Wall St tumbles, Iron ore dives ahead of China data, Westpac, Medibank Private on watch: ASX to fall

Market Reports

by Melissa Darmawan

Global sell-off extended on Friday despite a strong April jobs report. Japan’s Nikkei bucked the trend, rallying after coming back from a holiday. The US and its G7 allies impose a new round of sanctions in a special virtual meeting on Russia a day before president Vladimir Putin marks the anniversary of the end of World War II. ANZ Bank (ASX:ANZ) trades ex-div today.

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

The Australian sharemarket is set to fall after tumbling to a 2.5 month low on Friday.

US stocks extend losses in an ugly week

Wall St extended its losses with the major indexes notching weekly losing streaks in a tumultuous week. The S&P 500 fell for five straight weeks, the Dow for six, while the Nasdaq posted its longest losing streak since 2012 amid the 10 year yield, adding over 20 basis points for the week as uncertainty continues to linger around inflation, and if the rate hiking cycle will send the economy into a recession.

At the closing bell, the Dow Jones fell 0.3 per cent to 32,899, the S&P 500 lost 0.6 per cent to 4,123 and the Nasdaq dropped 1.4 per cent to 12,145.

Across the S&P 500 sectors, energy and utilities were the only two sectors higher by 2.9 per cent, and 0.8 per cent respectively. Materials led the declines by 1.4 per cent, followed by communication services, and consumer discretionary, both losing 1.3 per cent each. The rest closed lower.

The yield on the 10-year treasury note rose 7 basis points to settle at 3.13 per cent, prices lower, gold and the greenback strengthened.

Why the red after the rebound?

Investors are wondering what it means for companies with high valuations as the kick-off from global central banks, raising interest rates continues, all this on a backdrop of a strong global economy.

We have seen the Nasdaq and tech shares both on Wall St and back home take it on the chin as investors opt for sectors that tend to perform well in a high inflation and low growth environment. Friday’s performance was an example of it as money flowed back into the safe haven metal and commodities, including energy stocks.

It’s interesting to see how the inflation cycle has changed before the pandemic and now. In response, central banks injected massive amounts of money into the system. This led to people spending way more than the economy’s ability to produce goods and services, so as a result, prices went higher. This is called monetary inflation. Prior to this, simply said, central banks would tighten policy to pre-empt inflation and the indicators showed a stable economy.

Right now, analysts are saying that we could be at peak inflation with prices in the US, rising for 11 months in a row. This week, we are likely to ride the rollercoaster as the consumer price report is expected to show a mild increase.

Either way, for investors to buy back into stocks, signs of easing inflation need to be on the cards. Why? It means that the interest rate hiking cycle won’t have to be so aggressive and reduces the possibility of a recession, however there are many views out there who believe that this will be a challenge.

Meanwhile, market participants digested another strong jobs report with wages growth starting to slow down. The labour market is tight and will support the Fed’s rhetoric to raise interest rates by no more than 50 basis points. However, the Jackson Hole Symposium is at the end of August where central bankers, economists and market participants meet to talk about monetary policy and financial regulation so anything can change.

Oil prices moved higher, closing 1.4 per cent higher to US$109.77 a barrel on Friday as traders kept a close eye on the looming sanctions on Russian oil. We are in a tight supply and it takes time for production to increase amid the global macro environment, this bodes well for further upside to the price.

Figures around the globe

European markets closed lower. Paris lost 1.7 per cent, Frankfurt fell 1.6 per cent while London’s FTSE dropped 1.6 per cent.

On the London Stock Exchange, Rio lost 0.8 per cent, BP added 1.9 per cent and Shell gained 0.3 per cent.

Asian markets closed mixed, Tokyo’s Nikkei added 0.7 per cent, Hong Kong’s Hang Seng dropped 3.8 per cent and China’s Shanghai Composite lost 2.2 per cent.

On Friday, the Australian sharemarket fell 2.2 per cent or 159 points lower at 7,206. Over the week, it closed 3.2 per cent or 229 points lower.

SPI futures

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

What to look out this week

For us, it's the colour from the NAB business and Westpac consumer confidence survey, as mentioned before, the inflation reading in the US plus inflation and trade figures from China.

AGMs are picking up this week, Atlas Arteria (ASX:ALX), GPT Group (ASX:GPT), Ampol (ASX:ALD), Tabcorp Holdings (ASX:TAH), and Waypoint REIT (ASX:WPR) are on the docket.

We also have Commonwealth Bank (ASX:CBA) scheduled to provide its quarterly results on Thursday with other names like CSR (ASX:CSR), Pendal Group (ASX:PDL) which will be interesting after they rejected Perpetual’s takeover offer, GrainCorp (ASX:GNC), Orica (ASX:ORI) and Xero (ASX:XRO) slated.

What to look out for today

Oil and gold stocks could be up for a positive start, keep an eye out for Woodside Petroleum (ASX:WPL) and Newcrest Mining (ASX:NCM).

In earnings, Westpac (ASX:WBC) reported cash earnings of $3.1 billion for the first half of 2022 versus the Bloomberg consensus of $2.9 billion, a beat there, up 71 per cent on the prior half, but down 12 per cent on the prior corresponding period. Other areas to keep an eye out is their lending book, along with the margin outlook. More to come.

JPMorgan cut both Charter Hall Long Wale REIT (ASX:CLW) to neutral with a price target of $5.20 and GPT Group (ASX:GPT) to underweight with a price target of $5.20.

Morgan Stanley cut Centuria Office REIT (ASX:COF) equalweight from overweight.

REA Group (ASX:REA) received two broker upgrades, one from Morgans, an add from hold and Credit Suisse, raised to outperform from neutral.

Macquarie Group (ASX:MQG) also received two, Morgans raised to add from hold but Credit Suisse cut to an underperform from neutral..

Those keen to find out the next major buyout proposal in the Australian market should pay close attention to the $8.7bn Medibank Private (ASX:MPL), according to The Australian.

AGL Energy (ASX:AGL), following Mike Cannon-Brookes’ being the largest stakeholder in the company and his campaign around the energy company’s next moves.

Ex-dividend

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

ANZ Banking Group (ASX:ANZ) is paying 72 cents fully franked
Fat Prophets Global Contrarian Fund (ASX:FPC) is paying 3 cents fully franked
NAOS Ex-50 Opportunities Company (ASX:NAC) is paying 1.6 cents fully franked
NAOS Small Cap Opportunities Company (ASX:NSC) is paying 1.35 cents fully franked

Dividend-pay

There are three companies set to pay eligible shareholders today

Gryphon Capital Income Trust (ASX:GCI)
Metrics Income Opportunities Trust (ASX:MOT)
Metrics Master Income Trust (ASX:MXT)

Commodities

Iron ore has lost 4.7 per cent to US$139. Its futures point to a 3.5 per cent fall.

Gold has gained $7.10 or 0.4 per cent to US$1883 an ounce. Silver was down $0.08 or 0.3 per cent to US$22.37 an ounce.

Oil has gained $1.51 or 1.4 per cent to US$109.77 a barrel.

Currencies

One Australian Dollar at 7:35 AM has weakened from Friday, buying 70.71 US cents (Thu: 71.14 US cents), 57.30 Pence Sterling, 92.33 Yen and 67.08 Euro cents.

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

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