Mixed finish on Wall St after tech rout, Star, Cochlear, Woodside, Coles on watch: ASX to rise

Market Reports

by Melissa Darmawan

Major US benchmarks almost rallied in tandem after a volatile session. Deep dive on why tech shares underperformed. Musk agrees to pay Twitter a US$1b 'breakup' fee. What corporate earning themes to keep an eye out for in today's production updates with Fortescue Metals (ASX:FMG), Newcrest Mining (ASX:NCM), and Coles (ASX:COL) on the docket.

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

The Australian sharemarket is set to rebound in what’s been a volatile week and certainly a volatile year.

Wall St's attempt to rally after tech-led selloff

US stocks almost made a comeback with the Nasdaq as the outlier, closing at a new low for the year after its 4 per cent dive yesterday. The tech index saw an intraday reversal after trading higher, a pattern that we have seen recently, setting us up for receding growth as investors await the US GDP figures tomorrow which are expected to rise just 1.1 cent in first quarter versus 6.9 per cent in fourth quarter.

We are still in the heart of the corporate earnings season as results come in, helping boost investor’s optimism. However, these results come in on a backdrop of high inflation and concerns about global growth that have led to more volatility.

At the closing bell, the Dow Jones gained 0.2 per cent to 33,302, the S&P 500 also added 0.2 per cent to 4,184 and the Nasdaq closed flat 12,489.

Across the S&P 500 sectors, resources stocks were in the spotlight with materials and energy both added 1.5 per cent each, followed by information tech up 1.4 per cent. The laggards were communication services, down 2.6 per cent as the Twitter sell off continues with your defensive sectors closing lower. A mixed finish there with five winners to six losers.

The yield on the 10-year treasury note rose by 7 basis points to 2.84 per cent, gold fell on a stronger greenback.

Why?

Even though there was almost a relief rally across the major indexes, market participants are sceptical of any sort of long term rally. Analysts believe the tech sell-off has been extreme amid concerns over a hawkish central bank and uncertainty with China’s economic growth. Traders have taken a cautious approach for the coming quarters, however consensus is that tech shares are heavily discounted.

However, recession fears grow on Wall Street with a new report from Deutsche Bank raising the flag. The investment banking giant was the first on Wall Street to forecast a recession as inflation sits at the highest level with prices rising at their fastest pace in more than 40 years.

Musk agrees to pay Twitter a US$1bn 'breakup' fee

There’s been more developments in Elon Musk's Twitter takeover, as he might be on the hook for a $1.4 billion (US$1 billion) fee to Twitter if he can’t secure financing to cover his $62 billion (US$44 billion) bid of the social media giant. On the other hand, Twitter will owe Musk a breakup fee of $1.4 billion (US$1 billion) if the transaction falls through or if a competing offer is presented or if shareholders vote against the deal.

Well, Twitter's co-founder and former CEO Jack Dorsey is also set to benefit. Dorsey said he would reportedly walk away with nearly US$1 billion dollars in cash after his shares in the company are converted to cash in the event of a deal. The board unanimously approved the deal on Monday from Musk to buy the company for $54.20 with the aim to take it private. Shares in Twitter closed 2.1 per cent lower to US$48.64.

In more news about Musk, a federal judge rejected his request to throw out a securities fraud settlement over tweets claiming that Musk had the funding to take Tesla private in 2018. The ruling means that Musk may still need to have his own tweets approved before posting them even though he would own the platform himself. The settlement stems from the infamous tweet saying he secured funding to take Tesla private, but it turned out that he hadn't secured that funding. Shares in Tesla rose 0.6 per cent higher.

Corporate earning themes

There are lots of moving pieces in the latest batch of earnings with big themes including, cloud momentum with the tech giants, strong reopening demand, pricing power, continued supply chain strain, input price pressures (inflation), labour shortages particularly with the miners, and geopolitical and currency headwinds. Keep these front of mind as we cover what to look out for today.

On the data front, March pending home sales dropped for the fifth consecutive month amid the higher-rate backdrop.

Germany shows sign to gradually ban Russian oil

Meanwhile, Russia's move to cut off gas supplies to Poland and Bulgaria, though Germany showed signs of support for a gradual ban on Russian oil. Even though this is a positive sign, the market hasn’t priced this in as it will take time.

Energy traders also digested the EIA crude oil inventory report posting a small build amid a stronger greenback - this means it costs more to buy. There are a lot of cross currents here, but for now, oil prices have found a level of support with a US$100 handle, however the kryptonite to this is a stronger greenback. On another note, gold was left behind amid the equity rebound and a rally in the US dollar.

