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Good morning. I’m Melissa Darmawan for Finance News. This is your market outlook.
The Australian sharemarket is poised to edge lower after we saw a late day of buying on Wall St.
Nasdaq jumps on late-day buying
US stocks rose, treasury yields fell, helping tech stocks rally which saw the Nasdaq outperform. Investors piled into bonds on fears of an economic slowdown which also saw prices of commodities push lower. Gold slipped, copper tumbled to a 16-month low while nymex crude is now off 14.6 per cent from its recent peak on June 8th while Bitcoin rose.
At the closing bell, the Dow Jones added 0.6 per cent to 30,678, the S&P 500 gained almost 1 per cent to 3,796 and the Nasdaq jumped 1.6 per cent to 11,232.
We saw resource sectors fall on the S&P 500 with energy, down 3.7 per cent and materials fell 1.4 per cent. Defensive sectors rose with utilities, healthcare and real estate all added above 2 per cent each.
One thing to note, financials dipped 0.5 per cent ahead of the Federal Reserve Board annual bank stress test results. They came in after market close and showed that banks continue to have strong capital levels, allowing them to continue lending to households and businesses during a severe recession. Very interesting.
Why the reaction?
Investors kept a close eye on Fed Chairman Jerome Powell testifying before Congress for a second day, after saying that the central bank is committed to curbing inflation, and acknowledged a recession was “certainly a possibility.”
We are listening to a hawkish central bank despite the latest economic data showing signs of a slow down as seen by the flash PMI readings by S&P Global. Manufacturing activity fell to the lowest levels since July 2020 while jobless claims from US Department of Labor are hovering near a five-month high. Right now, the data-dependent Fed is focused on bringing inflation down to its target over economic growth.
Meanwhile, the S&P 500 is technically in a bear market and historically, it is normal to see equities bounce. The index snapped its two-day rally on Wednesday after rising 2.5 per cent. Then exactly a week before, the S&P 500 fell for five straight days before snapping that trend. There is a lot intra-day volatility and choppiness on the market.
Now, the risk to equities is earnings, not valuations. With valuations falling, the greatest risk to equities now comes from actual earnings falling short of current expectations. Analysts say that the next leg of the bear market is likely to be driven by recession earnings.
Let’s take a look at what this means for us today.
Taking all of this into the equation, the SPI futures are pointing to 0.1 per cent fall.
What to look out for today
Resource stocks could be under pressure today. From energy, gold and lithium miners as commodity prices fall. However, iron ore miners could catch a bid today. The iron ore price rebounded overnight by over 6 per cent on positive commentary from President Xi Jinping on achieving China’s economic and social development goals.
Buy now pay later (BNPL) provider Affirm rose 2.4 per cent on Wall St. If we take this lead, the ASX BNPL sector could be a bright spot.
In company news, Diverger (ASX:DVR), a service provider used by financial advisers and accountants, is seeking to double the size of its business by buying listed rival Centrepoint Alliance (ASX:CAF).
Net debt at Qantas (ASX:QAN) is forecast to fall to $4 billion by the end of financial year 2022 after peaking more than $6.4 billion at the height of the pandemic.
Meanwhile, the nation’s oldest bank, Westpac (ASX:WBC) is set to pay eligible shareholders. We might see those funds make their way back to the market.
Lastly, tonight at 9.30pm, there is panel participation by RBA governor, Philip Lowe at the UBS Panel discussion “Central Banks and Inflation” in Zurich, Switzerland.
There are three companies set to pay eligible shareholders today.
Aneka Tambang (ASX:ATM)
Morphic Ethical Equities Fund (ASX:MEC)
Westpac Banking Corp (ASX:WBC)
Iron ore has gained 6.1 per cent to US$116.05. Its futures point to a 2.7 per cent gain.
Gold has lost $14.40 or 0.8 per cent to US$1,824 an ounce. Silver was down $0.52 or 2.4 per cent to US$20.98 an ounce.
Oil has lost $2.17 or over 2 per cent to US$104.02 a barrel.
One Australian Dollar at 7:06 AM has weakened since yesterday, buying 68.96 US cents (Thu: 69.28 US cents), 56.29 Pence Sterling, 93.02 Yen and 65.56 Euro cents.
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, Sequoia Financial Group, the owner of the Finance News Network excludes all liability for any loss or damage arising in any way including by way of negligence. Commentators may hold positions in stocks mentioned.
Source: Bloomberg, FactSet, IRESS, TradingView, UBS, Bourse Data, Trading Economics