Mixed market across the globe after investors climbed the wall of worry. Wall St closed higher after a morning sell-off while the other major indexes dived into the red. ASX sank to 4-mth low. Find out what APRA’s mortgage crackdown means & how banks performed on the local bourse. Magellan’s (ASX:MFG) rating got upgraded despite the net outflows while Commonwealth Bank (ASX:CBA) is a hold.
The Australian sharemarket is set to rebound with the SPI futures pointing to a gain of 0.5 per cent.
U.S. stocks close higher after morning slump
Wall St closed near session highs after a whipsaw performance. Only two hours before market close, all three major indexes were in the red. Investors went on a rollercoaster ride as they climbed the wall of worries after a morning sell-off. From inflationary pressures, the debt ceiling debate to the recent hawkish turn from central banks around the globe. Investors shifted through what it all meant, as they brace themselves for the official jobs report this Friday.
The issues stem from concerns on inflation being persistent rather than transitory, and how the Fed will respond. The supply chain disruptions are weighing on the economic recovery, not to mention the energy markets, which have been a contributor to the recent bond yield surge, which rose to their highest level this week. A higher bond yield generally is linked to the notion of stronger inflation.
The ADP national employment report showed private payrolls picked up in September, up 568,000 jobs, the largest increase in three months. This came in above expectations. This gave investors an indicator of what the official jobs report might look like this Friday.
To bring this together, if the jobs report is strong, investors are concerned that the Fed will taper as early as November. This is despite knowing that the hike in interest rates will not follow immediately thereafter.
What prompted the rebound in today’s session, was senate majority leader Mitch McConnell stepping in. He floated a short-term debt extension through to November, helping stocks turn higher.
If the labour market improves in the coming months, market participants may look to price in the tapering, which would see the bond bulls rage towards the levels seen in March.
Wall St higher, bond yields dip as gold shines
At the closing bell, the Dow Jones gained 0.3 per cent to 34,417, the S&P 500 added 0.4 per cent to 4,364 while the Nasdaq closed 0.5 per cent higher at 14,502.
The yield on the 10-year treasury note dipped by 1 point to 1.52 per cent, as gold rose on a firmer greenback.
Across the S&P 500 sectors, energy fared the worst, down 1.1 per cent on an unexpected lift in U.S. crude supply, followed by materials and healthcare. Utilities was the best performer, up 1.5 per cent followed by consumer staples and real estate. All the other sectors advanced.
European markets swims in red sea on inflation woes
Across the Atlantic, European markets closed lower. Paris lost 1.3 per cent, Frankfurt fell 1.5 per cent and London’s FTSE closed 1.2 per cent lower, the lowest close in a fortnight. It was dragged down by energy and mining stocks on concerns about inflation pressures, amid signs of a slower pandemic rebound.
In U.K. trade miners and oil giants fell. BHP lost 1.4 per cent, Rio fell 0.5 per cent, BP dropped 2.6 per cent, Shell fell 2.6 per cent.
Asian markets trips on growth slowdown
Asian markets closed lower. Tokyo’s Nikkei declined for the 8th day at 1.1 per cent to its lowest level since October 2020, Hong Kong’s Hang Seng fell 0.6 per cent on a slow growth in their private sector for September while China’s Shanghai Composite was closed.
ASX 200 sinks to 4-month low
Yesterday, the Australian sharemarket closed 0.6 per cent lower at 7,207 to a four-month low amid APRA’s tightened home loan standards.
APRA’s grip on interest rate buffer & what it means
This action came sooner than expected after APRA came in to address the debt to income ratio in the home loan space. The watchdog increased the interest rate buffer that banks use to assess loan serviceability to 3 per cent from 2.5 per cent. This is for new home loans, in a bid to calm the hot property market.
So how does this translate for the borrower? That means that when you apply for a home loan, the banks will test your ability to service the loan by adding 3 per cent on the current home loan rate.
For example, if the interest rate is at 2 per cent, after you add the 3 per cent buffer, the bank will determine how you can service the loan at a 5 per cent interest rate.
Now, first home buyers and owner occupiers might have dodged a bullet on this. The lift in the buffer is expected to affect property investors, with no impact on mortgage pricing being anticipated.
So you might ask, how does this impact credit growth across the banks? Well, that is hard to forecast, however, the change reduces the maximum borrowing capacity by about 5 per cent. This means that a slowdown in mortgage growth could be on the cards in the financial years 2022 to 2023.
Banks fell while energy stocks climb
Banks fell, dragging down financials as the second worst performer, down 0.9 per cent while consumer discretionary lost 1.3 per cent. Commonwealth Bank (ASX:CBA) felt the pain, tumbling 2 per cent amid a broker downgrade which I will cover. ANZ fell 1.1 per cent, followed by National Australia Bank (ASX:NAB) then Westpac (ASX:WBC).
