Global markets fell as hawkish comments from US Fed Vice Chair Lael Brainard kicked off the week with the minutes from the Fed providing more colour on the balance sheet run-off. The US and UK imposed further sanctions on Russia after the revelation of its war crimes. Deep dive the respite in oil prices and ASX Wed wrap.
Good morning. I’m Melissa Darmawan for Finance News. This is your market outlook.
The Australian sharemarket is set to dip on colour from the Fed.
Tech leads the fall on Wall St for 2nd day
US stocks fell for its second straight day with tech shares underperforming again in this choppy market. Investors face unresolved headwinds with inflation, the Fed’s path to raising interest rates and uncertainty if the steps will cause the economy to go into a recession. Russia’s continuing invasion of Ukraine compounding the backdrop with President Vladimir Putin showing no signs of backing down in a very volatile market this year.
At the closing bell, the Dow Jones fell 0.4 per cent to 34,497, the S&P 500 lost 1 per cent to 4,481 and the Nasdaq dropped 2.2 per cent to 13,889.
Across the S&P 500 sectors, we see the same losers from the prior session backed up in the corner. Information tech down 2.5 per cent with consumer discretionary as the worst performer, in the red by 2.6 per cent among the 6 losers in the session.
Investors took a defensive play again with utilities as the winner, up 2 per cent, real estate, healthcare, consumer staples up in the order of up to 1.5 per cent each, your classic bond proxies but the treasury yield rose not dipped as the bond market tried to figure out what the Fed minutes mean moving forward. Surprisingly, energy stocks rose 0.5 per cent despite the price of crude settling lower this morning.
On that note around the yield, the 10-year treasury note rose 5 basis points to 2.59 per cent, the 2 year yield settled at 2.48 per cent.
Why red again?
So why have we seen selling pressure in equities today? After a round of Fed members speaking, Lael Brainard warmed up Wall St on her note around the balance sheet runoff to potentially start in May at likely a faster pace, a more dovish member sounding hawkish.
This comes after several members also sang the same tune around their thoughts on shrinking the balance sheet in May and how much to raise interest rates.
Well, the minutes from the mid-March meeting reinforced this note, adding that Russia’s war in Ukraine has added a new unknown. The US central bank noted that they eyed a 50 basis point increase at the March meeting, but due to this war, they refrained from doing that and did 25 basis points instead.
So what does this mean for stocks? Usually there is a delay from the impact of the rate hikes, so if we use JP Morgan’s lens that a recession could happen in 2 years over Deutsche Bank’s view of next year, stocks could move higher between now and then, which means that earnings season could see some strong numbers, however the currently operandi of dip buyers emerging could wane as growth is set to slow.
As we talked about yesterday, if we compare what happened during the heat of the pandemic., easy monetary policy helped boost the equity markets and the prices on bonds with yields lower, so traders are now expecting the reverse would happen if there is a tightening of policy.
Twitter says an ‘edit’ button was in the works before Musk
Shares in Twitter have been on a wild ride this week after Elon Musk announced that he owns more than 9 per cent of the company. Filings showed that Musk spent US$2.6 billion on Twitter shares, buying them almost on a daily basis since the end of January. Meanwhile, Twitter is finally adding an edit button. The social media company claimed that they have been working on an edit feature since last year and that Musk actually had nothing to do with it, maybe he added more pressure on the Board since joining.
Crude prices retreat amid China lockdown
Elsewhere, crude prices fell as mentioned earlier after both the EIA report posted a surprise US build in stockpiles and on reports that IEA nations will deliver an additional 60 million barrels from reserves. Despite the retreat in the oil prices, there are a few things to be aware of. Even though there is a coordinated effort between countries to tap into their reserves, which wasn’t designed for this purpose, we can’t outpace the traditional commodity cycle, this usually lasts in years, not months or days.
If we go back to history in the 1970s, there was a decade of rising oil prices and inflation. Then in the 2000s, another decade of rising commodity prices and you could say that we started a new cycle in mid 2020. Do you remember the price of iron ore was around US$220 last year with record dividend payouts? Now the reason why it’s been difficult to bring supply back to demand is that it takes time to produce more oil and build the infrastructure. So on the back of the last decade of under investment then with the pandemic, it was the perfect storm to create the situation we are in.
