US stocks popped higher as investors felt hopeful that the economy will slow down enough for the central bank to consider adjusting its rate hiking cycle towards year end while digesting a weaker outlook from retail giants. M&As are heating up. Keep an eye out for Westpac (ASX:WBC), Infratil (ASX:IFT), Perpetual (ASX:PPT), and Pendal Group (ASX:PDL).
Good morning. I’m Melissa Darmawan for Finance News. This is your market outlook.
The Australian sharemarket is set to rise after decent gains on Wall St.
Nasdaq outperforms after latest Fed minutes
US stocks popped higher as investors felt hopeful that the economy will slow down enough for the central bank to consider adjusting its rate hiking cycle towards year end while digesting a weaker outlook from retail giants.
At the closing bell, the Dow Jones added 0.6 per cent to 32,120, the S&P 500 gained almost 1 per cent to 3,979 and the Nasdaq jumped 1.5 per cent to 11,435.
Even with the gains all these major averages are still well off their lows. The Nasdaq is still deep in bear market territory, down about 29.5 per cent from its 52-week high. The S&P 500, is now 17.4 per cent from its last record while the Dow is 13 per cent from its high.
Across the S&P 500 sectors, consumer discretionary and energy were the best performers, up 2.8 per cent and 2 per cent, respectively. The US energy secretary said the Biden administration hasn’t ruled out a ban on oil exports to tame domestic fuel prices, according to Reuters. Information tech was the third best which I will go through with you shortly. Defensive stocks edged lower by a hairline which were utilities and healthcare.
The yield on the 10-year treasury note was flat at 2.76 per cent, gold and the greenback weakened. Today was a risk on day.
Why the jump?
The latest Fed minutes indicated that the central bank is behind the curve and confirmed this to the market by the size and frequency of their rate hiking cycle. That is 50 basis points in the next two meetings. No surprise there.
Also what was interesting – there was an agreement on almost every point which doesn’t happen often. So yes, a general agreement on the outlook and on the policy with FOMC members.
However, a hawkish set of minutes would have sent bond markets reacting, we saw the short end react which is normal, the 10 year was flat, which would have seen equities capitulate. Not today.
However, there was a slightly dovish consideration which was interesting. The Fed said that the economic outlook is “highly uncertain” and that a “restrictive stance of policy may well be appropriate”. Therefore, risk management considerations are important going forward.
Something to be aware of is that the neutral rate cannot be below the inflation rate. If inflation in the US is at 8.5 per cent or here back home, it’s 5.1 per cent, to bring it down to any central bank’s range, something has to give.
The labour market is tight both here and in the US, inflation is hot and economic growth is slowing down. It’s either the jobs market or the growth of the economy that needs to give. If the focus is to reduce inflation, one of those variables has to change. Analysts are betting that the unemployment rate will rise from this year to next.
Another retailer, Dick’s Sporting Goods, posted solid sales in the last quarter as consumers spent more money on sports apparel and gear from brands like Nike and Adidas. The retailer offered a weaker outlook for the full year due to inflation and supply chain issues that are set to weigh on near term sales. Nothing new there too.
Elsewhere, tech stocks bounced after Intuit soared 8.2 per cent after the tax software company reported a nice beat to its quarterly profit and revenue, and the firm raised its outlook.
Let’s take a look at what this means for the Aussie market today.
Figures around the globe
European markets closed higher. Paris gained 0.7 per cent, Frankfurt rose 0.6 per cent while London’s FTSE added 0.5 per cent.
On the London Stock Exchange, Rio gained 1.9 per cent, BP rose 1 per cent and Shell added 0.5 per cent.
Asian markets closed mixed, Tokyo’s Nikkei lost 0.3 per cent, Hong Kong’s Hang Seng added 0.3 per cent while China’s Shanghai Composite gained 1.2 per cent.
Yesterday, the Australian sharemarket closed 0.4 per cent higher at 7,155.
Taking all of this into the equation, the SPI futures are pointing to a 0.2 per cent gain.
What to look out for today
Businesses increased investment spending due to a spike in demand with the assistance of generous tax incentives throughout 2021 and into this year. However, the delta lockdowns over the third and fourth quarter last year had an adverse impact with capex flat over the half year, led lower by a more than 3 per cent decline in equipment.
Today, the first quarter private capex data from the Australian Bureau of Statistics is due which it’s expected to lift by 1.5 per cent. This comes after total construction work completed in the March quarter fell 0.9 per cent where it was expected to grow by 0.9 per cent due to supply chain disruptions impacting on the range of building materials.
Let’s see what the figures tell us today as these are key inputs for March quarter GDP which will be released next Wednesday 1 June.
In earnings, Champion Iron (ASX:CIA) fourth quarter results are due out today.
Consumer discretionary stocks could be on the move. In particular, Super Retail Group (ASX:SUL). Macquarie rates the company as neutral but cuts its price target to $9.80 from $10.57. The broker cited that the Rebel sport owner continues to perform well and is trading broadly in line with pre-pandemic averages. The company has earmarked a capital spend of $125 million this financial year with a large portion to be allocated towards new larger format stores for the Rebel brand after a period of underinvestment. Macquarie notes this could provide upside risk to valuation if returns on investment are strong.
Tech shares could be in favour. Xero (ASX:XRO). The company did report lower than expected subscriber growth for their UK arm this month which could be correlated with increased investment in the country by a competitor called Sage, according to Citi. However, the broker anticipates Xero can continue to deliver strong growth in the region. They have a buy rating from Citi with a target price of $108.
There is a lot going on at the moment in the M&A space. Appen (ASX:APN) has received a $1 billion confidential offer from an offshore buyer, according to the AFR. Keep an eye out for others we have heard from like Westpac (ASX:WBC), Infratil (ASX:IFT), Perpetual (ASX:PPT), and Pendal Group (ASX:PDL). That means other ASX listed fundies could also get some attention today.
There are two companies set to make their debut on the ASX today. Keep an eye out for TG Metals (ASX:TG6) after raising $6 million at 20 cents per share and Demetallica (ASX:DRM) after raising $15 million at 25 cents per share.
There are four companies set to trade without the right to its dividend.
Aristocrat Leisure (ASX:ALL) is paying 26 cents fully franked
Irongate Group (ASX:IAP) is paying 4.67 cents unfranked
James Hardie Industries (ASX:JHX) is paying 32.6608 cents unfranked
Nufarm (ASX:NUF) is paying 4 cents unfranked
There are two companies set to pay eligible shareholders today
Bank of Queensland (ASX:BOQ)
US Student Housing REIT (ASX:USQ)
Iron ore futures point to a 0.7 per cent fall.
Gold has lost $18.90 or over 1 per cent to US$1853 an ounce. Silver was down $0.19 or 0.9 per cent to US$21.87 an ounce.
Oil has added $0.56 or 0.5 per cent to US$110.33 a barrel.
One Australian Dollar at 7:05 AM has weakened since yesterday, buying 70.90 US cents (Wed: 71.10 US cents), 56.39 Pence Sterling, 90.26 Yen and 66.36 Euro cents.
Source: Bloomberg, FactSet, IRESS, TradingView, UBS, Bourse Data, Trading Economics