Wall St gains, Bulls set to close quarter strong, Rio Tinto rated as buy: ASX to rise

A cheerful close to the first week of the earnings season as a rally was seen around the globe.
 
The Aussie market is set to start the week on an optimistic note. The SPI futures pointing to a gain of 0.4 per cent.

U.S. stocks rise for 2nd day on surprising retail gain

On Friday, U.S stocks rose after the risk for appetite grew, on an impressive first round of corporate earnings. Better-than-expected data for retail sales, optimism on Evergrande’s defaults to be contained, also added to the rally. This saw the height of the gains move major indexes around the globe, after a bumpy start to the week. The rally on Friday followed the S&P 500’s best performance since March this year on the Thursday. More than 65 per cent of the S&P 500 closed in the black according to FactSet.

The optimism overshadowed the uncertainty that moved markets. Inflationary pressures, surging commodity prices, and the formal announcement of the Fed’s support took the back seat. Investors appear to be encouraged about the outlook ahead.

Surprise retail spend as car sales drive higher

Market participants were expecting spending to slow down, but the figures on Friday proved otherwise. Retail sales for September rose 0.7 per cent month-over-month, versus an expected 0.2 per cent decline. The year-over-year increase for September was 13.9 per cent as per the Commerce department.

Consumers had deeper pockets ahead of the holiday season. Given the microchip shortage and supply chain woes, autocar sales were expected to fall, but it rose 0.5 per cent.

As Americans plan ahead with Hanukkah at the end of November, economists are expecting retail sales to remain cheerful into the year end.

Elsewhere, the Empire State index posted a sharper fall in October from 34.3 to 19.8. Price increases rose with no sign of it slowing down. Though, business activity is still strong and the outlook for manufacturing looks positive.

Meanwhile, consumer sentiment came in below expectations at 71.4, below 73.1 estimate. This was below the reading from the month below. Supply chain disruptions, a rocky labour market and concerns in Washington DC weighed as per the University of Michigan.

Bulls have been forthcoming in the fourth quarter as shown by past performance. Since 1927, the S&P 500 clocked in gains in the final quarter of the year, 60 per cent of the time. Let’s see if this holds true as we prepare to close off the year.

Wall St gains as bond yields rise

At the closing bell, the Dow Jones gained 1.1 per cent to 35,295, the S&P 500 added 0.8 per cent to 4,471, while the Nasdaq closed 0.5 per cent higher at 14,897.

The yield on the 10-year treasury note rose six basis points to 1.57 per cent, while gold loss on a weaker greenback.

Investors are pricing in the Fed announcement as seen in the current moves in the bond market. Usually tech shares fall but we didn’t in this case. Expect some bumpiness in the bond space as the inflation debate continues.

Across the S&P 500 sectors, there were three losers to eight winners. Consumer discretionary was the best performer, up 1.8 per cent, followed by financials, industrials, and technology. Utilities declined by 0.2 per cent, followed by consumer staples, and communication services.

European markets rise in tandem with Wall St

Across the Atlantic, European markets closed higher. Paris added 0.6 per cent, Frankfurt gained 0.8 per cent and London’s FTSE closed 0.4 per cent higher.

Over the week, Paris recorded a weekly performance of 2.5 per cent, Frankfurt also rose 2.5 per cent and the FTSE added 1.9 per cent.

Mining giants fell while oil players rose. BHP lost 0.1 per cent, Rio Tinto fell 1.4 per cent while BP rose 1.7 per cent, Shell climbed 1.9 per cent.

Asian markets tracked stateside lead

Asian markets closed higher recovering from their rocky week. Tokyo’s Nikkei gained 1.8 per cent, Hong Kong’s Hang Seng added 1.5 per cent while China’s Shanghai Composite closed 0.4 per cent higher.

Over the week, the Nikkei gained 3.6 per cent, the Hang Seng added 2 per cent, while the Shanghai Composite was down 0.5 per cent.

ASX 200 notches best close in 3-weeks

On Friday, the Australian sharemarket closed 0.7 per cent higher at 7,362, its highest close in three weeks with gains across the board, except utilities, lagging behind.

The local bourse fell in the first three sessions and then staged a comeback on Thursday and Friday, tracking Wall St.

Technology was the best performer, up 1.4 per cent followed by materials, as base metal prices rose alongside a rebound in the iron ore price.

Macquarie Group (ASX:MQG) jumped 3.7 per cent on the back of a broker upgrade. The boost was due to its strong green energy fundamentals when compared to its peers. The major banks advanced. ANZ (ASX:ANZ) jumped 1.1 per cent, Westpac (ASX:WBC) added 0.5 per cent, Commonwealth Bank (ASX:CBA) rose 0.4 per cent while National Australia Bank (ASX:NAB) closed 0.2 per cent higher.

