Nasdaq jumps, Energy complex sells off, Flight Centre, Betmakers, Ramsay, Rio on watch: ASX to rise

Wall St gains as investors shrug off rising treasury yields and focus on earnings results. Energy complex sold off amid the International Monetary Fund and World Bank slashed global economic growth forecasts. Aussie dollar bounces back after hawkish RBA minutes.
 
Good morning. Full steam ahead. I’m Melissa Darmawan for Finance News. This is your market outlook.

The Australian sharemarket is ready to rise as it eyes the green light at the opening bell.

Nasdaq jumps in Wall St rally with earnings in focus

US stocks were in rally mode, bucking the recent trend as it closed near session highs as earnings moved into high gear with the S&P 500 rebounding from its lowest close in more than a month.

Why?

Investors kept tabs on the oil prices which settled lower in response to the lower global economic outlook from the IMF, while Wall Street watched the 10 year treasury yield like a hawk. Investors also rewarded flight stocks as mask mandates were dropped, shrugging off concerns of higher jet fuel prices, however underpinning this all, inflation still remains a concern and the impact on economic growth amid tighter monetary policy.

At the closing bell, the Dow Jones gained 1.5 per cent to 34,911, the S&P 500 rose 1.6 per cent to 4,462 and the Nasdaq jumped 2.2 per cent to 13,620.

Across the S&P 500 sectors, consumer discretionary was the best performer thanks to travel stocks amid lower oil prices, up 2.9 per cent, followed by real estate and communication services adding in the order of 2 per cent. Energy was the only sector in the red, down 1 per cent with the rest closing higher.

The yield on the 10-year treasury note rose 8 basis points to 2.94 per cent as prices fell, gold fell on a stronger greenback.

War sets back the global recovery, says IMF

The International Monetary Fund or IMF cut its global growth forecast by 0.8 percentage point due to the war in Ukraine, adding that inflation is only going to worsen because of it.

The IMF warned that its world economic outlook was marked by unusually high uncertainty amid the war along with rising Covid-19 cases now with lockdowns in China also posing greater risks for the global supply chain. It’s the second time that the IMF downgraded its forecast just this year and we’re not even four months into 2022.

Oil prices tumble as OPEC+ supply gap widens

Oil prices fell, following a strong four-day rally after the world’s second-largest economy started easing restrictions and concerns on slowing demand after this outlook from the IMF.

Also weighing on oil prices were hawkish comments from Fed officials raising the prospects of a faster Fed tightening, pushing the greenback higher so it costs more to buy, and sending gold to nearly US$2,000 before profit taking was seen today, amid talks around peak inflation.

From the supply side, a temporary hit from Libya due to political protests gave support to the rally in the oil price yesterday after half a million barrels per day of output was taken out of the output.

However, today, other than the IMF outlook, energy traders digested the OPEC+ compliance report which meant that the alliance produced below its production target in March as Russian output began to decline. There’s several cross currents here however the oil market is tight and there are more upside risks to the oil price.

Aussie dollar rebounds on hawkish RBA

Meanwhile, back home the Australian dollar rebounded after four straight days of losses. Why? The hawkish RBA meeting minutes gave colour that a rate hike is coming soon after they dropped the “patient” approach from their rhetoric. The minutes cited rising inflation and a tightening labour market have “brought forward the likely timing of the first increase in interest rates”.

The last time our central bank raised interest rates was in 2010 and economists are placing their bets that the first rate hike will be seen in June after the federal election in May. However, the caveat to this is that we have inflation readings on April 27 and wages data on May 18 for the data dependent central bank to assess. If we see a rise in inflation, it could increase the chances of a rate hike sooner to combat it. Let’s wait and see as the RBA has now joined the list of hawkish central banks. For more, check out the Tuesday wrap below.

Figures around the globe

Across the Atlantic, European markets closed lower. Paris fell 0.8 per cent, Frankfurt lost 0.1 per cent while London’s FTSE dipped 0.2 per cent.

On the London Stock Exchange, Rio lost 1.1 per cent, BP added 0.4 per cent and Shell gained 1.6 per cent.

Asian markets closed mixed. Tokyo’s Nikkei gained 0.7 per cent, Hong Kong’s Hang Seng lost 2.3 per cent while China’s Shanghai Composite dipped 0.1 per cent.

ASX Tuesday wrap

Yesterday, the Australian sharemarket closed 0.6 per cent higher at 7,565 as signals of hawkishness continue to grow after the RBA minutes flagged that the central bank could bring forward its interest rate timeline, pushing the local bourse higher for a third day, closing 0.6 per cent higher to 7,565, its highest close since 5 January. The index is up 1.2 per cent in the past 5 days and advanced 6.6 per cent in the past 30 days.

Eight out of the 11 sectors closed higher led by energy, materials, and financials with the nation’s largest stock on the local bourse, BHP (ASX:BHP) adding 1.3 per cent to $53.17 while Imugene (ASX:IMU) took home the best performer title, rallying 9.3 per cent.

The Reserve Bank of Australia said that a pickup in wages growth and inflation has moved up the likely timing of the nation’s first interest-rate hike since 2010. In its minutes from the April policy meeting, the central bank said that the annual core inflation in the first three months of this year was likely to be above the top of its 2 to 3 per cent target with policy makers also noting that wages growth has improved.

“These developments have brought forward the likely timing of the first increase in interest rates,” said the RBA. “Over coming months, important additional evidence will be available on both inflation and the evolution of labour costs.”

