Nasdaq falls as bond yields climb, ANZ, Whitehaven Coal, Uniti, Lynas, OZL on watch: ASX to fall

Global markets closed lower as investors mull on the impact of China’s Covid-19 lockdown and inflation print coming in higher than expected on an already strained supply chain and its impact to stunt the growth of the economy. Deep dive on why climbing bond yields hurt tech shares. 

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

The Australian sharemarket is set to fall after US stocks closed at session lows.

Rising treasury yields weigh on Wall St

Technology shares pulled Wall St lower as the bond market continued to sell off. Investors are focusing on the headwinds from rising rates, awaiting earnings from the big banks this week to kick off the earnings season covering the first three months of the year. Adding to concerns is the upcoming read on consumer inflation which continues to hit fresh multi year highs while China struggles with their latest Covid-19 outbreak.

At the closing bell, the Dow Jones fell 1.2 per cent to 34,308, the S&P 500 lost 1.7 per cent to 4,413 and the Nasdaq dropped 2.2 per cent to 13,412.

Across the S&P 500 sectors, the sell off was across the board with energy leading the declines, down 3.1 per cent followed by information tech by 2.6 per cent, then healthcare at 2 per cent. Industrials shed the least by 0.3 per cent.

Why?

The tech heavy index lagged as the 10 year treasury yield continues to tick up due to concerns about tighter monetary policy, a reality from the Fed that investors are grappling with which could lead to slower economic growth.

The 10 year treasury yield reached its highest levels since January of 2019 settling at 2.78 per cent putting downside pressure on these tech names.

It’s interesting to see that from the start of this second quarter, money piled back into these beaten down technology names, giving some glimmer of hope. That was short lived after we saw a choir of hawkish Fed officials talk, reinforced by the latest meeting from the US central bank.

We started the year with a very even paced Fed with the expectation that they were not behind the curve from an inflation fighting view. Then a couple of weeks ago, from a Fed that would move in a measured way in every meeting is now looking at 50 basis points hike over 25 in the coming six meetings. Amplifying all the concerns is Russia’s war in Ukraine and now China with its lockdown that has no end date in sight.

Rising interest rates prompt a sell-off in tech names?

In an environment where interest rates are on the move, simply said is that it stunts the future value for these growth stocks. Analysts use a calculation to value these stocks called the discounted cash flow model. It’s a way to determine what the future cash flow or earnings is worth today, and within the calculation includes an interest rate, and I’ll leave it at that.

We are also seeing weakness in consumer spending, prompting traders to take risk off the table amid this environment. Inflation fears permeate through the market and will continue to do so until the Fed turns down its hawkish tone.

China’s inflation tops forecasts on supply chain issues

We had our first taste of inflation print this week after China’s March producer price and consumer price came in higher than expected. Asian markets closed lower compounded on renewed regulatory scrutiny after the State Council issued new guidelines aimed at removing data monopoly at internet platforms and cracking down on non competitive practices while investors stew over the potential impact on global inflation on an already strained supply chain.

Russian oil embargo could be next

Meanwhile, the European Union is drafting a proposal for an oil embargo on Russia. The EU’s top diplomat Josep Borrell said that a ban would constitute an “asymmetric shock”, however he believes that an embargo must happen “sooner or later”.

Figures around the globe

Across the Atlantic, European markets closed mixed. Paris added 0.1 per cent after the first round election results put President Emmanuel Macron ahead of Marine Le Pen, Frankfurt lost 0.6 per cent while London’s FTSE fell 0.7 per cent amid data showing GDP rose 0.1 per cent in February, short of 0.3 per cent economists were expecting.

On the London Stock Exchange, Rio fell 1.1 per cent, BP lost 1.2 per cent and Shell dropped 1.5 per cent.

Asian markets closed lower. Tokyo’s Nikkei lost 0.6 per cent, Hong Kong’s Hang Seng dropped over 3 per cent while China’s Shanghai Composite lost 2.6 per cent.

ASX Monday wrap

Yesterday, the Australian sharemarket closed 0.1 per cent higher at 7,485, fading from its morning high as investors stew over China’s lockdowns and the potential impact on global inflation on an already choked supply chain.

China’s March producer price and consumer price inflation came in higher than expected ahead of UK’s, Germany and the US inflation data this week.

China’s producer prices rose 8.3 per over the year in March, compared to the 8.1 per cent that was expected with market participants focusing on the 1.1 per cent month on month rise, its strongest in five months.

Consumer prices rose 1.5 per cent over the year versus the 1.3 per cent that was expected. The shift in the headline figures largely reflected commodity prices for producers and food prices for consumers. Now the focus turns to April’s data to see the impact from lockdowns.

Meanwhile, bond yields continued to surge as markets price in inflationary expectations with the three-year and 10-year bond Aussie yields around their highest since late 2014 and mid 2015, respectively with the 10-year yield settling at 3 per cent.

