Inflation spooks Wall St, Oil & iron ore $ slide, Pendal, Lendlease, Ramsay on watch: ASX to dive

Global benchmarks continue to tumble with several cross currents weighing on investor’s minds. After China’s President on Friday recommitted to the zero-Covid strategy, the prospect of extended lockdowns sparked further fears of a global economic slowdown. Aussie dollar fell over 1 per cent, now 69.6 US cents. Commodity prices, including iron ore and oil tumble on demand concerns. 

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

The Australian sharemarket is set to fall again after another tumultuous day on Wall St.

Wall St sell-off continues ahead of inflation print

The sell-off momentum continues, extending last week’s losses as US stocks closed lower with growth names, like technology getting hit hard as the US 10 year treasury yield rises to its highest level since 2018. The risk off sentiment is ahead of a slew of economic data, including the latest read on inflation and the latest results from the NY Fed stoking further concerns.

At the closing bell, the Dow Jones dropped almost 2 per cent to 32,246, the S&P 500 fell 3.2 per cent to 3,991 and the Nasdaq plunged 4.3 per cent to 11,623.

Across the S&P 500 sectors, energy stocks cratered by over 8 per cent, followed by real estate, consumer discretionary, and information tech by over 4 per cent each. Consumer staples eked out a gain of 0.05 per cent while the rest closed lower.

The yield on the 10-year treasury note fell 9 basis points to 3.04 per cent but at 2018 highs, gold fell on a stronger greenback.

Why?

Investors are worried about the rate hiking cycle pushing the economy into a recession. There are no signs of the global supply challenges abating as investors monitor the moves in China and the ongoing war in Ukraine. The backdrop does not look good here for stocks with technicals indicating that the selling is not over yet. The Nasdaq is close to 30 per cent from its high back in November with a lot of these concerns continuing to percolate.

Stocks extended their fall after the NY Fed survey showed longer term inflation expectations rose, prompting fears of a slowdown in growth in a high inflation rate environment.

With input costs on the rise, concerns continue to mount around food prices moving higher as prices around fertilizer spike. Global food prices are at record levels as crop trade continues to be disrupted by the war, exacerbating tight supplies and stoking inflation.
 

CPI vs trimmed

When it comes to inflation, remember that there is the consumer price index (CPI) and also the trimmed figures. The trimmed mean figures is the core inflation without the cost of volatile items like food and energy. Like with the US Federal Reserve, the RBA’s preferred gauge to watch is the trimmed means.

Nevertheless, CPI or the trimmed index, inflation is hot, we all feel it with our back pocket. If you haven’t already experienced delays with receiving your parcel, the cost of your groceries moving higher, the size of your meal getting smaller, imagine being in this condition for a prolonged period? Behind these figures are everyday people, including you and I feeling the impact of high inflation.

Other things to be aware of is that if the central bank raises rates enough to deal with inflation and cool the market, which means slowing down what we purchase which is what they are after, if it’s too aggressive, it can kill businesses, which then mean there could be more people unemployed. They have a challenging job on their hands to navigate how to combat inflation and not put the economy into a recession amid the strained supply chains.

Meanwhile, Morgan Stanley noted that retail traders have lost all of what they gained during the pandemic as you can see in the graph. Bloomberg reported that retail investors are now in the same spot that they were back in January 2020, that was two months before the world went into a lockdown.

Oil and iron ore falls on weak demand sentiment

Oil prices tumbled over 6 per cent, fears of softening demand due to China’s zero Covid policy amid the stock market fall. Hungary is unwilling at this point to approve the EU measures on the embargo of Russian energy, according to Reuters. The strength of the greenback isn’t helping commodities, leading to the downside in the price. We saw our Aussie dollar weakened by 1 per cent and now it has a 69 handle.

Iron ore prices fell 5.5 per cent with Chinese iron ore imports down 13 per cent in April. Both iron ore and steel futures fell 4.6 per cent and 1.8 per cent, respectively.

There’s no place to hide at the moment, not even cash, it’s a negative yield when you factor inflation in. It also shows the power of investing fundamentals, like diversification, time horizon, dollar cost averaging etc when the bears overtake the bulls and vice versa.

Figures around the globe

European markets closed lower. Paris dropped 2.8 per cent, Frankfurt fell 2.2 per cent while London’s FTSE lost 2.3 per cent.

On the London Stock Exchange, Rio lost 4.6 per cent, BP dropped 5.1 per cent and Shell fell 3.2 per cent.

Asian markets closed mixed, Tokyo’s Nikkei tumbled 2.5 per cent, Hong Kong’s Hang Seng was closed to celebrate Buddha’s Birthday, and China’s Shanghai Composite added 0.1 per cent after China’s export growth slowed to its lowest rate since June 2020 in April.

Yesterday, the Australian sharemarket closed 1.2 per cent lower at 7,121.
 
SPI futures

Taking all of this into the equation, the SPI futures are pointing to a 1.4 per cent fall.

What to look out for today

We have a big day in economic news today. Roy Morgan and ANZ’s weekly consumer sentiment index, National Australia Bank’s April business survey, Australian Bureau of Statistics’ March business turnover reports are on the docket today.

It looks like the sell-off is set to continue with energy and information stocks set to feel the pain. Woodside Petroleum (ASX:WPL), Santos (ASX:STO), and Block (ASX:SQ2), given that its US counterpart tumbled 12.8 per cent.

In earnings, keep an eye out on Pendal Group’s (ASX:PDL) first half net income figures to come in at $108.3 million. Atlas Arteria (ASX:ALX) has their annual meeting today.

In broker moves, JPMorgan cut AGL Energy (ASX:AGL) to neutral with a price target of $8.70, Evolution Mining (ASX:EVN) has been raised to overweight with a price target of $4.80, and Suncorp (ASX:SUN) got upgraded to overweight with a price target of $14.

Westpac (ASX:WBC) received two, Morgan Stanley raised to overweight with a price target of $25.70 and Jefferies raised to hold with a price target of $21.35.

RBC hiked Xero (ASX:XRO) to an outperform with a price target of $130.

Speculation is mounting that Lendlease (ASX:LLC) is subject to a break-up play, with suggestions that approaches have been made around the market to quietly test interest in at least parts of its construction business, according to The Australian.

AustralianSuper could have dropped out of talks with Ramsay Health Care (ASX:RHC) suitor KKR & Co, moving on to other potential co-investment and real estate opportunities, according to the AFR.

Ex-dividend

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

United Overseas Aust (ASX:UOS) is paying 1.35 cents unfranked

Dividend-pay

There are two companies set to pay eligible shareholders today.

Duratec (ASX:DUR)
NB Global Corporate Income Trust (ASX:NBI)

Commodities

Iron ore has lost 5.5 per cent to US$131.35. Its futures point to a 4.6 per cent fall.

Gold has lost $24.20 or 1.3 per cent to US$1,859 an ounce. Silver was down $0.55 or 2.5 per cent to US$21.82 an ounce.

Oil has lost $6.68 or 6.1 per cent to US$103.02 a barrel.

Currencies

One Australian Dollar at 7:30 AM has weakened from yesterday, buying 69.60 US cents (Mon: 70.71 US cents), 56.40 Pence Sterling, 90.69 Yen and 65.89 Euro cents.

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