Wall St turned lower after Fed chair Jerome Powell’s statement around putting 50 basis points hike on the table in the upcoming meeting. Oil price rebounds as EU nears phase out framework, however energy stocks were the worst performer.
Good morning. It’s looking like it will be a rough day today. I’m Melissa Darmawan for Finance News. This is your market outlook.
The Australian sharemarket is set to snap its five day winning streak after flirting near record highs.
Tech rout continues on surging bond yields
US stocks overturned its earlier rally, closing near session lows as a rate hike eclipsed strong earnings from Tesla and airline stocks. Fed Chair Jerome Powell confirmed that a 50 basis point rise is on the table when the Fed meets in less than two weeks from today. His speech at the International Monetary Fund sent treasury yields to a new high, pushing the tech heavy Nasdaq to underperform as higher rates stunts these richly valued stocks to power up their growth ambitions.
At the closing bell, the Dow Jones lost 1.1 per cent to 34,793, the S&P 500 fell 1.5 per cent to 4,394 and the Nasdaq dropped 2.1 per cent to 13,175.
Across the S&P 500 sectors, the sell off was across the board. Energy was the biggest decline, down 3.1 per cent despite the price of crude rallying, profit taking there amid the broader market decline, communication services which is the home of Twitter and information tech fell 2.4 and 1.7 per cent respectively. Consumer staples shed the least by 0.1 per cent.
The yield on the 10-year treasury note rose 7 basis points to 2.91 per cent, gold slipped on a stronger greenback.
Why the reaction?
Fed Chair Jerome Powell spoke at the IMF conference in Washington alongside his European counterpart Christine Lagarde and his counterpart in Indonesia. He also said that the US labour market is “extremely tight” which the weekly jobless claims reinforced.
In an environment where interest rates are on the move, a rate hike crimps the future value of these growth stocks. Analysts use a calculation to value these stocks called the discounted cash flow model to determine what the future cash flow or earnings is worth today, and it includes an interest rate.
As bond yields have moved higher, stocks are seen as expensive which means companies will need to beat earnings estimates by a greater margin to push their stocks significantly higher.
What else drove the market today?
Elon Musk continued to drive headlines following the blockbuster Tesla earnings, but the story today is on Twitter. A new filing shows that Tesla’s CEO plans to look into a potential tender offer for the social media company.
The filing says that Musk has US$46.5 billion dollars in commitments to finance this possible deal. The update comes after Tesla CEO said he hasn’t received an answer from Twitter’s board, following his recent offer to buy the company outright. A tender offer means he would purchase some or all shares of the company from shareholders.
Though next week, Twitter is set to report earnings. It would be interesting to see what the analyst call is like as questions could be asked as to what Twitter would look like under Elon Musk.
Of course, Tesla, Elon Musk’s company, was in the spotlight after the EV giant blew past earnings expectations in the latest quarter, as the stock bucked the overall market, closing 3.2 per cent higher. The company posted a record profit thanks to higher delivery numbers which met demand even despite surging prices amid increased costs for raw materials.
Musk said on the earnings call that the company expects to produce half a million cars this year. The EV company also outlined plans to bring its robo taxis to the masses by 2024. It’s an autonomous taxi, there is no steering wheel or pedals as there is no wheel, so no human needed to operate it. Musk said he expects the robo taxi to be a major driver of Tesla’s growth.
He also set big expectations for its general services robots set to launch as soon as next year, so yes, the company is introducing the Optimus robot which is supposed to act like a human to help humans tackle everyday tasks, including household chores, and you would think that it might help Tesla on that factory floor as well. It’s a bit creepy but let’s see how this plays out.
Oil price rebounds as EU nears phase out framework
Oil prices rebounded 1.6 per cent and is up roughly 40 per cent for the year amid the EU close to finalising a framework for phasing out Russian oil imports. This is a big deal given how much Russian oil is exported to Europe with energy traders interested to see detail and how it will hamper the Kremlin.
Broadly speaking, amid this impact, higher prices eat into consumers’ wallets. Prices for wheat and corn have also jumped, as Ukraine is a key global producer of both, which are staples to key ingredients in a wide range of food products.
Meanwhile, Germany has suggested it will halve its Russian oil imports by the end of their Summer, our Autumn and aims to cease imports by year end. Remember, that it takes time to build infrastructure so this situation bodes well for our local commodity players and has been a great support for our Aussie dollar, largely attributed to the price of coal shooting to 4-year highs with the likes of Whitehaven Coal (ASX:WHC) on the move.
