Wall St jumps on Biden’s Asia trade deal, Block, Wesfarmers, Technology One on watch: ASX to rise

US stocks rallied into the close, a much needed rebound after almost 8 weeks of declines as investors went bargain hunting. Biden’s proposed new Asia trade pact, comments from JPMorgan Chase CEO Jamie Dimon and the Atlanta Fed President buoyed optimism. 

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Good morning. A nice jump. I’m Melissa Darmawan for Finance News. This is your market outlook.

The Australian sharemarket is set to rise after a buoyant session on Wall St.

Reprieve on Wall St

US stocks were in rally mode as investors snapped up beaten down stocks amid optimism that a major de-escalation in the US-China trade war could be positioned from President Biden. The green was a much-needed reprieve for investors after a long stretch of selling of up to eight straight weeks of declines.

However the outlook is still cloudy as investors are determining if the sell-off has more to run, if inflation has peaked, and of course, what this means when it comes to the global supply chain, keeping Covid under control and now Monkeypox, amid the Fed raising rates and if it can navigate a soft landing.

At the closing bell, the Dow Jones gained almost 2 per cent to 31,880, the S&P 500 added 1.9 per cent to 3,974 and the Nasdaq closed 1.6 per cent higher to 11,535.

Across the S&P 500 sectors, the rally was across the board. Financials led the advance, up 3.2 per cent thanks to JP Morgan which I will touch on shortly. Energy added 2.7 per cent, then information tech, up 2.4 per cent. These are healthy gains. Consumer discretionary added the least by 0.6 per cent.

The yield on the 10-year treasury note rose 8 basis points to 2.86 per cent, gold rose, so did Bitcoin, on a weaker greenback.

Why the rebound today?

Investors picked up stocks after digesting positive comments from JPMorgan Chase CEO Jamie Dimon, comments from the Atlanta Fed President and the new trade deal in Asia.

President Biden launched a new trade deal with 12 Indo-Pacific nations aimed to strengthen their economies as he warned Americans worried about high inflation that it is “going to be a haul” before it gets better. The president said he does not believe an economic recession is inevitable in the U.S. However, for anyone looking at their budget, until we know that inflation has peaked, it looks like higher prices are set to continue into next year

Meanwhile, JP Morgan CEO Jamie Dimon said that he’s confident in consumers’ financial health, boosting sentiment further as shares rallied over 6 per cent. Executives also detailed new “buy now, pay later” instalment plans for its credit-and debit-card customers. Shares rallied 6.2 per cent on the news.

While the Atlanta Fed President said that the Fed may need to pause rate hikes at its September meeting. Markets have priced in two 50 basis point hikes in the next two meetings.

It shows the influence that Fed officials and even investment banking behemoths can have. Consumer sentiment is so low so they’ll take any optimism and run with it.

So goes Apple, so goes the market

Apple helped lead this advance as the tech giant is looking to raise its production capacity outside of China. Apple reportedly told suppliers it wants to make more devices in India and Southeast Asia. Apple pointed out China’s strict zero Covid policy along with its rocky relationship with the US among other reasons for the change. Analysts estimate that more than 90 per cent of Apple’s products, including iPhones and MacBooks are made in China. We are seeing more and more companies start to decouple themselves from Russia and China. Even Starbucks is looking to remove its stores from Russia after 15 years.

The International Energy Agency warned that the current energy supply crisis due to Russia’s war in Ukraine must not lead to countries relying more on fossil fuels. The agency chief said at the World Economic Forum that while we need fossil fuels in the short term, countries can’t continue to justify these types of investments if the world wants to reach net zero emissions by 2050. That goal was a major part of the UN’s climate change conference in Glasgow.

Figures around the globe

Across the Atlantic, European markets closed higher. Paris added 1.2 per cent, Frankfurt gained 1.4 per cent while London’s FTSE climbed 1.7 per cent.

On the London Stock Exchange, Rio gained 2.1 per cent, BP added 2.8 per cent and Shell rose 2.2 per cent.

