Wall St fell with stocks closing at session lows following the first case of the new variant identified in California. European & Asian markets rallied while the local bourse minimised losses as investors digested GDP figures, & house prices 38% more expensive than units. UBS rated Autosports Group (ASX:ASG) as a buy.
The Australian sharemarket is set to fall with the SPI futures pointing to a tumble of 1.1 per cent.
US stocks closed at session lows
Wall St fell with stocks closing at session lows following the first case of the new variant identified in the US. All of this coming after Fed Chair Jerome Powell flagged yesterday that the taper timeline could be sped up. That means we are likely to see higher interest and borrowing rates coming sooner rather than later amid elevated and sustained inflation. The major indexes have been on a choppy ride since Thanksgiving attempting to retrace steps, as uncertainty mounts on how deadly the new strain is.
Stocks saw an accelerated sell-off after the S&P 500 rose as much as 2.0 per cent earlier in the day after yesterday’s losses. Dr Anthony Fauchi spoke at the Whitehouse and said that it’s too early to tell how Omicron differs from other variants, however it might be more transmissible.
Private sector job grows beating expectations
Meanwhile investors also digested fresh economic news. The private sector added 534,000 jobs in November beating expectations. Leisure and hospitality saw gains last month, companies with more than 1,000 employees also saw strong growth.
Today’s private payroll was issued by the ADP, ahead of the big jobs report released by the Labor Department on Friday, which includes not only the private sector jobs, but companies, government jobs, bus drivers, cafeteria workers, teachers, many of those positions that have been in short supply amid the labour crunch and the pandemic.
Elsewhere, the ISM Manufacturing Index edged higher to 61.1 per cent in November from 60.8 per cent in October, so an improvement though amid the supply bottlenecks.
FDA narrowly approves Merck Covid-19 antiviral pill
Shares in Merck were trading higher before falling in tandem with the major indexes, after the FDA narrowly recommended the antiviral covid-19 pill. The vaccine maker received the green light for the anti-viral pill to be used for emergency use after a tight 13 to 10 votes. This is the drug that released trial results showing that the efficacy to reduce hospitalisations and death from Covid-19 came in much lower than the 50 per cent it initially claimed. The share price has been on a roller coaster rise, more so after Pfizer came out with trial results preventing hospitalisations and death from the virus by 89 per cent. Merck will need final approval from the FDA and Centres for Disease Control and Prevention, so the CDC, before it becomes available to the public.
Airlines experience turbulence ahead of tighter restrictions
We continue to follow airlines as America now adds restrictions for travellers visiting the country in the wake of the new variant identified today in California. United, Delta, and American Airlines had turbulence after their mild recovery yesterday. Travellers will need to show a negative Covid test result 24 hours before travelling. American Airlines led the decline by 8.0 per cent and travel stocks were the worst performers on the S&P 500.
Crude oil price trims back ahead of OPEC+ meeting
Crude prices fell on the back of the news of the first case in the US while the Energy Information Administration posted a small draw with crude inventories, but showed a large build of gas and diesel stockpiles. A light touch point ahead of the OPEC+ meeting. We might see the price of crude get a boost if the alliance delays an increase in output amid the Omicron variant.
Meanwhile, Fed Chair Jerome Powell and Treasury Secretary Janet Yellen are at Capitol Hill for the second day. They have defended their plans to look at speeding up the taper in a bid to combat inflation.
The coming weeks will likely see further volatility as market participants seek updates on the new strain. This is not the first time we have seen this, and till we get clarity from the health officials on the new strain, markets are going to keep their attention on Covid-19 headlines ahead of Christmas. As I said earlier in the week, buckle up, let’s stay on the volatility ride!
Wall St falls as bond yields dips
At the closing bell, the Dow Jones dropped 1.3 per cent to 34,022, the S&P 500 lost 1.2 per cent to 4,513 while the Nasdaq closed 1.8 per cent lower at 15,254.
Across the S&P 500, all sectors closed lower with consumer staples as the worst performer tumbling over 3.0 per cent dragged down by the airline stocks, followed by utilities, and communication services. Defensives shed the least with healthcare down 0.2 per cent.
The yield on the 10-year treasury note dipped 2 basis points to 1.42 per cent, while gold rose on a firmer greenback.
European markets rises as travel stocks take-off
Across the Atlantic, European markets closed higher. Paris gained 2.4 per cent, Frankfurt jumped 2.5 per cent and London’s FTSE added 1.6 per cent as travel, leisure and hospitality stocks rebounded on hopes the new variant will be less severe than anticipated with International Airlines Group taking off closing over 5.0 per cent higher. Miners and oil giants had a rally with the highlights being Rio climbing 1.7 per cent while BP jumped 2.3 per cent.
Asian markets jumps on bullish GDP outlook
Asian markets rallied after Chinese Vice Premier Liu He said that China is on track to beat its GDP growth target of “above 6 per cent” this year despite power shortages, a slow down in the property sector, and the crackdown as part of the wealth equality pursuit.
Tokyo’s Nikkei added 0.4 per cent, Hong Kong’s Hang Seng gained 0.8 per cent, while China’s Shanghai Composite closed 0.4 per cent higher.
Meanwhile, China’s manufacturing purchasing managers’ index rose to 50.1 in November, the first lift after seven months of decline, and the first positive growth after two months of contraction according to the National Bureau of Statistics.
