Wall St gains, RBA to meet today, Woolworths, AGL Energy, Sonic Health, AUD on watch: ASX to fall

Market Reports

by Melissa Darmawan

Wall St turned higher ahead of the Federal Reserve’s policy meeting this week. European markets closed lower amid several companies traded without the right to their dividends. ASX set for a muted open ahead of the RBA meeting. 

Good morning. May it get better than April. I’m Melissa Darmawan for Finance News. This is your market outlook.

The Australian sharemarket is looking to extend its decline ahead of the RBA meeting today.

US stocks rally after rough April

Wall St gained after a volatile session as dip buyers emerged for stocks to rally into the close after coming off its worst month in about two years. Shares were down by 1 per cent at one point, then reversed course, a sign that there is a lot of uncertainty which is why we are seeing this volatility.

The bond market posted a major move with the 10-year treasury, peaking above 3 per cent as investors look ahead to the latest interest rate decision while watching the next moves in China and in Ukraine.

At the closing bell, the Dow Jones gained 0.3 per cent to 33,062, the S&P 500 added 0.6 per cent to 4,155 and the Nasdaq gained 1.6 per cent to 12,536.

It’s a mixed finish across the S&P 500 sectors with communication services leading the pack, up 2.5 per cent, information tech added 1.5 per cent, consumer discretionary was next and energy. Defensive sectors closed lower with real estate down 2.5 per cent, followed by consumer staples, utilities, and healthcare.

The yield on the 10-year treasury note rose 5 basis points to 2.98 per cent, gold fell as traders price in an aggressive rate hiking cycle against a stronger greenback.

Why?

Rising yields often indicate a growing economy and we have seen it climb of late. It also reflects the average annual inflation expectations over the next 10 years of just under 2.9 per cent in the US.

So what does this mean for the everyday investor? They expect a higher rate of return than the inflation rate, and that’s finally starting to show up in the bond yield.

Despite the rally, Wall St has a long way before we see sustained gains. The S&P 500 is still 10 per cent below its March 29 level when it reached a multi-month peak. It’s still below its 50-day moving average, indicating that market participants are still not comfortable buying shares at levels consistent with their recent trend.

Aussie dollar sitting at 70.55 cents

The Australian dollar to the greenback has fallen over 2.5 per cent and is sitting with a 70 handle.

Today, what could move the dollar is the outcome from the RBA live policy meeting. The central bank can’t go past the biggest rise in annual inflation of 5.1 per cent, it’s biggest surge in more than 20 years as of the first quarter of this year.

RBA Governor Philip Lowe’s has refrained from raising interest rates until wage growth rose in order. Why? It’s to make sure that inflation is not transitory - we haven’t heard that word for a while!

Bets are on for the first interest rate lift to be unveiled today, which will be the first hike since November 2010.

Economists have been expecting the central bank to hold off until next month after the federal election. This would have allowed the RBA to view the wages growth data due on May 18.

The markets have priced in for a 15 basis point rise, lifting the cash rate to 0.25 per cent, followed by a series of 0.25 per cent hikes thereafter to combat inflation.

Interestingly, the same concerns for both the US Federal Reserve and the RBA prevail. Yes, it’s about determining what their next monetary policy move will be and why, but it is also about their credibility too and the message they send out.

To compare, market participants believe that the Fed is behind the curve, their inflation rate is at 8.5 per cent. Since the RBA has joined the list of hawkish central banks, they have a balancing act to manage controlling inflation on one hand and being mindful of the federal election on the other.

We could see the Aussie dollar rally if a rate hike is announced, however those gains could be limited if the Fed hikes interest rates.

Apple under pressure by EU echoing CBA’s alert last year

Meanwhile, energy officials in the EU gather to discuss potential new sanctions on Russia after Russia cut off Bulgaria and Poland from its gas supply. A sixth round of sanctions could include oil restrictions, raising concerns in countries like Hungary and Slovakia which do rely heavily on Russian oil.

Elsewhere regulators in the EU are accusing Apple of abusing its market power when it comes to mobile payments. We saw the chief executive officer of the Commonwealth Bank (ASX:CBA) Matt Comyn raise a concern in July last year along this line as well. Mr Comyn told a parliamentary committee that Apple is abusing its market powers in the payments space, warning that increased regulation is needed to create a level playing field.

EU antitrust authorities say that the tech giant abused its position by blocking access to the technology behind its contactless payment feature. While Apple could be forced to pay a fine link to the amount that it charges for mobile wallet services. So goes Apple, so goes the market”, the share price closed 0.2 per cent higher at US$157.96.

