Tech sell-off returns on Wall St, Premier, Lottery Corp, Challenger on watch: ASX to open flat

Wall St turns mixed after another volatile on Wall St. Tech selling returned as investors are in flux and are confused as if the sell off has more to go and if inflation has peaked. 

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

The Australian sharemarket is set to consolidate as the volatility continues on Wall St.

Tech rout on renewed recession fears

US shares were mixed, closing off its worst levels with the Dow as the outperformer after Snap’s outlook reignited fears of an economic slow down. Investors are in flux and are confused as if the sell off has more to go and if inflation has peaked.

At the closing bell, the Dow Jones gained 0.2 per cent to 31,929, the S&P 500 lost 0.8 per cent to 3,941 and the Nasdaq closed 2.4 per cent lower to 11,264.

Across the S&P 500, defensive sectors rallied. Utilities was the best performer, adding 2 per cent, followed by consumer staples up 1.7 per cent, real estate, energy, and healthcare rose in the range from 1 to 1.2 per cent. Communication services was the biggest loser, 3.7 per cent, consumer discretionary lost 2.6 per cent, then information tech by 1.6 per cent. The rest closed lower.

The yield on the 10-year treasury note fell by around 10 basis points to 2.76 per cent as investors bought into bonds. The greenback was steady and gold rallied.

Why?

All the forward looking indicators are pointing towards a gloomy picture as it looks like we are headed towards stagflation. That is high inflation, slow economic growth, high unemployment rate. This comes just before a recession. It also looks like the market is doing some of the work for the Fed as well.

Let me explain to you what is meant by this.

In the past 24 hours we have received data that has reinforced weakness in the US economy. What is not so great news is that it is now moving at a faster pace which means that investors are going to search for safety till selling pressure continues and the market finds the bottom. We saw that in the rise in the treasury yield as investors bought into bonds.

There are two data points from this session that indicated this.

Firstly, Snap reported after hours yesterday and Australian shares reacted to the news by closing at session lows, led by information tech. Snap’s CEO told employees that the company will miss its financial targets in the current quarter. He added that macro conditions have deteriorated “further and faster” than expected when the company issued quarterly guidance last month, sending the stock over 43 per cent lower.

The macro conditions mean the economic landscape. Therefore, the strained supply chains, the war in Ukraine, the lockdowns in China, rising input costs and of course, the Fed’s role in raising interest rates to suppress 40-year high inflation which we don’t even know if it has peaked yet.

These are headwinds that have impacted Snap’s first quarter. As we have talked about several times, during this earnings season, we were to focus not on the results, but on the outlook.

The chief financial officer made it very clear by saying, “operating environment could be even more challenging going forward. More specifically, the headwinds that impacted our business in Q1 have persisted into Q2, and we believe the impact of the war on Ukraine has been significant, and this impact is particularly difficult to predict going forward.”

The second data point are the economic figures, in particular the PMI readings which fell to a three month low as input pressures persist. This is a surprise for the US economy as it showed a deterioration even in the services sector. As lockdowns ease, the pivot from goods to services was expected but to see the services sector fall from 55.6 to 53.5, a four month low in April is concerning.

We also received figures on manufacturing from the Richmond Fed which was underwhelming and April’s new home sales report showed that residential sales sank 16.6 per cent over the month, the lowest since April of 2020 and well below forecasts, as rising construction and mortgage costs weigh on buyers’ affordability.

It’s not really all good news, investors are reacting by punishing the stocks. However, if you’re in it for the long term, this could also be a buying opportunity too.

Let’s look ahead as to what this means for the Aussie market today.

Figures around the globe

European markets closed lower. Paris fell 1.7 per cent, Frankfurt lost 1.8 per cent while London’s FTSE lost 0.4 per cent.

On the London Stock Exchange, Rio lost 0.4 per cent, BP fell 1.2 per cent and Shell dropped 0.9 per cent.

Asian markets closed lower, Tokyo’s Nikkei lost 0.9 per cent, Hong Kong’s Hang Seng fell 1.8 per cent while China’s Shanghai Composite fell 2.4 per cent.

Yesterday, the Australian sharemarket closed 0.3 per cent or 20 points lower at 7,129. Join me here for “Tech “Snap” tips ASX’s fall as China fears mount, closes 0.3% lower”

SPI futures

Taking all of this into the equation, the SPI futures are pointing to a 0.1 per cent gain

What to look out for today

We have a speech from RBA assistant governor Luci Ellis at the UDIA 2022 National Conference in Sydney.

The Australian Bureau of Statistics is set to release the residential work for the March quarter, a data set to provide us a glimpse into a calculation of economic growth.

In earnings, ALS (ASX:ALQ) full year results are due, keep an eye out for its net income to come in at $260.5 million. Annual meetings continue with investors with Alumina (ASX:AWC), Costa Group (ASX:CGC) on the docket.

Consumer discretionary stocks could be under pressure today if inflation concerns are front of mind. One stock to look out for is Premier Investments. Citi rates Premier Investments (ASX:PMV) as neutral with a price target of $29. The broker keeps a positive view on the retail sector despite depressed expectations amid higher fuel prices and a rising interest rate environment. Citi believes that Smiggle and the fashion brands will be reopening beneficiaries, while Peter Alexander is expected to hold up well.

The Lottery Corp (ASX:TLC) closed at $4.70 per share and now has a market capitalisation of around $10.3 billion after splitting from Tabcorp (ASX:TAH). Morgan Stanley has rated the Lottery Corp as overweight with a price target of $5.15, this is a 9 per cent jump from yesterday’s closing price. We could see some buying today in the stock.

Challenger (ASX:CGF) could see some selling pressure amid JP Morgan cutting its rating to underweight with a price target of $6.90, which could pull down other ASX listed fundies lower such as Platinum (ASX:PTM).

Resources stocks could be on the move, BHP (ASX:BHP), Woodside (ASX:WPL) and Newcrest (ASX:NCM).

IPO

There is one company set to make its debut on the ASX today. Keep an eye out for Bellavista Resources (ASX:BVR) after raising $6.5 million at 20 cents per share.

Commodities

Iron ore has lost 4 per cent to US$130.50. Its futures point to a 0.4 per cent fall.

Gold has gained $17.50 or 0.9 per cent to US$1871 an ounce. Silver was up $0.34 or 1.6 per cent to US$22.06 an ounce.

Oil has lost $0.52 or 0.5 per cent to US$109.77 a barrel.

Currencies

One Australian Dollar at 7:10 AM has slightly risen since yesterday, buying 71.10 US cents (Tue: 71.08 US cents), 56.75 Pence Sterling, 90.19 Yen and 66.27 Euro cents.

Disclaimer

The views, opinions or recommendations of the commentators in this presentation are solely those of the author and do not in any way reflect the views, opinions, recommendations, of Sequoia Financial Group Limited ABN 90 091 744 884 and its related bodies corporate (“SEQ”). SEQ makes no representation or warranty with respect to the accuracy, completeness or currency of the content. Commentators may hold positions in stocks mentioned. 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, SEQ excludes all liability for any loss or damage arising in any way including by way of negligence.

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