Wall St falls on inflation spike, Oil jumps 7%, EML, AdBri, Lynas, Sims on watch: ASX to open lower


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Wall St's rally was short lived after March inflation data came in line with estimates. Asia was mixed as Premier Li encouraged Chinese companies to buy back stock amid an easing of Covid-19 restrictions in Shanghai. Putin says peace talks is a ‘dead end’. Oil prices jump to US$100 a barrel.

Good morning. It's hot, hot, hot! I’m Melissa Darmawan for Finance News. This is your market outlook.

The Australian sharemarket is set to edge lower after a weak session on Wall St.

Wall St turns lower on inflation spike

US stocks turned lower after the latest read on inflation showed a rise in consumer prices resetting a fresh 40 year high. Economists believe that rising inflation may be priced into the markets indicating that inflation could be hitting a peak. The rebound in equities was short lived as oil prices rebounded above the US$100 level.

At the market close, the major indexes all closed 0.3 per cent lower, a trio there. The Dow Jones fell 0.3 per cent to 34,220, the S&P 500 lost 0.3 per cent to 4,397 and the Nasdaq closed 0.3 per cent lower at 13,372.

Across the S&P 500 sectors, the energy sector was the best performer up 1.7 per cent, followed by utilities by 0.4 per cent, followed by consumer discretionary by 0.2 per cent. Materials eked out a gain of 0.04 per cent. The other sectors closed lower with financials leading the declines ahead of the banks reporting their earnings, down 1.1 per cent, followed by healthcare.

Inflation rises as oil prices soar

The latest inflation figure didn’t see a sell off in bonds which would have pushed the yield higher. The 10-year treasury yield fell 11 basis points to 2.40 per cent, gold rose on a weaker greenback.

Headline consumer price for March was up 8.5 per over the year to a new 40 high driven by a surge in energy prices. Core prices were softer than expected, helped by fall in used-car prices however shelter costs were still elevated.

Interestingly, markets rallied after digesting these numbers then turned lower as renewed nervousness about the rapid recent bond yield rally, tightening financial conditions, policy-error concerns and potential downside risk to first quarter earnings overshadowed by geopolitical uncertainty weighs.

China partially ease lockdowns, Putin says peace talks is a ‘dead end’

Stocks remain volatile as investors closely monitor the commodity prices as the Russian war in Ukraine shows no sign of ending anytime soon. Russian President Vladimir Putin says that peace talks with Ukraine have hit a ‘dead end’ as he spoke publicly after a prolonged silence.

Oil prices are back with a $100 handle after the correction, following plans to tap into the strategic petroleum reserve. Offshore, China eased lockdowns in some residential compounds while the words from President Putin on a tight market provided support for oil prices to stay there. If inflation has peaked according to analysts, it could mean that the Fed’s aggressive hiking plan could ease, which is a good news story for commodities.

‘China put’ in force as Li issues 3rd growth warning

Meanwhile, stocks on the Shanghai stock exchange bounced back by 1.5 per cent as investors piled into equities on speculation that policy makers will take measures aimed at reviving economic growth.

Bets that authorities will take measures have intensified after Premier Li Keqiang issued a third warning about economic growth risks in less than a week, lifting consumer sentiment. The move comes after stocks plunged on Monday as investors climbed the wall of worries on China's worsening Covid outbreak, regulatory uncertainties and rising global interest rates to combat inflation.

Figures around the globe

European markets closed lower. Paris fell 0.3 per cent, Frankfurt lost 0.5 per cent while London’s FTSE dropped 0.6 per cent.

On the London Stock Exchange, Rio gained 1.4 per cent, BP advanced 2.4 per cent and Shell added 1.4 per cent.

Asian markets closed mixed. Tokyo’s Nikkei lost 1.8 per cent as technology names led the declines amid stretched valuations., Hong Kong’s Hang Seng added 0.5 per cent while China’s Shanghai Composite gained 1.5 per cent after China’s securities watchdog encouraged listed companies to buoy the equity markets via share repurchases.

ASX Tuesday wrap

Yesterday, the Australian sharemarket closed 0.4 per cent lower at 7,454 as healthcare and tech stocks were sold off as the local bourse fell to a two-week low as soaring bond yields and mounting fears from Shanghai’s lockdown clouded investor’s global outlook on inflation.

China opened the week with consumer and producer prices coming in higher than expected with Wall St and Main St expecting the headline inflation rate to come in at 8.4 per cent from the 7.9 per cent in February which hit a fresh 40 year high.