ASX 200 dips amid GDP contraction
Yesterday, the Australian sharemarket closed 0.3 per cent lower at 7,236 helped by stronger than expected GDP figures. The local bourse sharply fell by 1.0 per cent in early trade and then gathered momentum to minimise losses that were initially projected.
September quarter GDP contracts while savings jumps 20%
September quarter’s gross domestic product fell 1.9 per cent from the June quarter, lower than the consensus of a fall of 2.7 per cent, so the contraction was less than anticipated. The decline almost offset the gains from the two previous quarters, and was attributed to lockdowns on the east side of Australia, that being Victoria and New South Wales.
Due to almost half of the nation in lockdown, Aussies couldn’t go out shopping, dining, or places of entertainment which saw the savings rate jump from 11.8 per cent to 19.8 per cent in the September quarter.
Houses are 38% more expensive than units
Meanwhile, investors also digested housing data. In November the price of houses are 37.9 per cent more expensive than city units, which is the largest difference on record as per CoreLogic. In dollar terms, a capital city house on average is around $240,500 more than a capital city unit. In Sydney, where the gap between house and unit prices are the widest, a house costs $523,000 more on average than a unit.
The local bourse closed the session with eight sectors declining to three winners. Supermarket giants Coles (ASX:COL) and Woolworths (ASX:WOW) dragged down the consumer staples sector as the worst performer, while materials, and energy were the only two sectors that rallied on optimism from news out of China as just mentioned.
Rio Tinto (ASX:RIO) surged 2.4 per cent, Fortescue Metals (ASX:FMG) added 1.5 per cent, while BHP (ASX:BHP) closed 1.4 per cent higher.
GUD tumbles after raising $290m to buy Autopacific
GUD (ASX:GUD) tumbled after trading resumed following a $290 million capital raising.
The funds raised combined with a retail share offer, debt of $282 million and $75 million of scrip is slated to pay for automotive accessories supplier Autopacific Group for $745 million from private equity investor, Pacific Equity Partners and APG management.
The worst-performing stock was GUD Holdings (ASX:GUD) closing almost 8.0 per cent lower at $10.78, followed by shares in Pro Medicus (ASX:PME), and IDP Education (ASX:IEL).
The best-performing stock in the S&P/ASX 200 was South32 (ASX:S32) closing almost 4.0 per cent higher at $3.67, followed by shares in Waypoint REIT (ASX:WPR), and Lynas Rare Earths (ASX:LYC).
In other major weights, Afterpay (ASX:APT) fell 2.2 per cent, Transurban (ASX:TCL) dropped 1.1 per cent, Telstra (ASX:TLS) dipped 1.0 per cent, while CSL (ASX:CSL) bucked the trend adding 0.8 per cent, and Wesfarmers (ASX:WES) closed 0.3 per cent higher.
Local economic news
The Australian Bureau of Statistics is set to issue international trade, and continuing from the housing theme, the lending indicators figures covering the loan commitments. The reports will be for the October period.
Housing finance approvals are expected to bounce back by 4.0 per cent in October, following a 1.4 per cent fall the month before. The September decline was attributed by a decline in lending to Victorians. If the September figures excluded Victoria, lending would have risen in the month. A rebound in lending to the east side of the nation is expected to drive the surge in October.
To international trade, the figures are expected to show a continued slide in the value of the trade surplus. The fall is estimated to be weighed down by the tumble in the iron ore price impacting the value of commodity exports. Also recovering activity following the easing of restrictions across NSW, Victoria and the ACT is likely to see a boost in imports. The market expects the surplus to decline to $11 billion, after a surplus of $12.2 billion in September.
UBS rates Autosports Group (ASX:ASG) as a buy with a target price of $3.15. The company’s trading update shows tight new vehicle supply combined with a back-end recovery continues to boost margins. However, the broker said that its profit guidance fell short of consensus as tight supply hit revenue. UBS expects higher margins will hold for longer forecasting financial year 2022 to 2025 compound annual growth rate of 10 per cent. Earnings per share forecasts rise 5.0 per cent in financial year 22, 16 per cent in financial year 2023 and are steady in financial year 2024. The buy rating is retained and target price edges higher to $3.15 from $3.10. Shares in Autosports Group (ASX:ASG) closed 1.9 per cent higher at $2.09 yesterday.
There are four companies trading ex-dividend today.
ALS (ASX:ALQ) is paying 15.8 cents 30 per cent franked
Fisher & Paykel Healthcare Corp (ASX:FPH) is paying 16.2804 cents unfranked
Pendal Group (ASX:PDL) is paying 24 cents 10 per cent franked
Technology One (ASX:TNE) is paying 10.09 cents 60 per cent franked
There are four companies set to meet with shareholders.
ALE Property Group (ASX:LEP)
Lefroy Exploration (ASX:LEX)
Premier Investments (ASX:PMV)
Iron ore has gained 1.3 per cent to US$101.40. Its futures point to a 0.7 per cent fall.
Gold added $4.90 or 0.3 per cent to US$1781 an ounce, silver was down $0.56 or 2.5 per cent to US$22.26 an ounce.
Oil dropped $1.06 or 1.6 per cent to US$65.12 a barrel.
One Australian Dollar at 8:30 AM has weakened from yesterday, buying 71.05 US cents (Wed: 71.29), 53.54 Pence Sterling, 80.14 Yen and 62.78 Euro cents.