We are going down memory lane here but if you go to the start of the pandemic when we had a global lockdown, we saw oil prices fall. Fast forward to today, China, the world’s second largest economy is in a lockdown with no end date in sight, giving respite to the oil price. Now, if we look at the situation with Russia, market participants are decoupling Russia’s commodities from the grid, concerns lie on how to boost supply amid this.
Figures around the globe
Across the Atlantic, European markets closed lower. Paris fell 2.2 per cent, Frankfurt lost 1.9 per cent while London’s FTSE closed 0.3 per cent lower amid Britain freezing assets of Russian banks Sberbank, tumbling over 7 per cent and Credit Bank of Moscow. The UK announced plans to end Russian coal and oil imports by December this year.
On the London Stock Exchange, Rio lost 0.2 per cent, BP fell 0.5 per cent and Shell added 0.5 per cent.
Asian markets closed mixed after returning from the long weekend, taking their lead from Wall St’s prior session, playing catch up and spooked by the possibility of an accelerated policy tightening by the US Federal Reserve. Tokyo’s Nikkei dropped 1.6 per cent, Hong Kong’s Hang Seng lost 1.9 per cent while China’s Shanghai Composite eked out a 0.02 per cent gain.
ASX Wed wrap
Yesterday the Australian sharemarket went into a retreat, closing 0.5 per cent lower at 7,490, wiping off all the gains for the week with the rally in banks cushioning the fall from materials and tech.
The gains from the nation’s largest banks extended from the prior session, following the Reserve Bank of Australia’s hawkish monetary policy statement. The imminent rise in interest rates or borrowing costs bodes well for these lenders.
Commonwealth Bank (ASX:CBA) added 1.3 per cent to $105.71, National Australia Bank (ASX:NAB) rose 1.2 per cent to $32.56 and ANZ (ASX:ANZ) rebounded from the prior loss, rising 1.2 per cent to $27.36, Westpac (ASX:WBC) added 0.8 per cent to $24.24, while Macquarie Group (ASX:MQG) gave back 0.9 per cent to $205.14 bucking the trend.
Magellan Financial (ASX:MFG) tumbled 6 per cent to $15.47 as the fund manager traded without the rights to its bonus issue of options.
After the proposed merger with Pendal Group (ASX:PDL), Perpetual’s (ASX:PPT) share price rallied for its second straight day. Citi believed the merger would likely be earnings per share accretive by as much as mid to high single digits. The broker retained its buy rating and its target price of $40. Shares in Perpetual rose 1.4 per cent at $32.84 while shares in Pendal returned 1.7 per cent to $5.28 after its 18 per cent surge on Tuesday.
Despite the iron ore miners having a soft day, coal miners rose after the European Union mull on banning coal imports from Russia on speculation of further tightening supply. Whitehaven Coal (ASX:WHC) jumped 5.5 per cent to $4.39, New Hope (ASX:NHC) surged 6.9 per cent to $3.71 and Yancoal (ASX:YAL) closed 4.8 per cent higher to $4.82.
The best-performing stock was Whitehaven Coal (ASX:WHC), closing 5.5 per cent higher at $4.39. It was followed by shares in PolyNovo (ASX:PNV), and AMP (ASX:AMP).
The worst-performing stock was Novonix (ASX:NVX), closing 6.9 per cent lower at $6.76. It was followed by shares in Block (ASX:SQ2), and AVZ Minerals (ASX:AVZ).
Mineral Resources (ASX:MIN) rose 1.1 per cent at $60.35, but like the other lithium players, the circle followed Novonix’s (ASX:NVX) performance, closing lower. Pilbara Minerals (ASX:PLB) fell 5.6 per cent at $3.35, Liontown Resources (ASX:LTR) dropped 5.8 per cent at $1.875 while Allkem (ASX:AKE) closed 2.8 per cent lower at $13.04.
Morgan Stanley reinstated the coverage for GrainCorp (ASX:GNC) to overweight with a $10 price target. Shares closed 0.7 per cent lower at $8.40.
