Nasdaq enters bear market, March inflation, AUD, Northern Star, AMP on watch, ASX to tumble


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Global markets fell into negative territory while energy stocks recovered as oil prices rebounded. US stocks were in meltdown mode as tech stocks continued to underperform. Join me for the three main reasons why the sell-off occurred. March CPI figures due today.

Nasdaq enters bear market

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

The Australian sharemarket is set for a painful day after a steep sell-off on Wall St.

Nasdaq enters bear market

US stocks were in meltdown mode as tech stocks continued to underperform which has been the case all year. Several big tech giants are set to report earnings results after the bell which means it will dictate the path forward for their share price the following day.

However, today it appears that investors were concerned after Netflix's massive sell-off, following its own disappointing results, prompting the big tech names to close in deep negative territory ahead of their results.

Wall Street is also monitoring the potential of an economic slowdown stemming from rising Covid-19 cases in China, while Russian officials are saying not to underestimate the risk of a nuclear war in Ukraine.

There are a lot of factors moving the stock market with the biggest concern as to whether or not the US will slip into a recession. April, traditionally a strong month, all this ahead of what next month means, a time when investors “sell in May then go away” amid these major indexes, closing at session lows retesting this March 2022 or May 2021 low.

At the closing bell, the Dow Jones lost 2.4 per cent to 33,240, the S&P 500 dropped 2.8 per cent to 4,175 and the Nasdaq dived almost 4 per cent to 12,491, closing below 12,500.

Across the S&P 500 sectors, energy was the outlier and the best performer, eked out a gain of 0.04 per cent, as oil prices rose above US$100 per barrel in volatile trading, rebounding from a 5 per cent loss in the past 2 sessions. This bounce got a boost amid China’s central bank pledging to increase support for the economy after a testing blitz occurred to most of the city. The rest of the sectors closed lower led by consumer discretionary, tumbling 5 per cent, followed by information tech, down 3.7 per cent. The losses were in the range of 2 to 3 per cent.

The yield on the 10-year treasury note fell 9 basis points to 2.74 per cent, gold rose but prices remain near their lowest level since February, and so did the greenback as investors search for safety.

Why this massive sell off?

Firstly, during the heat of the pandemic amid the easy monetary stimulus, investors tolerated massive valuations on these big tech stocks. The big five titans were trading at 50 per cent premium to the rest of the index, when five years ago they were trading at a 20 per cent premium to say it simply. Now, the stay at home stocks and the safety of the Fed balance sheet is starting to unwind with Netflix signalling a huge warning after their results, which is why tech severely was punished today.

Secondly, traders reflected on the past when the Fed last ended quantitative easing in 2014. Back then, the market had an entire year to absorb the fact that the central bank’s support was no longer around. The S&P 500 sold off by 20 per cent and the central bank didn’t hit a soft landing, so a recession.

Thirdly, what we have now is a different story with other global macro pressures which includes the war in Ukraine and the price of soft and hard commodities, hitting all time highs, the strained supply chain and now the second largest economy in the world, China extending its lockdown with no end date in sight.

This is all weighing on investors as they climb the wall of worries.

Twitter CEO tells staff that future is uncertain under Musk

We can’t go past what’s happened with Twitter with the social media company’s future being uncertain once Tesla CEO Elon Musk takes over. CEO Parag Agarwal reportedly told staff during a company town hall meeting last night that things are up in the air, following Musk who struck a US$44 billion deal to buy the company and take it private, according to Reuters. Twitter stocks closed 3.9 per cent lower.

Elon Musk secured US$25.5 billion dollars to finance the Twitter deal including US$12.5 billion in loans against his own Tesla shares.

Musk is set to join Twitter staff for a Q&A session in the near term while the Twitter CEO deferred many questions around whether there will be any layoffs or major changes, saying that they should be answered by Musk.

As staff are concerned about Musk leading Twitter, Tesla investors looked like they were even more concerned. The stock closed 12.2 per cent lower, underperforming the broader market quite significantly.

Dorsey says Musk ‘is the singular solution I trust’

If the deal goes through, Musk would be CEO of Tesla, Twitter and SpaceX and three other companies, a pretty full plate, however, he is the world's richest person and in the broader picture, a lot of his wealth does come from Tesla.