The Aussie dollar moved higher and the three-year government bond yields climbed as the minutes reinforced the RBA’s hawkish stance after scrapping its “patient” approach on policy, signalling inflation readings on April 27 and wages data on May 18 are key data points.

The shift reflects a hawkish turn among global central banks in a fight to combat high consumer prices fuelled by pandemic-stimulus which is now compounded by Russia’s war in Ukraine.

“An updated set of bank forecasts will be published in May,” the RBA said in the minutes. “The speed of the resolution of the various global supply-side issues, developments in global energy markets and the evolution of overall labour costs were key sources of uncertainty about the inflation outlook.”

Banks rallied in the wake of this with National Australia Bank (ASX:NAB), Westpac Banking Corporation (ASX:WBC), and ANZ Banking Group (ASX:ANZ) all advancing 1.2 per cent each. Macquarie Group (ASX:MQG) added 0.9 per cent at $205.55 with Commonwealth Bank of Australia (ASX:CBA) closing 0.5 per cent higher at $107.01.

Bank of Queensland (ASX:BOQ) fell 0.6 to $7.94 amid several brokers trimming its target price on the regional lender following last week’s first-half financial year 2022 result. While the bank’s first half pre-provision profit was in-line with Morgan Stanley’s forecast, it included around $20 million of one-offs which boosted pre-provision profit by around 6 per cent with net interest income coming in at a miss, cutting its target price to $9.80 from $10.20. Even though the broker was disappointed by the results, Morgan Stanley maintains its outperform rating on an improving franchise performance amid margin and cost headwinds easing.

Investment platform provider HUB24 (ASX:HUB) rose 2 per cent to $25.96 after net inflows grew 36.4 per cent along with a 33 per cent jump in its total funds under administration as the provider celebrated a 24.4 per cent growth in advisers using their platform. Its market share grew from 2.5 per cent to 4.9 per cent with its recent Class acquisition performing “in line with expectations”.

While rival Praemium’s (ASX:PPS) 82 per cent jump in its March quarterly net inflows of $725 million saw the share price surge 15 per cent to 73 cents. The platform provider has been on a roll since posting its record funds under administration of $49 billion in February with its Aussie arm taking home gold, contributing 63 per cent of flows of $446 million with the remaining $279 million derived internationally when compared to the prior corresponding period. Financial year to date net inflows also catapulted 112 per cent from $1.7 billion in March 2021 to $3.6 billion with total funds under administration of $47.7 billion, rising 26 per cent from $37.9 billion last year. The move comes after the platform provider inked a $65 million deal with Morningstar to sell its operations in United Kingdom, Jersey, Hong Kong and Dubai in December last year which is set to settle by the third quarter this year after Anthony Wamsteker was appointed chief executive officer in August 2021.

Meanwhile, Cleanaway Waste Management (ASX:CWY) was the second best winner on the local bourse, notching its best performance since April last year amid news that KKR has been preparing an offer for the waste management company, according to the AFR.

Elsewhere, the Japanese yen is on its longest-losing streak in at least half a century as it falls for its 13th day against the greenback after the Federal Reserve Bank of St. Louis President James Bullard said US interest rate increases of 75 basis points are an option.

SPI futures

Taking all of this into the equation, the SPI futures are pointing to a 0.6 per cent gain.

What to keep an eye out for

ANZ and Roy Morgan’s weekly consumer confidence is out today which is set to provide colour around sentiment on the federal election.

Energy stocks could give back some of its gains today after its strong rally of late, while flight stocks could take-off. Flight Centre (ASX:FLT) rose yesterday, while a rebound in its peers could be on the cards with the likes of Webjet (ASX:WEB) and Qantas (ASX:QAN).

Sequoia (ASX:SEQ) has initiated coverage for Betmakers (ASX:BET) with a price target of 77 cents.

Morningstar has cut three companies ratings from a hold to a sell. These are Atlas Arteria (ASX:ALX), APA Group (ASX:APA), and Flight Centre (ASX:FLT).

In the M&A space, KKR is taking the spotlight after they have targeted Macquarie’s (ASX:MQG) India road assets and Ramsay Health Care (ASX:RHC), amid a takeover offer by KKR, valuing the company at around $20 billion as per AFR. Goldman Sach said in a note that the deal comes in at a premium compared to its $12 billion market cap and $15 billion enterprise value.

We have production reports for the first quarter due from Rio Tinto (ASX:RIO) and Whitehaven Coal’s (ASX:WHC) third quarter. This will be interesting after the posted first half net income of $340.5 million versus a loss of $94.5 million year over year.

Ex-dividend

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

Washington H. Soul Pattinson and Co (ASX:SOL) is paying 29 cents fully franked

Dividend-pay

There are four companies set to pay eligible shareholders today.

Apiam Animal Health (ASX:AHX)
Eagers Automotive (ASX:APE)
Partners Group Global Income Fund (ASX:PGG)
Turners Automotive Group (ASX:TRA)

Commodities

Iron ore has lost 2.6 per cent to US$149.85. Its futures point to a 1.3 per cent fall

Gold has lost $27.40 or 1.4 per cent to US$1959 an ounce. Silver is down $0.76 or 2.9 per cent to US$25.48 an ounce.

Oil has lost $5.65 or 5.2 per cent to US$102.56 a barrel.

Currencies

One Australian Dollar at 7:30 AM has slightly strengthened from yesterday, buying 73.79 US cents (Tue: 73.53 US cents), 56.78 Pence Sterling, 95.13 Yen and 68.41 Euro cents.

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