Investors bought into the precious metal miners as an inflation hedge with Northern Star (ASX:NSM) rising 1.4 per cent to $10.82 while Evolution Mining (ASX:EVN) closed 2.5 per cent higher to $4.50.

The future value of growth stocks like tech spooked investors as a rally in treasury yields puts these stocks under pressure. These concerns have persisted as information tech is sold off for its fifth straight session on the local bourse.

At one point, Zip Co (ASX:Z1P) hit a fresh two-year low though closed 5.7 per cent lower at $1.32. Afterpay-owner Block (ASX:SQ2) released accounts showing that buy now pay later provider’s net loss soared to $345.5 million for the six months ending December 31 of last year from $79.2 million in the prior corresponding period. Block closed 0.4 per cent lower at $163.80.

Declines in Wisetech (ASX:WTC) of 2.2 per cent to $47.34, Appen (ASX:APX) down 3.1 per cent lower at $6.35 while Megaport (ASX:MP1) tumbled 4.7 per cent at $11.92 which didn’t help with trader's sentiment while health players like blood giant CSL (ASX:CSL) falling 1.3 per cent at $261.97 and Resmed (ASX:RMD) tumbled 3.4 per cent to $32.05 pushed its relevant sector to the worst performer of the session.

ANZ Bank (ASX:ANZ) led the falls in the banking circle amid a broker downgrade while NAB (ASX:NAB) shed the least by 0.1 per cent at $32.94. Macquarie Group (ASX:MQG) bucked the trend, rising 0.6 per cent to $203.13.

The Australian business survey from NAB showed a surprise jump in confidence and conditions as resilient demand offset cost growth however did very little to offset the weak session.

Bluescope Steel (ASX:BSL) jumped 2.5 per cent to $21.26 amid ETF provider State Street now having a 5 per cent stake in the company according to a regulatory holding.

Iress (ASX:IRE) dropped its plans to sell off its UK mortgages business due to increased global market volatility and declining tech company valuations. Shares closed 1.7 per cent higher at $11.80.

Pendal Group (ASX:PDL) intends to commence an on-market share buyback of up to $100 million following the release of its financial results for the six months to March 31, scheduled for May 10 this year. Meanwhile the fund manager shunned the takeover bid received by Perpetual (ASX:PPT) as it “significantly undervalues” its current and future value and therefore is not in the best interests of shareholders. Shares closed 0.2 per cent lower to $5.29.

Lynas Rare Earths (ASX:LYC) reported a record quarter for the period ending March 31. Lynas delivered record sales revenue of $327.2 million, up from $202.7 million in the prior corresponding period. The company reported record sales receipts of $262 million, up from $151 million in the prior corresponding period. Revenue was also up more than 60 [per cent from the three months to December 2021 and confirms analysts’ forecasts for a record 12 months for Lynas when it rules off its books on June 30. The surge in revenue came as the price for neodymium-praseodymium continued to rise in the quarter. Shares closed 1.4 per cent lower at $9.68.

Meanwhile Pilbara Minerals (ASX:PLS) revealed problems with labour shortages in its WA spodumene business in its March quarter update. The company revealed a rising instance of community transmission of Covid-19 in WA had seen a fall in availability of staff and contractors impacting production. The miner expects this to affect operations for the meantime through to the June quarter. The form of uncertainty regarding production forecasts led to a sell-off. Shares tumbled 5.8 per cent to $2.90 as the third worst performer of the session.

Amid news that Commonwealth superannuation corporation is in late-stage talks for a 20 per cent stake in Uniti Group (ASX:UNI) as part of its buyout, according to the AFR. Shares rose 2.6 per cent to $4.80.

UBS dropped its price target for Woodside Petroleum (ASX:WPL) by 5 per cent to $32.90 and maintained its neutral rating. The oil major published the Independent Expert's Report for its proposed merger with BHP’s petroleum arm, valuing it up to 19 per cent lower than UBS’ estimate. The fall in the price target is due to the broker’s reduced valuation for two oil fields in West Africa and Mexico. Shares closed flat at $32.06.

