (ASX:IVC)
Kina Securities (ASX:KSL)
Lindsay Australia (ASX:LAU)
Laserbond (ASX:LBL)
Link Administration Holdings (ASX:LNK)
Meridian Energy (ASX:MEZ)
Metrics Income Opportunities Trust (ASX:MOT)
Metrics Master Income Trust (ASX:MXT)
National Tyre & Wheel (ASX:NTD)
Qube Holdings (ASX:QUB)
Regis Healthcare (ASX:REG)
Reliance Worldwide Corporation (ASX:RWC)
Spark New Zealand (ASX:SPK)
Vulcan Steel (ASX:VSL)
Wotso Property (ASX:WOT)
Wisetech Global (ASX:WTC)

Commodities

Iron ore has lost 3.2 per cent to US$155.05. Its futures are flat.

Gold has gained $11.40 or 0.6 per cent to US$1935 an ounce. Silver is up $0.25 or over 1 per cent to US$24.71 an ounce.

Oil has added $0.94 or almost 1 per cent to US$97.17 a barrel.

Currencies

One Australian Dollar at 7:20 AM has weakened from yesterday, buying 74.85 US cents (Thu: 75.10 US cents), 57.24 Pence Sterling, 92.77 Yen and 68.81 Euro cents.
 
Source: Bloomberg, IRESS, TradingView, UBS, Bourse Data, Trading Economics

Are you a 708 sophisticated investor?

A sophisticated investor is defined under Section 708 of the Corporations Act (net assets of $2.5 million or annual incomes in excess of $250,000).

They are eligible to receive information regarding wholesale investment opportunities that are not available to regular or retail investors.

Please subscribe if you would like to be alerted to these types of opportunities.