Miners were mixed with BHP (ASX:BHP) jumping 2.8 per cent, Fortescue Metals (ASX:FMG) added 2 per cent, while Rio Tinto (ASX:RIO) closed 0.9 per cent lower.

Rio cuts iron ore guidance on labour squeeze

The miner cut its guidance for calendar year 2021 production. Rio said that delays at its Gudai-Darri and Robe Valley tie-in projects were the contributor as they battled to find skilled labour in West Australia. Production from its Pilbara operations in the September quarter was in line with estimates. However, other minerals output such as copper and alumina are slightly below expectations. Despite this underwhelming update, Rio still looks strong with a net cash balance sheet, and free cash flow yield to back it up.

The best-performing stock in the S&P/ASX 200 was helped by a number of broker upgrades. HUB24 (ASX:HUB) closed 5.8 per cent higher at $33.06 on a raised target price, followed by shares in ARB Corporation (ASX:ARB) on a rating boost, and Star Entertainment Group (ASX:SGR) riding on the coattails of MGM on Wall St.

The worst-performing stock in the was Pendal Group (ASX:PDL), closing 11.5 per cent lower at $6.84 after their September FUM came in below expectation. It was followed by Platinum Asset Management (ASX:PTM) after a large stakeholder reduced their stake to less than 5 per cent from 21 per cent. Treasury Wine Estates (ASX:TWE) was just behind after they warned that Covid-19 disruptions were likely to impact their business.

Local economic news

Today the Reserve Bank has slated an online panel participation by Alexandra Heath, Reserve Bank Head of International Department, at AusPECC.

Over the week, the central bank will be taking the spotlight. They will release the minutes from the October 5 board meeting. Given the moves from APRA, it wouldn’t be surprising to see some notes around the tightening of home lending rules.

Other things to watch out for are the consumer confidence figures, September skilled job openings, payroll figures, and flash estimates of manufacturing and services activity.

Broker moves

Ord Minnett rates Rio Tinto (ASX:RIO) as a buy with a reduced price target of $143. The broker states that Rio is their preferred diversified miner.

What attracts them are the relatively inexpensive valuation metrics, and strong shareholder returns. The miner also has tier-1 assets, and a strong balance sheet.

Their June 2022 price target is based on their net present value estimate which is based on a sum-of-the-parts discounted cash flow valuation using an 8.5 per cent discount rate.

Shares in Rio Tinto (ASX:RIO) closed 0.9 per cent lower at $99.60 on Friday.

Ex-dividend

There are eight companies trading ex-dividend today including Beacon Minerals. Make your way to fnn.com.au for the ful list.

Beacon Minerals (ASX:BCN) is paying 0.125 cents fully franked
Cadence Capital (ASX:CDM) is paying 3 cents fully franked
K & S Corporation (ASX:KSC) is paying 3.5 cents fully franked
Plato Income Maximiser Ltd (ASX:PL8) is paying 0.5 cents fully franked
Turners Automotive (ASX:TRA) is paying 4.7436 cents 85 per cent franked
WAM Active Limited (ASX:WAA) is paying 3 cents fully franked
WAM Capital Limited (ASX:WAM) is paying 7.75 cents fully franked
WAM Leaders Limited (ASX:WLE) is paying 3.5 cents fully franked

Dividend-pay

There are six companies set to pay eligible shareholders their dividends today.

BSP Financial Group (ASX:BFL)
Carsales.Com Ltd (ASX:CAR)
Cochlear (ASX:COH)
Energy One (ASX:EOL)
GLG Corp (ASX:GLE)
Partners Group Global Income Fund (ASX:PGG)

IPO

There is one company pencilled in to make their debut on the ASX today. Keep an eye out for NickelSearch (ASX:NIS) today.

Commodities

Iron ore has lost 0.5 cent to US$125.22. Its futures point to a 3.5 per cent fall.

Gold lost $29.60 or 1.7 per cent to US$1768 an ounce, silver was down $0.13 or 0.6 per cent to US$23.35 an ounce.

Oil was up $0.97 or 1.2 per cent to US$82.28 a barrel on news of the ease in travel restrictions from the White House.

Currencies

One Australian dollar at 7:30AM is steady buying 74.17 US cents, 53.91 Pence Sterling, 84.75 Yen and 63.98 Euro cents.

Investor event

Please join us for our next online investor event on Tuesday 26 October with six companies presenting. From lithium explorers to marketing service providers. Make your way to fnn.com.au to reserve your free online spot.