Morgan Stanley downgraded ANZ’s (ASX:ANZ) rating to equal-weight from overweight with a price target of $28.60. The broker cites several ongoing challenges including a weaker outlook in New Zealand with falling margins and lower non-interest income set to weigh on revenue this year. The broker believes that the bank has weaker volume growth compared to its peers, reducing its price target by 6 per cent to $28.60 from $30.30. Shares closed 1 per cent lower at $27.42

Macquarie downgraded Nearmap (ASX:NEA) to neutral from outperform with a target price of $1.40. The broker believes that the aerial imagery company is set to face headwinds penetrating the North American market for the claims insurance segment due to being late to the game. Macquarie cited that its competitor EagleView holds strong measuring technology patents compared to the company as Nearmap faces limitations on software integration. Shares closed 3.9 per cent lower to $1.34.

Goldman Sachs has upgraded three companies, including Mineral Resources (ASX:MIN) raised to buy from neutral, shares fell 0.2 per cent lower to $59.16, OZ Minerals (ASX:OZL) to a buy from neutral, shares dropped 1.1 per cent at $25.45 and Sandfire Resources (ASX:SFR) raised to neutral from a sell with shares closing 0.2 per cent higher to $5.54.

The best-performing stock was Regis Resources (ASX:RRL), closing 4.7 per cent higher at $2.21. It was followed by shares in Elders (ASX:ELD) and St Barbara (ASX:SBM).

The worst-performing stock was Imugene (ASX:IMU), closing 8.7 per cent lower at $0.21. It was followed by shares in City Chic Collective (ASX:CCX) and Pilbara Minerals (ASX:PLS).

SPI futures

Taking all of this into the equation, the SPI futures are pointing to a 0.1 per cent fall.

What to keep an eye out for

In economic news, we have more sentiment results today, this time from Westpac and Melbourne Institute for their April consumer confidence report which is sitting at its lowest level since September 2020. Eyes will be on any colour views around the Federal Budget which saw several ‘cost of living’ support measures including a temporary halving in fuel excise costs.

The Australian Bureau of Statistics has also scheduled the building activity data for the December quarter of last year.

Following the rebound in the oil price, energy stocks could be on the rise. Keep watch for Woodside Petroleum (ASX:WPL) and its circle.

In terms of broker moves, Morgan Stanley lowered AdBri (ASX:ABC) to equal weight from overweight. Goldman Sachs has reinstated its coverage for Lynas (ASX:LYC) with a neutral rating with a price target of $9.50. Morningstar bumped Megaport’s (ASX:MP1) rating to a buy from a hold while the analysts at Citi raised Webjet’s (ASX:WEB) rating to a buy with a price target of $6.50.

EML Payments (ASX:EML) is a stock to watch amid takeover talks with private equity firm Bain Capital, according to the AFR.

Iluka Resources (ASX:ILU) has their annual general meeting today. Keep in mind that the company reported net profit after tax for the full year coming in above analysts’ estimates underpinned by strong operating performance and increased demand offsetting supply side challenges.

Chorus (ASX:CNU) amid news that fibre connections rose to 939,000 with fibre uptake across the completed ultra fast broadband footprint rising to 69 per cent from 67 per cent.

Scrap metals group Sims (ASX:SIM) amid news to take early steps in trying to decarbonise the economy, according to the AFR.

IPOs

There is one company set to make its debut on the ASX today. Keep an eye out for Firetail Resources (ASX:FTL) after raising $8.125 million at 25 cents per share.

Ex-dividend

There are three companies set to trade without the right to its dividend.

Duxton Water (ASX:D2O) is paying 3.2 cents fully franked
Future Generation Investment Company (ASX:FGX) is paying 3 cents fully franked
WAM Leaders (ASX:WLE) is paying 4 cents fully franked

Dividend-pay

There are five companies set to pay eligible shareholders today.

KKR Credit Income Fund (ASX:KKC)
News Corporation (ASX:NWS)
Southern Cross Electrical Engineering (ASX:SXE)
TPG Telecom (ASX:TPG)
Woolworths Group (ASX:WOW)

Commodities

Iron ore has gained 2.8 per cent to US$154.85. Its futures point to a 3 per cent gain.

Gold has gained $27.90 or 1.4 per cent to US$1976 an ounce. Silver is up $0.75 or almost 3 per cent to US$25.74 an ounce.

Oil has jumped $6.31 or 6.7 per cent to US$100.60 a barrel.

Currencies

One Australian Dollar at 7:40 AM has strengthened from yesterday, buying 74.56 US cents (Tue: 74.21 US cents), 57.34 Pence Sterling, 93.48 Yen and 68.88 Euro cents.

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

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