China's twin Covid outbreaks shows signs of stabilising

Elsewhere, focus on Chinese President Xi's call to step up infrastructure construction while China's twin Covid outbreaks show tentative signs of stabilising. This bodes well for our iron ore miners locally.

Figures around the globe

European markets closed higher. Paris added 0.5 per cent, Frankfurt gained 0.3 per cent while London’s FTSE rose 0.5 per cent.

On the London Stock Exchange, Rio gained 4.1 per cent, BP lost 0.3 per cent and Shell added 0.3 per cent.

Asian markets closed mixed. Tokyo’s Nikkei lost 1.2 per cent, Hong Kong’s Hang Seng added 0.1 per cent while China’s Shanghai Composite jumped 2.5 per cent.

Yesterday, the Australian sharemarket closed 0.8 per cent lower at 7,261.

SPI futures

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

What to look out for today

As we look to rebound today, resources stocks are in the spotlight, so your energy and mining stocks.

We have a big docket of miners set to release a production update, including Fortescue Metals (ASX:FMG), Newcrest Mining (ASX:NCM), Nickel Mines (ASX:NIC), Pilbara Minerals (ASX:PLS), Regis Resources (ASX:RRL), Sandfire Resources (ASX:SFR), St. Barbara (ASX:SBM) on the docket. Plus Coles Group (ASX:COL), Clinuvel (ASX:CUV), Growthpoint (ASX:GOZ) and Mirvac (ASX:MGR) on the list.

In broker moves, Morningstar upgraded two companies, Credit Corp. (ASX:CCP) to a buy from hold, Technology One (ASX:TNE) to a hold from sell. Credit Suisse upgraded Iluka Resources (ASX:ILU) to outperform from neutral while JP Morgan raised Northern Star (ASX:NST) to overweight from neutral also. Morgan Stanley cut Sigma Healthcare (ASX:SIG) to underweight while Goldman Sachs downgraded Star Entertainment (ASX:SGR) to neutral from a buy.

In terms of companies, Japanese giant Mitsui & Co has started sounding out potential buyers for its oil and gas joint ventures with Woodside Petroleum (ASX:WPL), fuelling expectations of a potential divestment, according to the AFR.

The Star Entertainment Group (ASX:SGR) allegedly underpaid $2.5 million in NSW state taxes in 2020 by failing to properly categorise gamblers as overseas for Australian residents, an inquiry into its suitability to hold a NSW casino licence heard, according to the AFR.

Hearing implant maker Cochlear (ASX:COH) is sounding out global consolidation opportunities with a deal to acquire Danish competitor Oticon Medical for $170 million (DKK850 million), in a move that if successful would lift its patient base by 75,000 hearing implant recipients.

Ex-dividend

There are 8 companies set to trade without the right to its dividend.

Acrow Formwork (ASX:ACF) is paying 1.2 cents 20 per cent franked
Gryphon Capital (ASX:GCI) is paying 0.76 cents unfranked
Katana Capital (ASX:KAT) is paying 0.5 cents fully franked
Kkr Credit Income Fund (ASX:KKC) is paying 1 cent unfranked
Perpetual Credit Income Trust (ASX:PCI) is paying 0.3884 cents unfranked
Qualitas Real Estate Income Fund (ASX:QRI) is paying 0.7556 cents unfranked
Steamships Trading (ASX:SST) is paying 22.95 cents unfranked
360 Capital Enhanced Income Fund (ASX:TCF) is paying 3 cents unfranked

Dividend-pay

There are 5 companies set to pay eligible shareholders today.

Clime Capital (ASX:CAM)
Clover Corporation (ASX:CLV)
COG Financial Services (ASX:COG)
Image Resources Nl (ASX:IMA)
SRG Global (ASX:SRG)

Commodities

Iron ore has gained 1.1 per cent to US$140.45. Iron ore futures point to a 2.2 per cent gain.

Gold has lost $15.40 or 0.8 per cent to US$1,889 an ounce. Silver is down $0.08 or 0.4 per cent to US$23.51 an ounce.

Oil has gained $0.32 or 0.3 per cent to US$102.02 a barrel.

Currencies

One Australian Dollar at 7:40 AM has strengthened from yesterday, buying 71.27 US cents (Wed: 71.24 US cents), 56.81 Pence Sterling, 91.56 Yen and 67.50 Euro cents.

Source: Bloomberg, FactSet, 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.