Cautious rally on Wall St after investors initially piled back into stocks on optimism that Covid-19 restrictions continue to ease in China.
Good morning. I’m Melissa Darmawan for Finance News. This is your market outlook.
The Australian sharemarket is set to open flat after Wall St clinged onto its gains.Nasdaq gains, shaking off bond yield jump
US stocks edged higher ahead as the 10-year treasury yield surpassed 3 per cent, following the strong jobs report last week. Investors were optimistic as China continues to ease Covid-19 restrictions. However, caution crept back in as they await the consumer price index data on Friday, and what this means for the Fed and its hiking cycle when they meet next week.
At the closing bell, the Dow Jones added 0.1 per cent to 32,916, the S&P 500 gained 0.3 per cent to 4,121 and the Nasdaq rose 0.4 per cent to 12,061.Why the reaction?
Investors are weighing up where to take their cues from amid this decelerating economic environment. Is it from the bond market? Is it from the labour market? Is it from JP Morgan and Tesla CEOs?
Either way, today we saw the market stabilise despite the persistent uncertainties. That is the global supply chain, China’s zero-Covid policy, and the Russian war in Ukraine.
Oil prices pared back gains after hitting a three-month high and was one of the outliers in today’s session on the S&P 500. Defensive sectors, healthcare and real estate dipped while consumer discretionary led.
One of the reasons why oil prices retreated was due to JPMorgan analysts believing that OPEC + is not likely to reach its increased 50 per cent target for July and August “with only a handful of... OPEC+ participants with spare capacity”.
Meanwhile, the infant formula manufacturing company in the US has resumed production which prompted Bubs Australia’s (ASX:BUB)
deal with the Biden Administration. Abbott, one of the largest formula makers in the US, received a green light to restart production at the Michigan facility after meeting initial FDA requirements. Products are set to hit the shelves in three weeks.
Elsewhere, Coal India, the world's largest coal miner by output is set to issue short- and medium-term tenders to import coal this week for utilities as shortages raise concerns about renewed power outages.
Let’s take a look at what this means for the Aussie market.Figures around the globe
Across the Atlantic, European markets closed higher. Paris added almost 1 per cent, Frankfurt gained 1.3 per cent while London’s FTSE rose 1 per cent.
On the London Stock Exchange, Rio jumped 3.4 per cent, BP gained 2.3 per cent and Shell rose over 2 per cent.
In Asian markets, Tokyo’s Nikkei gained 0.6 per cent, while Hong Kong’s Hang Seng jumped 2.7 per cent and China’s Shanghai Composite closed 1.3 per cent higher.
Yesterday, the Australian sharemarket closed 0.5 per cent lower at 7,206.SPI futures
Taking all of this into the equation, the SPI futures are pointing to a flat start, down 0.01 per cent.What to look out for today
The Reserve Bank of Australia is set to meet today with economists expecting a rate hike. The question is, by how much.
By lifting the cash rate by 40 basis points from 0.35 per cent to 0.75 per cent, the Board would be fully unwinding the emergency rate cuts we saw in 2020, during the start of the Covid-19 pandemic. Fast forward to June 2022, we are in a different condition and the need for ultra-easy monetary policy is far from needed.
This has been analysed extensively with consensus that a hike of 25 basis points was a minimum. This was justified in response to the governor’s press conference where he stated that the central bank was going back to a “business as usual” policy process. Though what was stated in the minutes - the board mulled on three options, a hike of either 15, 25, or 40 basis points.
That means that either way, we are expecting the cash rate to rise. Until we know, don’t be surprised if there is a lack of conviction on the ASX today as investors remain cautious ahead of the rate decision.
What's been priced in is 25 basis points. Anything more could give our Aussie dollar a boost to the greenback, but could also mean that we see weakness in equities. Today is a day where treasuries and equities will be tested.
A sector to watch is the insurance sector as this group has historically been sensitive to changes in interest rates if we take the treasury yield as a lead. QBE (ASX:QBE)
, Suncorp (ASX:SUN)
, and IAG (ASX:IAG)
Copper prices climbed to five-week highs amid China easing its lockdowns while nickel is up 5 per cent. Oz Minerals (ASX:OZL)
and IGO (ASX:IGO)
There could be profit-taking with Bubs Australia (ASX:BUB)
, Australian Dairy Nutritionals Group (ASX:AHF)
, and A2 Milk (ASX:A2M)
amid the news in the US from Abbott. For Bubs, the share price has jumped from 49 cents to 60 cents yesterday, up almost 30 per cent since the news unveiled on 27 May.
Whitehaven Coal (ASX:WHC)
, and New Hope (ASX:NHC)
have been on a tear. They have been a bright spot on the ASX extending its rise.
has announced the completion of its US$156 million manufacturing facility expansion in the US for its influenza division.
Lastly, we continue to watch Crown Resorts (ASX:CWN)
. According to The Australian, the company may need to wait another two weeks before receiving an approval from the NSW gaming watchdog to open up its Barangaroo casino.IPO
There is one company set to make its debut on the ASX today. Keep an eye out for Uvre (ASX:UVA)
after raising $6 million at 20 cents per share.Ex-dividend
There is one company set to trade without the right to its dividend.
Fat Prophets Global Contrarian Fund (ASX:FPC)
is paying 3 cents fully frankedDividend-pay
There are two companies set to pay eligible shareholders today
Perpetual Credit Income Trust (ASX:PCI)
360 Capital Enhanced Income Fund (ASX:TCF)Commodities
Iron ore has gained 2.2 per cent to US$146.75. Its futures are flat.
Gold has lost $5.60 or 0.3 per cent to US$1845 an ounce. Silver was up $0.18 or 0.8 per cent to US$22.09 an ounce.
Oil has added $0.03 or 0.03 per cent to US$118.90 a barrel.Currencies
One Australian Dollar at 7:00 AM has weakened since yesterday, buying 71.96 US cents (Mon: 72.20 US cents), 57.42 Pence Sterling, 94.89 Yen and 67.29 Euro cents.DisclaimerThe 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