Figures around the globe
European markets closed mixed. Paris gained 1.4 per cent, touching three week highs, before closing up 1.4 per cent thanks to President Macron’s strong debate. An Elabe poll for BFM TV revealed that viewers found him more convincing to be president. Frankfurt added almost 1 per cent while London’s FTSE closed a hairline lower by 0.02 per cent.
On the London Stock Exchange, Rio lost 1.8 per cent, BP added 0.5 per cent and Shell gained 0.6 per cent.
Asian markets closed mixed. Tokyo’s Nikkei gained 1.2 per cent, Hong Kong’s Hang Seng lost 1.3 per cent while China’s Shanghai Composite dropped 2.3 per cent.
Yesterday, the Australian sharemarket closed 0.3 per cent higher at 7,593. Join me here for “ASX only 37 points off all-time high and looks past red tech, closes 0.2% higher”.
Taking all of this into the equation, the SPI futures are pointing to a 0.9 per cent drop.
What to look out for today
S&P Global purchasing manager’s indexes for April could give us colour around how record input price could eat into profit margins.
Information tech is set to tumble, continuing its decline if we take this weak lead from Wall St’s Block, falling 6.9 per cent.
Several broker calls that are all downgrades, starting with Morningstar with five broker downgrades with Challenger (ASX:CHF) cut to hold from buy, Growthpoint (ASX:GOZ) cut to sell from hold Steadfast Group (ASX:SDF) cut to hold from buy, Worley (ASX:WOR) cut to sell from hold, Newcrest (ASX:NCM) cut to hold from buy.
Goldman Sachs cut Bega Cheese’s (ASX:BGA) rating to sell from neutral while Jefferies also downgraded Brambles (ASX:BXB) to underperform from hold.
Credit Suisse also cut Endeavour Group (ASX:EDV) to underperform from neutral and Canaccord cut Megaport (ASX:MP1) to hold with a price target of $11.
To some good news, base metals closed higher with nickel up 1.2 per cent, aluminium added 1.1 per cent while copper rose 0.7 per cent with expectations of weaker global supply which could help our miners like IGO (ASX:IGO), Alumina (ASX:AWC), and OZ Minerals (ASX:OZL).
Meanwhile, Abu Dhabi Investment Authority is among investors in a consortium led by KKR seeking to buy Ramsay Health Care (ASX:RHC) $20.1 billion, according to Bloomberg. The stock is up 29 per cent in 5 days, so it will be interesting to see if they can be a bright spot today.
We also have updates from OZ Minerals (ASX:OZL) and it’s expected that this year’s copper production increases from 127,000 to 149,000 tons, plus Mineral Resources (ASX:MIN). This will be one to watch after they reported net income for the first half-year of $19.2 million versus $519 million over the year, so a huge miss of 96 per cent. Let’s see if they make up ground today.
Market reopens on Tuesday after Anzac Day.
There is one company set to make its debut on the ASX today. Keep an eye out for Osmond Resources (ASX:OSM) after raising $5 million at 20 cents per share.
There is one company set to trade without the right to its dividend.
MFF Capital Investments (ASX:MFF) is paying 3.5 cents fully franked
There are 9 companies set to pay eligible shareholders today
ARB Corporation (ASX:ARB)
BSP Financial Group (ASX:BFL)
CI Resources (ASX:CII)
Eildon Capital Group (ASX:EDC)
Gowing Bros (ASX:GOW)
Latitude Group Holdings (ASX:LFS)
Restaurant Brands New Zealand (ASX:RBD)
Sigma Healthcare (ASX:SIG)
Iron ore has lost 0.4 per cent to US$150.05. Its futures point to a 0.2 per cent gain.
Gold has lost $7.40 or 0.4 per cent to US$1948 an ounce. Silver is down $0.65 or 2.6 per cent to US$24.70 an ounce.
Oil has added $1.60 or 1.6 per cent to US$103.79 a barrel.
One Australian Dollar at 7:30 AM has weakened from yesterday, buying 73.76 US cents (Thu: 74.48 US cents), 56.60 Pence Sterling, 94.69 Yen and 68.08 Euro cents.
Source: Bloomberg, FactSet, IRESS, TradingView, UBS, Bourse Data, Trading Economics