Wall St mixed, Commodities pulls back, ANZ posts $6.2b profit, WOW as hold: ASX to slip

Mixed market across the globe as earnings season continues. Investors continued to remain cautious around inflation, and supply chain disruptions. Banks are set to take the spotlight today on earnings update. Woolworths rated as a hold.

The Australian sharemarket is set to fall with the SPI futures pointing to a dip of 0.5 per cent.

S&P, Dow retreats from record high

Wall St closed mixed, the Dow and S&P retreated from record highs. The Dow fell for the first time in four days amid earnings results in focus. Broadly speaking, the results have been quite strong, exceeding expectations. Investors continue to remain cautious around inflation, and supply chain disruptions. The tax proposal for billionaires to help fund the infrastructure bill has also added to the concerns.

The tax proposal is a hybrid between a wealth tax and a capital gains tax. It doesn’t tax all wealth. It only taxes capital gains over a US$1 billion in assets on unrealised gains. So it’s not when you close out of a position, it’s on any gains you have. It might seem confusing, hence why talks are still ongoing.

The Nasdaq and the S&P 500 did hit an intra-day record high as the yield on the 10-year treasury yield fell. The achilles heel for tech names have been inflation, taxes and tighter regulation. Tech titans rallied amid Senator Joe Manchin showing much hesitancy around increasing taxes.

Tech titans rally on strong earnings

Microsoft surged 4.1 per cent, a brand new record high. The tech titan had one of its best years in history, sales climbed 22 per cent over the year, the fastest pace since 2018. Microsoft did flag that supply chain issues are set to weigh on earnings around its devices.

Alphabet jumped almost 5.0 per cent following a record profit due to a surge in ad sales. The Google parent said that the new Apple IOS changes had a slight impact on YouTube revenue.

McDonald’s rose 2.7 per cent after earnings beat expectations. The fast food chain said that its loyalty program contributed to its same store sales growth. Menu prices are 6.0 per cent higher which has helped them offset rising costs. They have also raised its full-year sales forecast.

Elsewhere, energy stocks took a hit after oil prices pulled back from seven year highs. Iran agreed to restart nuclear talks in November. The Energy Information Administration’s crude oil inventory report also showed inventory build higher than expected.

Wall St mixed as bond yields fall

At the closing bell, the Dow Jones lost 0.7 per cent to 35,491, the S&P 500 fell 0.5 per cent to 4,552 while the Nasdaq closed flat at 15,236.

The yield on the 10-year treasury note dipped by 8 basis points to 1.54 per cent, gold shined on a weaker greenback.

Across the S&P 500 sectors, there were only two winners. Communication services rose almost 1.0 per cent followed by consumer discretionary, up 0.2 per cent. Energy sunk 2.9 per cent as the worst performer, followed by financials and materials.

European markets pulls back

Across the Atlantic, European markets closed lower. Paris lost 0.2 per cent, Frankfurt and the London’s FTSE both lost 0.3 per cent.

Investors reacted to British finance minister Rishi Sunak’s half-yearly budget statement.

The finance minister announced a 50 per cent discount on business rates for the next year, simplified alcohol taxes, and vowed to support households as inflation is projected to rise.

Miners and oil giants fell. BHP lost 1.3 per cent, Rio fell 1.4 per cent, BP declined 0.5 per cent while Shell closed 0.9 per cent lower.

Asian markets fall on U.S. mounting tension

Asian markets closed lower after investors dwelled on the default by the property developer Modern Land, and mounting US and China tension. American officials barred China’s biggest telco operator Telecom from doing business in the US.

Tokyo’s Nikkei closed slightly lower, down 0.03 per cent to be precise, Hong Kong’s Hang Seng fell 1.6 per cent, while China’s Shanghai Composite closed almost 1.0 per cent lower.

ASX 200 just gains on inflation poke

Yesterday, the local bourse poked its nose over the finishing line for the fourth time in five sessions as inflation figures took the spotlight. The ASX closed 0.1 per cent higher at 7,449.

The headline figure came in at 0.8 per cent coming in at expectations. The annual rate came in at 3.0 per cent versus 3.1 per cent, down from 3.7 per cent from the second quarter. However, the core consumer price index reading was a bit of a surprise.