Despite the red, energy stocks continued to climb, adding 0.6 per cent as the best performing sector followed by technology, up 0.5 per cent. All the other sectors closed in the red.
The best-performing stock in the S&P/ASX 200 was Whitehaven Coal (ASX:WHC), closing 4.1 per cent higher at $3.59 given the energy crisis, followed by shares in Virgin Money UK (ASX:VUK) and Janus Henderson Group (ASX:JHG).
The worst-performing stock in the S&P/ASX 200 was The A2 Milk Company (ASX:A2M), closing 7.7 per cent lower at $6.02, followed by shares in Flight Centre Travel Group (ASX:FLT) and Webjet (ASX:WEB).
A2 Milk sinks while Magellan’s outflows hurt
In company news, shares in A2 Milk (ASX:A2M) sank 7.7 per cent to $6.02 after Slater and Gordon filed a class action on behalf of investors to the company who bought shares over a nine-month period. The infant formula maker took its shareholders for a run after four earnings downgrades, with the stock diving over 62 per cent. A2 Milk have dug their heels in, denied liability, and said they would defend the class action.
Magellan Financial Group (ASX:MFG) dropped 4.1 per cent to $32.52 on news of a significant drop in funds under management during September. The investment manager said the decline was due to a portfolio rebalance from three of its clients. This contributed to $1.5 billion worth of outflows.
Other investment managers bucked the trend with Janus Henderson Group (ASX:JHG) soared 3.2 per cent to $58.08 while Platinum Asset Management (ASX:PLA) added 2.4 per cent to $3.39.
To call out a few other blue-chip players which put the local bourse under pressure. Wesfarmers (ASX:WES) dropped 1.3 per cent to $54.07, Woolworths (ASX:WOW) fell 0.5 per cent to $39.11 while Transurban (ASX:TCL) dipped 1 per cent to $14.05.
Local economic news
The Australian Bureau of Statistics is set to release weekly payroll jobs and wages, while the AiGroup has pencilled in the performance of services index in August.
JP Morgan rates Commonwealth Bank (ASX:CBA) as a hold with a price target of $95. The broker observes that the bank is trading at stretched valuation multiples. Despite this, JP Morgan does point out that the bank has many positive points of differentiation from its peers including scale, deposits, and lending growth. Shares in Commonwealth Bank (ASX:CBA) closed 2 per cent lower at $103.42 yesterday.
Macquarie upgrades Magellan (ASX:MFG) to an outperform with a price target of $38. The broker assessed increased earnings volatility and a poor investment performance have resulted in material de-rating. Flows are likely to remain under pressure for much of FY22 but Macquarie is bullish in that they saw valuation support, given the investment manager’s 7 per cent dividend yield. The stock is also trading at 13.7x one-year forward price-to-earnings ratio compared with a five-year average of 19.2x. The rating is upgraded to outperform from a neutral and the target is reduced to $38.00 from $46.75. Shares in Magellan Financial Group (ASX:MFG) dropped 4.1 per cent to $32.52 yesterday.
Djerriwarrh Investments (ASX:DJW)
There is one company slated to make their debut on the ASX today. Keep an eye out for E79 Gold Mines (ASX:E79).
ARB Corporation (ASX:ARB) is paying 39 cents fully franked
Macmahon Holdings (ASX:MAH) is paying 0.35 cents 20 per cent franked
Ridley Corporation (ASX:RIC) is paying 2 cents fully franked
Today we have 15 companies slated to pay eligible shareholders dividends.
Breville Group (ASX:BRG)
Costa Group Holdings (ASX:CGC)
Cimic Group (ASX:CIM)
Lifestyle Communities (ASX:LIC)
Pacific Current Group (ASX:PAC)
Pact Group Holdings (ASX:PGH)
Pro-Pac Packaging (ASX:PPG)
QANTM Intellectual Property (ASX:QIP)
Super Retail Group (ASX:SUL)
360 Capital Enhanced Income Fund (ASX:TCF)
Iron ore has gained 0.1 per cent to US$116.71.
Gold has gained $3.80 or 0.2 per cent to US$1765 an ounce while silver was up $0.07 or 0.3 per cent to US$22.68 an ounce.
Oil was down, it’s taken a breather from the 7-year highs at $1.88 or 2.4 per cent to US$77.05 a barrel.
One Australian Dollar at 7:20 AM has weakened from yesterday, buying 72.76 US cents, 53.56 Pence Sterling, 81.07 Yen and 62.96 Euro cents.