Nasdaq falls 3%, Westpac, Rio Tinto on watch: ASX to drop

Market Reports

by Melissa Darmawan

Wall St rout deepens on global central bank outlook. ECB flags rate hikes. China to lockdown district for Covid-19 testing on Saturday. What to look out for today on ASX. See you on Tuesday!

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

The Australian sharemarket is set to extend its fall after a red finish on Wall St

Inflation fears accelerate Wall St sell-off

US stocks accelerated into the close as the treasury yields moved higher ahead of the consumer price index (CPI) report, amplified by low volumes.

At the closing bell, the Dow Jones lost 1.9 per cent to 32,273, the S&P 500 fell 2.4 per cent to 4,018 and the Nasdaq declined 2.8 per cent to 11,754.

Why the reaction?

The perfect storm brewed during the session which initially started in the green to then close at session lows with every sector on the S&P 500, tumbling north of 1.5 per cent each led by information tech.

Investors mulled on three things, firstly the news from China that Beijing is set to lock down a district for Covid-19 testing of 2.7 million people and what this could mean to the global supply chain and inflation.

Secondly, concerns about the CPI print coming up with the consensus of the year-over-year number creeping higher in the past few days which has been reflected in the treasuries market.

Lastly, the European Central Bank flagged the intention to hike rates in July and September, raised its inflation forecasts and cut its economic growth outlook for the year, joining the hawks we have seen globally with central banks. More of a reason to be in risk-off mode.

If you look over the week, you could say that we saw a bear market rally. Also, the tail end of the week tends to prompt investors to close out of positions as they await any headlines over the weekend.

On the news front, Stitch Fix and Rent the Runway’s share price move in polar opposites. Stitch Fix sank while Rent the Runway soared. Why?

We will start with Stitch Fix. We are in a rising inflation rate, slow economic growth environment. If the economy is headed towards stagflation, high unemployment is the missing ingredient. They announced that they are about to lay off 15 per cent of its salaried workers to reduce its cost base and to prepare for slower consumer demand. Overlay this with the weekly jobless claims ticking higher, you can see the reaction.

While with Rent the Runway, it plays to the reopening tune. People are out and about. Instead of buying several new outfits, why not rent them?

Let’s take a look at what this means for the Aussie market ahead.

Figures around the globe

European markets closed lower. Paris fell 1.4 per cent, Frankfurt dropped 1.7 per cent, while London’s FTSE lost 1.5 per cent. On the London Stock Exchange, Rio lost 2.7 per cent, BP fell 0.7 per cent and Shell declined 1.8 per cent.

Asian markets closed mixed, Tokyo’s Nikkei added 0.04 per cent, Hong Kong’s Hang Seng fell 0.7 per cent while China’s Shanghai Composite lost 0.8 per cent.

Yesterday, the Australian sharemarket closed 1.4 per cent lower at 7,020.

SPI futures

Taking all of this into the equation, the SPI futures are pointing to 0.8 per cent fall.

What to look out for today

Expect a broad-sell off led by information tech and miners. Energy stocks are set to retreat after being the only winner on the ASX yesterday. To give you a sense, on Wall St, Block tumbled 9.7 per cent, Rio Tinto fell by 3 per cent, aluminium miner Alcoa dived 10.8 per cent amid news that a research house Harbor Intelligence warned an audience of 870 that they expect the aluminium price to fall by 20 per cent to US$2,310 per ton by December.

Major banks have declined since the outsized interest rate hike by the RBA. Keep a look out for Commonwealth Bank (ASX:CBA) and Westpac (ASX:WBC).

A drought has hit Argentina which isn’t good news for soft commodities like wheat. Keep an eye out for Graincorp (ASX:GNC) and even sulphate of potash (fertiliser) companies like Kalium Lakes (ASX:KLL), Agrimin (ASX:AMN), Australian Potash (ASX:APC), and Trigg Mining (ASX:TMG).

There’s been some chatter about Invocare (ASX:IVC) and Santos (ASX:STO).

If we play to the reopening theme, keep an eye out for retailers. Wesfarmers (ASX:WES), Crown Resorts (ASX:CWN), Flight Centre (ASX:FLT).

Dividend-pay

There are two companies set to pay eligible shareholders today.

Irongate Group (ASX:IAP)
SSR Mining (ASX:SSR)

Commodities

Iron ore has lost 2.1 per cent to US$143.85. Its futures point to a 0.9 per cent fall.

Gold has lost $3.70 or 0.2 per cent to US$1853 an ounce. Silver was down $0.28 or 1.3 per cent to US$21.82 an ounce.

Oil has lost $0.60 or 0.5 per cent to US$121.51 a barrel.

Currencies

One Australian Dollar at 7:10 AM has weakened since yesterday, buying 70.99 US cents (Thu: 72.03 US cents), 56.84 Pence Sterling, 95.40 Yen and 66.88 Euro cents.

That’s all for the outlook. I’m Melissa Darmawan for Finance News. Have a great day and stay safe.

Disclaimer

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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