Wall St rises while Asian markets mixed on no Biden-Xi breakthroughs. The ASX snapped its 2-day winning streak as investors digested the RBA’s meeting minutes. Citi rated Woodside (ASX:WPL) as a neutral with a boosted target price.
The Australian sharemarket is set to rise with the SPI futures pointing to a gain of 0.3 per cent.
Retail sales jump despite higher prices
US stocks rallied with the Nasdaq outperforming the major indexes despite the rise in bond yields. The Dow was lifted by shopping giants as investors digested strong retail data.
Americans started their holiday shopping early despite higher prices. Retail sales in October rose 1.7 per cent according to the Commerce Department, much stronger than economists expected. Online shopping and gas contributed to the rise, as well as electronic sales. Interesting is that the figures are seasonally adjusted, but not adjusted for inflation.
Last week we saw pricing pressures hit 30 year highs with the price tag on items soaring, market participants are wondering how inflation is going to chip away at growth momentum and whether the Fed is going to change the pace of its taper timeline, and when interest rates will rise to curb these pricing pressures.
Walmart & Home Depot beat expectations
Playing into the retail space, Walmart closed 2.6 per cent lower despite reporting third quarter results exceeding expectations, raising its full-year guidance amid inflationary pressures. While Home Depot surged 5.7 per cent after consumers spent more per visit contributing to same store sales exceeding expectations for the quarter.
Meanwhile, CEO Elon Musk is set to sell another US$931 million of stock bringing its total sale of shares to US$7.8 billion. Shares jumped 4.1 per cent today punching above the US$1,000 mark now to US$1,054.73.
Rally in Wall St & bond yields
At the closing bell, the Dow Jones added 0.2 per cent to 36,142, the S&P 500 gained 0.4 per cent to 4,701 while the Nasdaq closed 0.8 per cent higher at 15,974.
Across the S&P 500 sectors, consumer discretionary, technology were the two winners from the four, while the rest closed lower, real estate was the biggest loser.
The yield on the 10-year treasury note rose 2 basis points to 1.64 per cent, gold rose against a weaker greenback, supported by higher inflation indicators.
European markets mixed on BoE uneasy inflation
Across the Atlantic, European markets closed mixed. Paris was closed, Frankfurt gained 0.6 per cent and London’s FTSE lost 0.3 per cent as the pound rose after comments from Bank of England governor Andrew Bailey showed that he was “very uneasy” about rising inflation.
Miners fell while oil giants rose. BHP and Rio both lost 1.3 per cent while BP added 0.9 per cent, and Shell gained 1.4 per cent.
Lifting the pound was also the latest jobs figures showing that the unemployment rate in the UK fell in the third quarter. The unemployment rate dipped 0.5 percentage points to 4.3 percent for the quarter versus an expectation of 4.4 per cent. Annual growth in average total pay including bonuses rose n to 5.8 per cent, coming in higher compared to expectations of 5.6 per cent.
In the UK market, Vodafone shares surged almost 5.0 per cent after the telco raised its forecast for this year’s free cash flow after strong half-year performance.
Asian markets mixed on no Biden-Xi breakthroughs
Asian markets closed mixed after a virtual meeting between President Joe Biden and President Xi Jinping didn’t reach an agreement to ease tensions.
Tokyo’s Nikkei added 0.1 per cent, Hong Kong’s Hang Seng gained 1.3 per cent amid policy easing bets as authorities appeared to have relaxed rules to encourage home sales. China’s Shanghai Composite shed 0.3 per cent amid handling their biggest outbreak of Covid-19.
ASX 200 snaps 2-day winning streak
Yesterday, the Australian sharemarket snapped its 2-day winning streak, its worst performance in over two weeks as investors digested the RBA’s meeting minutes closing 0.7 per cent lower at 7,420.
Rising bond yields on Wall St transcended in the same way in our bond market following news that broke last week that US inflation tipped its highest level in more than 30 years. This saw the greenback rise which put pressure on commodity prices.
The local bourse closed at its lowest level of the session after the minutes from the Reserve Bank and a speech took a bit of attention.
RBA minutes were no surprise
The RBA’s minutes from its policy meeting at the start of November showed that the central bank shrugged off September-quarter inflation data which triggered a surge in bond yields as markets priced interest rate hikes.
The bank reaffirmed its view that inflation “remained low in underlying terms”, while any acceleration “would be only gradual” with wages growth was still “subdued”. With reference to the interest rate rise necessary before 2024 to remain “plausible”.
So no surprises there, as policymakers indicated that the current pace of quantitative easing was appropriate, the cash rate would stay at 0.10 per cent until 2024 or till wages and inflation targets are met.
RBA speech attempts to reset hawkish market
While the speech after the release of the minutes from Governor Philip Lowe reiterated this. Dr Lowe said that “the economy and inflation would have to turn out very differently from our central scenario for the board to consider an increase in interest rates next year.”
Adding that, “the latest data and forecasts do not warrant an increase in the cash rate in 2022”.