The surge in bond yields buoyed the big major banks which bodes well for its net interest margins as they earn more from higher borrowing rates. NAB (ASX:NAB) rallied 1.5 per cent to $32.96, followed by Commonwealth Bank (ASX:CBA) added 1.4 per cent to $106.88 while Westpac (ASX:WBC) added the least, up 0.6 per cent to $24.24.

While the bond sell-off leading to a rally in yields are putting information tech shares under pressure as it eats away at future value of these growth stocks. The sector has extended its fall for four days.

Amid several broker upgrades and hiked target prices in the wake of Friday’s upgraded financial year 2022 guidance driven by strong grain and oil seeds demand due to shortages from the war in Ukraine, GrainCorp (ASX:GNC) was the best-performing stock was GrainCorp (ASX:GNC), closing 6.8 per cent higher at $9.81. It was followed by shares in Perseus Mining (ASX:PRU) and Northern Star Resources (ASX:NST).

The worst-performing stock was AVZ Minerals (ASX:AVZ), closing 5.8 per cent lower at $1.05. It was followed by shares in The A2 Milk Company (ASX:A2M) and PolyNovo (ASX:PNV).

In M&A, BlueScope Steel (ASX:BSL) rose 1.3 per cent to $20.74 on news that the company is set to buy the Coil Coatings division of US-based Cornerstone Building Brands for $672 million (US$500 million). Coil Coatings is the second-largest metal painting company in the US with a capacity of 900,000 tonnes per annum across seven plants. The deal is set to increase BlueScope’s metal coating and painting capacity to 1.3 million tonnes per annum with the transaction funded by cash and is expected to be earning per share accretive immediately.

CapVest Partners has proposed an $8.15 per share takeover bid adjusted for dividends to Virtus Health (ASX:VRT), marking the company’s eighth offer. The deal comes after BGH Capital proposed a rival takeover bid of $8.00 per share on April 6. The Virtus board has unanimously recommended that shareholders vote in favour of the CapVest arrangement as it represents a $0.15 per share premium to BGH’s recent takeover bid. Shares closed 0.3 per cent at $8.17.

Gold miners Newcrest Mining (ASX:NCM), Northern Star (ASX:NST) and Evolution Mining (ASX:EVN) all rallied as the inflation hedge metal shone but the lithium circle retreated.

Vulcan Energy (ASX:VUL) fell 4.8 per cent to $9.01, Pilbara Minerals (ASX:PLS) dropped 3.8 per cent to $3.08 while Mineral Resources (ASX:MIN) closed 3.3 per cent lower to $59.29. However, Lake Resources (ASX:LKE) bucked the trend, closing 7 per cent higher to $1.99 after unveiling a non-binding memorandum of understanding with Ford.

SPI futures

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

What to keep an eye out for today

Today we have NAB business confidence results for March and the weekly ANZ and Roy Morgan consumer confidence figures.

Technology stocks could have a rough day if we take a weak lead from Wall St.

We have a few broker moves today. Morgan Stanley downgraded ANZ Bank (ASX:ANZ) to equal weight.

Goldman Sachs has upgraded three companies, including Mineral Resources (ASX:MIN) raised to buy from neutral, OZ Minerals (ASX:OZL) to a buy from neutral and Sandfire Resources (ASX:SFR) raised to neutral from a sell.

Lynas Rare Earths (ASX:LYC), a supplier of the critical minerals outside of China is mulling on the possibility of fast-track growth plans if the global commodities supply crunch further escalates in the months ahead.

Commonwealth superannuation corporation is in late-stage talks for a 20 per cent stake in Uniti Group (ASX:UNI) as part of its buyout, according to the AFR.

Whitehaven Coal (ASX:WHC) could be in the spotlight amid the underlying commodity pricing surging over 11 per cent.

Ex-dividend

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

Duratec (ASX:DUR) is paying 0.5 cents fully franked
Seven Group Holdings (ASX:SVW) is paying 23 cents fully franked

Dividend-pay

There are six companies set to pay eligible shareholders today.

Blackmores (ASX:BKL)
Chorus (ASX:CNU)
Cyclopharm (ASX:CYC)
Hearts And Minds Investments (ASX:HM1)
QBE Insurance Group (ASX:QBE)
Reece (ASX:REH)

Commodities

Iron ore has lost 2.6 per cent to US$150.60. Its futures point to a 0.2 per cent fall.

Gold has gained $2.60 or 0.1 per cent to US$1,948 an ounce. Silver is up $0.16 or 0.7 per cent to US$24.99 an ounce.

Oil has lost $3.97 or over 4 per cent to US$94.29 a barrel.

Currencies

One Australian Dollar at 7:40 AM has weakened from yesterday, buying 74.21 US cents (Mon: 74.64 US cents), 56.96 Pence Sterling, 93.07 Yen and 68.17 Euro cents.

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