Global markets declined as investors digested moves from central banks last week amid persistent Omicron concerns.
Wall St falls after a volatile week
The Australian sharemarket is slated to open lower after a week of volatility. On Friday, weakness on Wall St saw US stocks close on a down note. All three major indexes came under pressure as concerns over Omicron rose. Two weeks have passed since the new variant emerged from South Africa, with market participants keeping a close eye on the number of cases and hospitalizations.
The South African health minister gave some positive news with only 1.7 per cent of confirmed Covid-19 cases admitted to hospitals. This was compared to the same week of the delta outbreak which saw 19 per cent of cases.
President Joe Biden also expressed concern for the unvaccinated. There were also words from his medical adviser, Dr Anthony Fauci. Dr Fauci said that regulators are reconsidering whether a “booster” shot was needed to be deemed “fully vaccinated”.
Central banks dominates agenda last week
Despite the optimistic data, the hopeful wrap up before the Christmas break was shakened after major central banks unveiled their plans. Traders had on their plate a complex set of ingredients to shift through. This included inflation, interest rates, the taper timeline, labour demand, supply chain bottlenecks, and more.
Prior to the Fed decision, we were presented with fresh inflation data. The consumer price index came in at four decade highs at 6.8 per cent year-on-year in November. Then on the first day of the 2-day Fed meeting, producer prices landed at 9.6 per cent year-on-year, the highest on record. The unemployment rate fell to 4.2 per cent from 4.6 per cent in October, faster than anticipated.
Fed Reserve unveils rate hike schedule
With this, the Fed responded. Fed Chair Jerome Powell said that the US economy has a firm footing and can do without the asset purchases program. He then confirmed that the tapering of this program is set to end in March next year and a precise outlook of rate hikes. An outcome that market participants have been hanging for. At this stage, there will be three hikes in 2022, then three more in 2023, and two more in 2024. A move to combat this surge in inflation.
To put this in perspective, for a year, market participants have been throwing darts on the number of rate hikes to expect next year. Some thought it was one, some thought it was two, some thought there was none, we have been under the impression that inflation had been “transitory”. We have seen the transition around the treatment of inflation from “transitory” to “factors expected to be transitory”. Then to, it’s time to “retire” the description of inflation as “transitory”.
This was enough of a wink wink, hint hint for investors. They knew this was coming ahead of this official announcement, and hence why we saw a positive reaction which we called the “relief rally”. Market participants received what they wanted.
Then the enthusiasm was shaded by nervousness the next day, with the Nasdaq slumping. Technology stocks had a number of bad days last week on the prospect of its margin crunch, and less liquidity amid higher interest rates, and borrowing costs.
BoE hikes as ECB holds line after Fed pivots
To add to the wall of worries, the Bank of England surprised the market by raising interest rates while the UK grapples with a surge in Omicron cases. Meanwhile, the European central bank maintained its rate with news that they will gradually end its asset purchase program, and use other tools to help support the economy.
Omicron wildcard & outlook
The wild card to the outlook is Omicron so commodity prices will also be bumpy. If overhearing new cases surge, travel plans could take a turn, reducing the demand for energy, while gold could be your friend as a cushion to a trader’s knee jerk equity sell. Despite christmas and new years just around the corner, expect volatility to be on tap to close off the year.
Wall St falls as bond yield dips
At the closing bell, the Dow Jones fell 1.5 per cent to 35,365, the S&P 500 dipped over 1 per cent to 4,621, while the Nasdaq closed 0.1 per cent lower at 15,170 on Friday.
The yield on the 10-year treasury note dipped 1 basis point to 1.40 per cent, while safe haven gold rose on a weaker greenback. Keep an eye out for gold stocks today to see if they rally for another day.
Across the S&P 500 sectors, every sector closed lower. Take note of the sectors for today, we are light on company headlines.
Financials were the worst performer, down 2.3 per cent, followed by energy fell 2.2 per cent, then industrials. Real estate shed the least, down 0.3 per cent, followed by consumer discretionary, and information technology.
Elsewhere, Tesla is being sued over CEO Elon Musk’s social media posts. This includes his Twitter poll that pulled down the share price. According to Reuters, Tesla investor David Wagner called for access to internal documents. The request is to investigate whether Tesla and Musk violated an agreement with the US securities regulator, and its board members failed to comply with their fiduciary duties.
Figures around the globe
Across the Atlantic, European markets closed mixed. Paris fell 1.1 per cent, Frankfurt lost 0.7 per cent after business morale continued to decline for its sixth month, and London’s FTSE added 0.1 per cent amid a weaker pound.
Asian markets closed lower. Tokyo’s Nikkei tumbled 1.8 per cent despite the Bank of Japan maintaining loose monetary policy and extending financial relief for small companies. Hong Kong’s Hang Seng lost 1.2 per cent, while China’s Shanghai Composite closed 1.2 per cent lower.
ASX 200 gains but falls for the week
On Friday, the Australian sharemarket closed 0.1 per cent higher at 7,304 as the same we chatted about rippled downunder. Volumes were strong as fund managers and investors rebalanced portfolios ahead of December-quarter changes to the top 200 that come into effect today.