Dr Lowe emphasised that wages would have to rise to above 3.0 per cent in order to sustain inflation between the range of 2.0 – 3.0 per cent, with wage growth being only one factor that would influence rate policy.
Dr Lowe is attempting to reset market expectations which appear to be more hawkish than the central bank. The markets have priced in at least three rate hikes in 2022. It seems that there is a disconnect between the central bank’s guidance and market expectations, and the trajectory looks like it will continue this way.
However, if fresh economic news points to a surge in inflation, like our counterparts in the US, the central bank may need to readjust their tune on inflation and reflect if it’s really transitory or persistent.
Miners pressure amid a cautious market
Meanwhile, the XJO saw a decline as iron ore players pressured the index as the price of the steel-making commodity dipped, with only information technology closing higher, marginally lifted by Afterpay (ASX:APT) jumping 1.7 per cent.
With volumes on the lighter side, it appeared that investors were being more on the cautious side.
Woodside (ASX:WPL) chief financial officer Sherry Duhe has stepped down to take up the CFO role at gold miner Newcrest (ASX:NCM) early next year. Woodside shares fell 0.8 per cent while Newcrest (ASX:NCM) dropped 1.0 per cent.
Chalice Mining (ASX:CHC) continued to climb after their discovery of the largest nickel sulphide deposit in over 20 years last week, notching the title as the best performer of the session.
Mesoblast (ASX:MSB) switched position to the worst performer of the session after being the best on Monday. The catalyst for its surge was due to the drug developer releasing positive phase three trial results on one of its cellular medicines at the American Heart Association annual meeting. The specialised drug is used to fight inflammation in heart attack and stroke victims.
The best-performing stock in the S&P/ASX 200 was Chalice Mining (ASX:CHN), closing 3.7 per cent higher at $10.33, followed by shares in Virgin Money UK (ASX:VUK) and Nextdc (ASX:NXT).
The worst-performing stock in the S&P/ASX 200 was Mesoblast (ASX:MSB), closing 8.7 per cent lower at $1.74, followed by shares in Pendal Group (ASX:PDL) and Kelsian Group (ASX:KLS).
Local economic news
The Australian Bureau of Statistics is set to release the wage price index figures for the September quarter.
A timely report given what we have just discussed, the latest reading showed a lift of 1.7 per cent in the June quarter, the fastest annual pace in a year. However, the quarterly growth rate was just 0.4 per cent in the June quarter, after two solid gains of 0.6 per cent.
Markets forecast wages to grow at 0.6 per cent for the September quarter.
Commonwealth Bank (ASX:CBA) posted a 20 per cent jump in cash net profit after tax of $2.2 billion in the first quarter of the 2022 financial year, compared to the same time last year. The bank’s income was flat excluding the divestment of Aussie home loans, with above system volume growth helping to offset continued margin pressures and lower non-interest income. Keep an eye out for more updates. Shares in Commonwealth Bank (ASX:CBA) closed 0.3 per cent lower at $107.68 yesterday.
Citi rates Woodside (ASX:WPL) as a neutral with a boosted target price of $22.82. The broker reviewed that the company has extracted a premium price versus the broker’s valuation from selling a 49 per cent stake in Pluto Train 2 to Global Infrastructure Partners for around $1.1 billion. However, it’s thought to be a swap for more construction, scheduling, emissions and regulatory risk. The analyst believes the transaction completes the last major hurdle to taking the final investment decision on Scarborough which could occur in the next 30 days. The target price increases to $22.82 from $22.59 and the rating is unchanged. Shares in Woodside (ASX:WPL) closed 0.8 per cent lower at $22.33 yesterday.
There are 14 companies set to meet with shareholders today.
Abacus Group (ASX:ABP)
Cromwell Property Group (ASX:CMW)
Hotel Property Investments (ASX:HPI)
Liberty Financial Group (ASX:LFG)
Platinum Asset Management (ASX:PTM)
Seven Group (ASX:SVW)
Strategic Energy Resources (ASX:SER)
Suvo Strategic Minerals (ASX:SUV)
The a2 Milk Company (ASX:A2M)
There are six companies slated to release an interim or full year report.
Aristocrat Leisure (ASX:ALL)
Plenti Group (ASX:PLT)
United Malt Group (ASX:UMG)
There are two companies set to make their debut on the ASX today. Keep an eye out for Kalgoorlie Gold Mining (ASX:KAL) and Lycaon Resources (ASX:LYN).
Iron ore has gained 1.1 per cent to US$90.04. Its futures point to a 2.1 per cent fall.
Gold lost $14.80 or 0.8 per cent to US$1852 an ounce, silver was down $0.23 or 0.9 per cent to US$24.87 an ounce.
Oil was down $0.09 or 0.1 per cent to US$80.79 a barrel.
One Australian Dollar at 8:15 AM has weakened from yesterday, buying 72.97 US cents, 54.37 Pence Sterling, 83.79 Yen and 64.50 Euro cents.