Wall St mixed, Commodities jump, Orora’s rating gets a boost: ASX to rise

Major indexes around the globe closed mixed amid corporate earnings on tap. Snap dragged down the tech titans while American Express pushed the Dow higher. Evergrande’s payment boosted optimism across European & Asian markets. The local bourse rose for the week, closed flat for Friday as losses in the materials & energy sectors offset gains or flat performances across the other sectors.

The Aussie sharemarket is looking to start the week on a positive note. The SPI futures pointing to a gain of 0.4 per cent.

Dow hits record highs as weekly gains by major indexes

On Friday, the Dow hit a record high as investors rotate out of tech, ahead of the big names reporting this week.

Oh Snap! Facebook & Alphabet feel the pain

Shares in Snap tumbled over 26 per cent after its revenue for the third quarter came in below expectations. Snap said that Apple‘s recent privacy changes limited digital advertising sales. Apple now offers users the ability to opt into target ads. With the option to not participate, these new features hindered the way Snap tests and measures their campaigns.

The company also flagged that the supply chain disruptions are prompting their partners to reduce ad spend. The reason for this is that the supply chain constraints are inhibiting the ability to fulfil customer demand and therefore, hit sales targets. This means that instead of seeing the next quarter be the beneficiary of holiday spending, it’s likely not going to be the case. Shares in Facebook and Alphabet fell over 5.0 and 3.0 per cent respectively.

American Express sees Americans spend boosting revenue

The Dow was pushed higher thanks to American Express posting better-than-expected third quarter earnings. This was helped by Americans traveling and spending on entertainment and meals.

However, there was a bit of pull back across the major indexes on Fed Chair Powell’s remarks. The Fed signaled they are on track to announce their formal tapering timeline, however, the economy still has five million jobs to fill, to be back at 2020 levels. This suggests that rate hikes to kick start immediately after tapering is done could be a bit too bullish.

American economy grows as surging material costs

Adding to the lift was the PMI figures which showed the economy is on firm grounds. The Markit Services Purchasing Managers Index came in at 58.2 for October, beating estimates of 55.5. While, the Markit Manufacturing PMI read 59.2, just below the expected 60.5. Any reading above 50 indicates growth and these readings came in the high 50’s. The results showed that even though companies are paying more for materials, the cost is being passed down amid strong demand.

It appears that investors are still cautious about inflation despite the earnings results we are seeing. The tune around inflation being transitory is starting to be questioned as to whether it is more persistent instead. With the figures from the PMI readings, to the news from Snap on the supply chain constraints, some of the figures are starting to reinforce the persistent note on inflation. And if so, investors have every right to be nervous amid the surging commodity prices.

Wall St mixed as bond yields rises

At the closing bell, the Dow Jones added 0.2 per cent to 35,677, the S&P 500 lost 0.1 per cent to 4,545 snapping a seven day winning streak, while the Nasdaq closed 0.8 per cent lower at 15,090.

All three major indexes saw weekly gains. The S&P 500 is up 1.6 per cent, while the Dow has added 1.1 per cent and the Nasdaq rose 1.3 per cent higher.

The yield on the 10-year treasury note rose by seven basis points to 1.63 per cent, gold shines on a stronger greenback. Over the week, the yield on the 10-year rose by six points.

Across the S&P 500 sectors there were seven winners to four losers. Financials was the best performer, up 1.3 per cent followed by energy adding 0.9 per cent then consumer staples. Communication services was the worst, down 2.3 per cent followed by consumer discretionary, lost 0.7 per cent then technology.

European markets gain on Evergrande bond payment

Across the Atlantic, European markets closed higher as Evergrande’s bond payment. Paris added 0.7 per cent, Frankfurt gained 0.5 per cent and London’s FTSE closed 0.2 per cent higher.

Miners rose while energy players fell. BHP added 0.7 per cent, Rio gained 0.5 per cent, BP and Shell both lost 0.3 per cent.

Asian markets mixed on property lift

Asian markets closed mixed as property stocks rose on remarks from the banking regulator.

Tokyo’s Nikkei added 0.3 per cent, Hong Kong’s Hang Seng gained 0.4 per cent while China’s Shanghai Composite closed 0.3 per cent lower.

ASX 200 closes flat at a monthly peak

On Friday, the Australian sharemarket closed flat at 7,416, though lifted 0.7 per cent higher over the week. The local bourse closed at one-month high’s as losses in the materials and energy sectors offset gains or flat performances across the other sectors.

Woodside Petroleum (ASX:WPL) dropped 2.8 per cent on the back of a number of broker downgrades. The oil and gas producer’s target price got cut due to its sharply lower output at its Wheatstone project in Western Australia following its update on Thursday..

Adding to this was the reignited fears from property giant Evergrande. Iron ore producers dived on concerns around its debt defaults despite a coupon payment made on time.