Musk received mixed reviews from some of his peers following news of the takeover. Jeff Bezos, another one of the world's richest people, suggested that Musk's leadership could help China gain a foothold and greater influence over Twitter due to the Tesla CEOs business ties to China. But on the other hand, Jack Dorsey noted that Musk is the “singular solution that I trust” to run a social media site. Dorsey co-founded Twitter and led not once, but twice as the CEO.

Aussie dollar stabilises at 2-month low

Meanwhile, our Australian dollar has stabilised and is close to a two month low. Market participants are going to be looking out for the March inflation report for March, with consumer prices expected to accelerate to 4.6 per cent over the year, after a 3.5 per cent gain in February.

This would mark the highest rate of inflation since the global financial crisis, as soaring food and fuel prices continue to push inflation higher.

If March figures come in as expected, the RBA may well respond with a rather lofty 0.40 per cent increase at the policy meeting next month. This could give a nice boost to the Australian dollar.

The central bank last raised rates in 2010 with economists saying that a rate hike is likely after the election. The problem is that as inflation continues to rise, monetary authorities might have to jump in and curtail it sooner rather than later.

Our Aussie dollar has reaped the benefits amid the surge in commodity prices, however with the scene in China and the decline in the iron ore price, our Aussie dollar is falling in tandem. Adding to the concerns is China’s economic growth set to weigh on our dollar given that China is our largest trading partner.

Figures around the globe

Across the Atlantic, European markets closed lower. Paris lost 0.5 per cent, Frankfurt fell 1.2 per cent while London’s FTSE added 0.1 per cent.

On the London Stock Exchange, Rio gained 1.5 per cent, BP added 2.9 per cent andShell advanced 2.4 per cent.

Asian markets closed mixed. Tokyo’s Nikkei added 0.4 per cent, Hong Kong’s Hang Seng gained 0.3 per cent while China’s Shanghai Composite lost 1.4 per cent.

Yesterday, the Australian sharemarket closed 2.1 per cent lower at 7,318. Join me here for “Miners drill deep as Beijing blues crush ASX, closing 2.1% lower”

SPI futures

Taking all of this into the equation, the SPI futures are pointing to a 1.5 per cent fall.

What look out for today

Other than the CPI print and our Aussie dollar, production updates are on the cards. Champion Iron (ASX:CIA), Coronado Global (ASX:CRN), Gold Road Resources (ASX:GOR), Iluka Resources (ASX:ILU), Northern Star (ASX:NST), and Ramelius Resources (ASX:RMS) while Downer EDI (ASX:DOW) has its investor day today.

We have quite a few broker upgrades, starting with Morningstar upgrading its rating for Aristocrat Leisure (ASX:ALL) to a buy from hold, Iluka Resources (ASX:ILU) raised to a hold from Sell, Mineral Resources (ASX:MIN) to hold from buy, and Washington H. Soul Pattinson (ASX:SOL) to buy from hold.

Morgan Stanley has cut Beach Energy (ASX:BPT) to underweight from equal Weight while Canaccord has dropped EML Payments (ASX:EML) to hold from buy.

United Malt (ASX:UMG) received two ratings, one is a cut to hold from at Morgans while Credit Suisse raised it to outperform from neutral.

A company to watch, real estate firm Dexus (ASX:DXS) is close to striking a deal with AMP’s (ASX:AMP) real estate and infrastructure arm, Collimate Capital according to Bloomberg in a deal valued at $300 million.

Dividend-pay

There are 2 companies set to pay eligible shareholders today

360 Capital Group (ASX:TGP)
360 Capital REIT (ASX:TOT)

Commodities

Iron ore has gained 2.4 per cent to US$138.95. Its futures point to a 2.9 per cent gain.

Gold has gained $8.10 or 0.4 per cent to US$1,904 an ounce. Silver is down $0.14 or 0.6 per cent to US$23.59 an ounce.

Oil has gained $3.16 or 3.2 per cent to US$101.70 a barrel.

Currencies

One Australian Dollar at 7:35 AM has weakened from yesterday, buying 71.24 US cents (Tue: 71.82 US cents), 56.67 Pence Sterling, 90.65 Yen and 66.95 Euro cents.

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

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