Coles (ASX:COL) was on watch amid an AFR report that Wesfarmers (ASX:WES) sold a $500 million stake in the supermarket giant, which was equivalent to a 2.1 per cent stake in the company at a 1.8 per cent discount to the closing price yesterday of $17.75. Shares in Coles (ASX:COL) fell 0.7 per cent at $17.95 while shares in Wesfarmers (ASX:WES) closed 0.9 per cent lower at $49.24.
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
February trade balance numbers are set to be released today by the Australia Bureau of Statistics. The nation’s trade balance continues to be supported by strong commodity prices, which helps boost the revenue received for our commodity exports. Economists expect a surplus of around $12 billion for February. Also the weekly payroll jobs and wages as well as the building approvals are due from the bureau.
The tech sector could be dragged lower by Block after its US counterpart closed 5.3 per cent lower. Amid the respite in oil prices, energy players like Woodside (ASX:WPL) could have a hard day.
In broker moves, Ord Minnett has retained its hold rating on ASX (ASX:ASX) and boosted its target price to $85.00 from $84.56. The move comes after the broker noted that derivative volumes fell in March while cash and capital raising transactions rose compared to a year ago, helped by market volatility and BHP making the ASX the primary home.
Bell Potter retained its buy rating for Mineral Resources (ASX:MIN) and popped its price target by 21 per cent to $74.35. The move comes to reflect the miner’s lithium production plans.
Theme park operator Ardent Leisure (ASX:ALG) is set to exit the US entertainment sector after inking a deal to sell its Main Event business to Dave & Busters for $1.1 billion as per the AFR.
Telstra’s (ASX:TLS) outgoing chief executive Andy Penn says the Digicel deal is set to go ahead after a controversial super tax in Papua New Guinea overshadowing the takeover, according to The Australian.
Virtus Health (ASX:VRT) amid a bidding war, according to The Australian.
There is one company set to make its debut on the ASX today. Keep an eye out for International Graphite (ASX:IG6) after raising $10 million at 20 cents per share.
There are six companies set to trade without the right to its dividend.
ARB Corporation (ASX:ARB) is paying 39 cents fully franked
Gowing Bros (ASX:GOW) is paying 4 cents fully franked
OM Holdings (ASX:OMH) is paying 2 cents unfranked
Restaurant Brands NZ (ASX:RBD) is paying 29.7039 cents unfranked
Ridley Corporation (ASX:RIC) is paying 3.4 cents fully franked
SDI (ASX:SDI) is paying 1.5 cents fully franked
There are 20 companies set to pay eligible shareholders today.
Costa Group Holdings (ASX:CGC)
Clime Investment Management (ASX:CIW)
Fletcher Building (ASX:FBU)
Home Consortium (ASX:HMC)
Iluka Resources (ASX:ILU)
Inghams Group (ASX:ING)
Nrw Holdings (ASX:NWH)
Perpetual Credit Income Trust (ASX:PCI)
Propel Funeral Partners (ASX:PFP)
Perseus Mining (ASX:PRU)
Shriro Holdings (ASX:SHM)
Supply Network (ASX:SNL)
Southern Cross Media Group (ASX:SXL)
360 Capital Enhanced Income Fund (ASX:TCF)
Vita Life Sciences (ASX:VLS)
Iron ore lost 0.4 per cent to US$160.20. Its futures point to a 0.4 per cent fall.
Gold has lost $4.40 or 0.2 per cent to US$1923 an ounce. Silver is down $0.08 or 0.3 per cent to US$24.46 an ounce.
Oil has dropped $5.73 or 5.6 per cent to US$96.23 a barrel.
Copper fell 1.4 per cent, alumina fell 3 per cent, nickel rose 0.5 per cent.
One Australian Dollar at 8:00 AM has weakened from yesterday, buying 75.10 US cents (Wed: 75.83 US cents), 57.49 Pence Sterling, 92.97 Yen and 68.93 Euro cents.
Source: Bloomberg, IRESS, TradingView, UBS, Bourse Data, Trading Economics