Asian markets closed mixed, Tokyo’s Nikkei added almost 1 per cent, Hong Kong’s Hang Seng fell 1.2 per cent while China’s Shanghai Composite close flat.

Yesterday, the Australian sharemarket eked out a gain of 3 points at 7,149, extending its rally for a second day.

Join me here for “Mining giants put a lid on losses, RBA won’t sell bonds: ASX closes 0.1% higher” for Monday’s action.

SPI futures

Taking all of this into the equation, the SPI futures are pointing to a 0.3 per cent gain

What to look out for today

The weekly consumer sentiment from ANZ and Roy Morgan are due plus a raft of purchasing manager’s indexes.

These results will provide the first major clues as to the health of the world economy and add further colour into the impact of the war in Ukraine, China’s lockdowns, strained supply chains and the flow on effect to inflationary pressures.

However, one data point to watch is the services sector data to determine the degree to which price pressures are feeding through from goods to services.

In earnings, Technology One (ASX:TNE) is on the docket. Challenger (ASX:CGF) and Viva Energy Group (ASX:VEA) have their annual meetings today.

Sectors to look out for, financials and information tech. In particular, buy-now pay-later players, Afterpay owner Block (ASX:SQ2) and Laybuy (ASX:LBY).

For now to prepare for the day, Morgan Stanley retains Afterpay owner Block’s (ASX:SQ2) rating as an equal-weight and dropped its price target. The broker reiterates that Block could improve sustainability of its Cash App revenue by further diversifying product offering. Integration of Afterpay is key to this according to the broker, with the buy-now pay-later facility a step toward integrating additional credit services. With the existing Borrow feature hitting one million users, the broker notes available credit products are resonating, but cites that limiting buy-now pay-later functions to interest-free and short duration loans will not meet the needs of the company’s customer base over the medium to long term.

In broker moves, there could be some strong gains today. UBS has upgraded Wesfarmers (ASX:WES) to a buy from neutral with a price target of $56 from $54. The broker sees non-retail divisions as a potential for future earnings upside. Meanwhile UBS upgraded Evolution Mining (ASX:EVN) to neutral from sell, but lowered its price target to $4.05 from $4.13.

IPO

The Lottery Corporation (ASX:TLC) is slated to join the ASX today as a result of the Tabcorp Holdings Limited (ASX:TAH).

ASX:TLC – but no announcements yet, will check tomorrow

Ex-dividend

There are two companies set to trade without the right to its dividend.

Amcor PLC (ASX:AMC) is paying 16.68 cents unfranked
GQG Partners (ASX:GQG) is paying 2.0799 cents unfranked

Dividend-pay

There is one company set to pay eligible shareholders today.

Acorn Capital Investment Fund (ASX:ACQ)

Commodities

Iron ore has lost 0.2 per cent to US$135.95. Its futures point to a 1 per cent fall.

Gold has gained $10.00 or 0.5 per cent to US$1858 an ounce. Silver was up $0.11 or 0.5 per cent to US$21.78 an ounce.

Oil has added $0.33 or 0.3 per cent to US$110.61 a barrel.

Currencies

One Australian Dollar at 7:05 AM has strengthened since yesterday, buying 71.08 US cents (Mon: 70.57 US cents), 56.52 Pence Sterling, 90.94 Yen and 66.52 Euro cents.

Disclaimer

The views, opinions or recommendations of the commentators in this presentation are solely those of the author and do not in any way reflect the views, opinions, recommendations, of Sequoia Financial Group Limited ABN 90 091 744 884 and its related bodies corporate (“SEQ”). SEQ makes no representation or warranty with respect to the accuracy, completeness or currency of the content. Commentators may hold positions in stocks mentioned. The content is for educational purposes only and does not constitute financial advice. Independent advice should be obtained from an Australian Financial Services Licensee before making investment decisions. To the extent permitted by law, SEQ excludes all liability for any loss or damage arising in any way including by way of negligence. 

Sources: Bloomberg, FactSet, IRESS, TradingView, UBS, Bourse Data, Trading Economics, Wall St Journal