BHP (ASX:BHP) fell 2.2 per cent while Rio Tinto (ASX:RIO) lost 1.8 per cent. The miners felt further pressure as Rio received a fw broker downgrades. The unveiling of its plan to cut carbon emissions by 50 per cent by 2030 didn’t impress. Analysts anticipated an alternative strategy of pushing into new metals or material acquisitions versus a rapid decarbonisation. Fortescue Metals (ASX:FMG) dipped 0.9 per cent.

Wesfarmers (ASX:WES) surged 3.2 per cent as investors focused on the improved sales growth at its Bunnings, Officeworks and Catch businesses. They looked past the results of Target and Kmart due to the lockdowns.

Woolworths (ASX:WOW) added 1.7 per cent on the back of a broker upgrade. It was noted that the grocery giant would outperform Coles (ASX:COL) when both companies report September-quarter sales this week. Coles rose 0.7 per cent.

The best-performing stock in the S&P/ASX 200 was Healius (ASX:HLS) closing 4.0 per cent higher at $4.94. The healthcare and pathology provider posted a 44 per cent jump in revenue driven by a spike in Covid-19 testing. It was followed by shares in Wesfarmers (ASX:WES) and Auckland International (ASX:AIA).

The worst-performing stock was Lynas Rare Earths (ASX:LYC) after production and cash generation fell short of expectations for the September quarter, closing 8.1 per cent lower at $6.84. Aurizon (ASX:AZJ) was the second worst performer. The rail network operator offered $2.4 billion to acquire One Rail Australia from Macquarie followed by shares in Mineral Resources (ASX:MIN).

Week ahead in economic & company highlights

Inflation is set to take the spotlight this week after the RBA jumped into the 3-year bond market buying $1 billion of bonds on Friday. The move helped bring down yields after the three-year bond rate rose past its 0.1 per cent target. Traders appeared to start pricing in a rate hike despite multiple reassurances the cash rate won’t lift until 2024.

The price that consumers are paying for food, alcohol, clothes and petrol for the September quarter is due on Wednesday. On Friday, we will find out what inflation figures are for businesses.

Overseas, the U.S and eurozone GDP figures are due. Market participants will look at how sharp is the slowdown in economic growth in the third quarter. The Bank of Japan is set to release its quarterly economic report at the end of a two-day meeting. Also, corporate earnings season heats up on Wall St.

Facebook is set to report their third quarter figures after Snap reported it missed revenue expectations. They said that the iPhone’s privacy settings affected their advertising business.

There will be a slew of other companies including other tech titans like Alphabet, Microsoft, Twitter, Apple this week. There are over 40 companies due to release figures so a busy week ahead.

Broker moves

Macquarie boosted Orora’s (ASX:ORA) rating to an outperform from a neutral with a price target of $3.60. The paper and packaging company reiterated full year growth guidance at its AGM and announced a new $150 million buyback. First half earnings for Australian beverages are slated to fall due to the weakness in the China wine sales sector. The pivot to other markets will take time for the impact to come through noted the broker. However, solid demand and well managed costs is likely to deliver growth in North America earnings. The broker upgrades its rating to an outperform from a hold on a forecast that total shareholder return will be at 16 per cent and at a price to earnings discount to market. Target unchanged at $3.60. Shares in Orora (ASX:ORA) closed flat at $3.23 on Friday.

IPO

There is one company set to make their debut on the ASX today. Keep an eye out for Eastern Metals (ASX:EMS).

Ex-dividend

There are three companies trading ex-dividend today.

Clover Corporation (ASX:CLV) is paying 0.5 cents fully franked
Jupiter Mines (ASX:JMS) is paying 0.5 cents unfranked
New Hope Corporation (ASX:NHC) is paying 7 cents fully franked

Dividend-pay

There are three companies set to pay eligible shareholders dividends today.

Desane Group Holdings (ASX:DGH)
Naos Emerging Opportunities Company (ASX:NCC)
Nick Scali (ASX:NCK)

AGMs

There are three companies slated to meet with shareholders virtually today.

Argo Global Listed Infrastructure (ASX:ALI)
Argo Investments (ASX:ARG)
Nick Scali (ASX:NCK)

Commodities

Iron ore has gained 2.2 per cent to US$119.52. Its futures point to a 4.7 per cent gain.

Gold added $14.40 or 0.8 per cent to US$1,796 an ounce, while silver was up $0.28 or almost 1.2 per cent to US$24.45 an ounce.

Oil was up $1.26 or 1.5 per cent to US$83.76 a barrel after world leaders flagged despite the number of Covid-19 cases in the northern hemisphere, global oil supplies are still tight.

Currencies

One Australian Dollar at 7:20 AM is slightly higher from Friday, buying 74.71 US cents, 54.31 Pence Sterling, 84.83 Yen and 64.19 Euro cents.

Investor event

Please join us for our next online investor event tomorrow (Tuesday 26 October) with six companies presenting. From lithium explorers to marketing service providers. Make your way to fnn.com.au to reserve your free online spot.