Figures around the globe

Across the Atlantic, European markets closed lower. Paris lost 1.7 per cent, Frankfurt fell 1.1 per cent while London’s FTSE was closed.

In Asian markets, Tokyo’s Nikkei fell 0.1 per cent, while Hong Kong’s Hang Seng and China’s Shanghai Composite were closed.

Yesterday, the Australian sharemarket closed 1.2 per cent lower at 7347.

SPI futures

Taking all of this into the equation, the SPI futures are pointing to a 0.3 per cent fall.

What to look out for today

ANZ and Roy Morgan are set to release its consumer confidence weekly results and later today, the interest rate outcome from the Reserve Bank of Australia.

There are four companies to keep an eye out for today around results and meetings. Woolworths’ (ASX:WOW) third quarter update is slated.

Santos (ASX:STO), and TPG Telecom (ASX:TPG) have their annual meeting scheduled while Nickel Mines (ASX:NIC) also have in the calendar their extraordinary general meeting.

Four broker downgrades this morning, JPMorgan cut Crown Resorts (ASX:CWN) to neutral from overweight, Evans & Partners cut Ramsay Health (ASX:RHC) to neutral from positive, Wilsons downgraded ResMed (ASX:RMD) to a marketweight with a price target of $306.86, and Jefferies cut Seven West (ASX:SWM) to hold with a price target of 70 cents.

AGL Energy (ASX:AGL) is one to watch amid tech billionaire Mike Cannon-Brookes buying just shy of 11.3 per cent in AGL through derivatives trades after the market closed yesterday, with a view to voting all its holding against the demerger, which needs 75 per cent approval, according to the AFR.

Stock watch

Our weekly stock to watch this week is Sonic Healthcare (ASX:SHL). David Thang, Senior Private Wealth Adviser at Sequoia (ASX:SEQ) rates Sonic Healthcare as a buy. From a technical angle, Sonic Healthcare ticks a number of boxes.

Since printing a high of $46.95 in December 2021, the share price of Sonic Healthcare had entered a corrective phase, and declined by 31.59 per cent to touch a recent low of $32.12 in March. Positively, support was respected at the 50 per cent Fibonacci retracement of $33.51 as shown by the horizontal black line and orange up arrow on the chart. Furthermore, a bullish doji formed at the end of March, which signals momentum to have swung in favour of the bulls.

Should upward traction continue over the months ahead, then an eventual drive towards the $41.29 and $43.78 region (light blue box) could potentially be on the horizon . These price levels are made up of the 61.8 and 78.6 per cent Fibonacci retracement levels respectively.

Shares in Sonic Healthcare (ASX:SHL) closed 1.9 per cent lower at $36.02 yesterday.



IPOs

There are two companies set to make their debut on the ASX today. Keep an eye out for Equity Story Group (ASX:EQS) after raising $5.5 million at 20 cents per share. They are a stock market trading advice, research and investor education provider, and Sierra Nevada Gold (ASX:SNX) after raising $12.5 million at 50 cents per share.

Ex-dividend

There is one company set to trade without the right to its dividend.

Acorn Capital Investment Fund (ASX:ACQ) is paying 4.25 cents fully franked

Dividend-pay

There is one company set to pay eligible shareholders today.

Brickworks (ASX:BKW)

Commodities

Iron ore futures point to a 4.2 per cent gain.

Gold has lost $48.10 or 2.5 per cent to US$1,864 an ounce. Silver was down $0.50 or 2.2 per cent to US$22.58 an ounce.

Oil has gained $0.48 or 0.5 per cent to US$105.17 a barrel.

Currency

One Australian Dollar at 7:40 AM has weakened from yesterday, buying (Mon: 70.68 US cents), 56.50 Pence Sterling, 91.82 Yen and 67.18 Euro cents.

Disclaimer

The views, opinions or recommendations of the commentators in this presentation are solely those of the author and do not in any way reflect the views, opinions, recommendations, of Sequoia Financial Group Limited ABN 90 091 744 884 and its related bodies corporate (“SEQ”). SEQ makes no representation or warranty with respect to the accuracy, completeness or currency of the content. Commentators may hold positions in stocks mentioned. The content is for educational purposes only and does not constitute financial advice. Independent advice should be obtained from an Australian Financial Services Licensee before making investment decisions. To the extent permitted by law, SEQ excludes all liability for any loss or damage arising in any way including by way of negligence.


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

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