Over the week, the XJO fell 0.7 per cent for the week, and is up 10.9 per cent for this year to date.
A rally in resources and banks buoyed the market with materials, energy, utilities, and financials leading the pack. Information technology sunk 3.9 per cent as the worst performer upon the mixed sectoral finish.
BHP (ASX:BHP) gained 1.8 per cent, Fortescue Metals (ASX:FMG) rose 1 per cent while Rio Tinto (ASX:RIO) closed flat. Whitehaven Coal (ASX:WHC) leapt 5 per cent, while Woodside Petroleum (ASX:WPL) added 0.6 per cent. Newcrest (ASX:NCM) jumped 3.7 per cent.
In the financials, Commonwealth Bank (ASX:CBA) rose 2.4 per cent, ANZ Bank (ASX:ANZ) added 0.7 per cent and National Australia Bank (ASX:NAB) and Westpac (ASX:WBC) both closed 0.3 per cent higher. Macquarie (ASX:MQG) lost 1 per cent.
Afterpay (ASX:APT) tumbled 7.6 per cent on fears of tighter regulation in the ‘buy now, pay later’ sector in the US market. Nerves were triggered after a US government consumer agency launched an inquiry. Rivals like Sezzle (ASX:SZL) dived 9.9 per cent, while Zip Co (ASX:Z1P) sank 6.1 per cent.
The best-performing stock in the S&P/ASX 200 was Northern Star Resources (ASX:NST), closing 5.6 per cent higher at $9.45, followed by shares in IRESS (ASX:IRE), and Champion Iron (ASX:CIA).
The worst-performing stock in the S&P/ASX 200 was Domain Holdings Australia (ASX:DHG) closing 8.5 per cent lower at $5.16, followed by shares in Afterpay (ASX:APT), and Life360 Inc. (ASX:360).
Meanwhile, Magellan Financial (ASX:MFG) went into a trading halt amid speculation the fund manager is slated to lose a contract. Shares traded 1.8 per cent higher at $29.36 before trading was paused. Keep an eye out today as they are set to resume trade.
Switching gears, looking at the SPI futures, the local market will open lower by 0.4 per cent.
The week ahead
The economic calendar is light this week as the Christmas holiday break starts. We have the Reserve Bank Board minutes on Tuesday plus ANZ and Roy Morgan weekly consumer confidence report, weekly payroll jobs and wages on Wednesday and private sector credit on Thursday by the Australian Bureau of Statistics.
Overseas, key news will be the third-quarter GDP updates from the US and the UK, plus the US personal consumer expenditures figures on Thursday. This is the inflation reading that the Fed looks at over the CPI numbers we talked about last week. Today, the People’s Bank of China will provide an update to its new loan prime rate which is expected to be unchanged.
ASX trading calendar
From a trading calendar perspective, Christmas and Boxing Day fall on the weekend. That means we will have a four-day holiday from the markets. Therefore, on Monday and Tuesday next week, the ASX is closed. This Friday, the ASX will close at 2.10pm. Wall Street will close together on Friday and again on Monday.
UBS rates Allkem, formerly named Orocobre (ASX:AKE) as a buy with a price target of $10.75. Upon a change of analyst, UBS sets a new target price and maintains its buy rating. It’s thought the company has the resource inventory and brine/hard rock experience to create significant shareholder value. Near term growth is expected to come from Olaroz stage 2 and the Naraha lithium hydroxide plant, and company-wide, the analyst forecasts financial year 2022 revenue to lift to US$505 million from US$85 million in financial year 2021. Shares in Alkem (ASX:AKE) closed 1.2 per cent lower at $9.04 on Friday.
There are two companies set to pay eligible shareholders today
Oceania Healthcare (ASX:OCA)
Sandon Capital Investments (ASX:SNC)
There are five companies set to meet with shareholders including BCI Minerals and Emerge Gaming.
Alara Resources (ASX:AUQ)
BCI Minerals (ASX:BCI)
Emerge Gaming (ASX:EM1)
FBR Ltd (ASX:FBR)
Wellnex Life (ASX:WNX)
There is one company set to make its debut on the ASX today. Keep an eye out for BirdDog Technology (ASX:BDT). They develop and manufacture audio-visual and video technology after raising $33 million.
Iron ore has gained 3.1 per cent to US$118.25. Its futures point to a 0.7 per cent gain.
Safe haven gold has been the flavour after last week’s central bank calendar and inflation reading. It’s now above US$1,800.
Gold gained $6.70 or almost 0.4 per cent to US$1,805 an ounce, silver was up $0.05 or 0.2 per cent to US$22.53 an ounce.
As Omicron concerns weigh as mentioned earlier, the price of crude will be bumpy. Oil lost $1.52 or 2.1 per cent to US$70.86 a barrel.
One Australian Dollar at 8:00 AM has weakened since Friday, buying 71.41 US cents (Fri: 71.82), 53.95 Pence Sterling, 81.13 Yen and 63.55 Euro cents.