The Reserve Bank’s preferred measure of core inflation rose to its highest level since 2015. The annual rate came in at 2.1 per cent as per the Australian Bureau of Statistics versus the expectations of 1.8 per cent.

For the quarter, it came in at 0.7 per cent versus an expectation of 0.5 per cent. The reading slipped back into the RBA’s target band of 2.0 to 3.0 per cent, a benchmark used by the central bank for raising its cash rate.

The three year bond yield spiked up 16 basis points after investors digested the data as the Aussie dollar went into a spin. A move that isn’t unfamiliar with market participants around the globe.

Bond yields have been jumping up and down on inflation jitters, with its performance being quite pronounced in the past month. The compounding effects of the energy crunch in the northern hemisphere amid the supply chain bottlenecks hasn’t helped. Investors have been trying to price in the next moves ahead of the central banks’ formal rate and tapering announcements.

Fuel and home dwellings were major contributors to the jump in the consumer price index, as oil producers and home builders were outpaced by consumer demand pressured further by rising material costs. Weighing down on this is shortage in staff and restrictions imposed by the rising cases of delta. A similar tune that we saw on Wall St like yesterday where we saw new home sales rose at its fastest pace. Home prices have been climbing, factoring in the rising costs of materials.

RBA to meet next Tues on Melbourne Cup

The reading comes after Governor Philip Lowe reiterated that the central bank will not look to raise interest rates to 2024. Dr Lowe said that he wants to see inflation and wage growth ‘sustainably’ within the two to three per cent target range.

With the current moves, it appears that market participants are challenging that stance. Let’s see what the RBA’s outlook will be when they meet next Tuesday on Melbourne Cup day. If they turn more hawkish we might see another spur in the bond markets and Aussie dollar again.

Despite the performance, communication services fared the best, rising 1.9 per cent lifted higher by news from Telstra. Healthcare notched a gain of 1.1 per cent followed by financials, as banks were the beneficiary of rising bond yields. Consumer staples fell 2.0 per cent dragged down by Woolworths (ASX:WOW) and A2 Milk (ASX:A2M) followed by utilities.

Woolworths, A2 Milk & Telstra

Woolworths (ASX:WOW) plunged 3.2 per cent, its sharpest drop since February. Investors booked their profits after they got the jitters on an uncertain outlook as a lift in restrictions had already put a dampener on consumer spending at their stores. Meanwhile sales in Big W were on the rebound. Sales in the key Australian food business rose 3.9 per cent not including tobacco, although increased team bonuses and costs associated with the pandemic did offset some of the operating leverage benefits from this. The uncertain outlook saw rival Coles (ASX:COL) close 1.0 per cent lower.

The A2 Milk company (ASX:A2M) plummeted 12 per cent after the company warned of continued challenges with sales in China at their investor day.

Telstra (ASX:TLS) surged 3.2 per cent on the back of a broker upgrade due to its acquisition of Digicel. We touched on this yesterday in broker moves.

The major miners closed in the red. Fortescue Metals (ASX:FMG) sunk 2.6 per cent, Rio Tinto (ASX:RIO) slid 1.8 per cent while BHP (ASX:BHP) closed 1.4 per cent lower.

Reliance Worldwide (ASX:RWC) got a bit of attention due to a number of brokers upgrading its rating and/or price target on the stock. I’ll touch on this in broker moves.

The best-performing stock in the S&P/ASX 200 was Uniti Group (ASX:UWL), closing 5.8 per cent higher at $4.20. It was followed by shares in Reliance Worldwide (ASX:RWC) and Whitehaven Coal (ASX:WHC).

The worst-performing stock in the S&P/ASX 200 was Codan (ASX:CDA), closing 18.8 per cent lower at $10.95. It was followed by shares in The A2 Milk Company (ASX:A2M) and Champion Iron (ASX:CIA).

Local economic news

The Australian Bureau of Statistics is set to release international trade prices for the September quarter.

Company news

ANZ has posted a full-year cash profit from continuing operations of $6.2 billion, beating market expectations. Its profit jumped 65 per cent compare to a year ago. Keep an eye out for further updates.

Broker moves

Macquarie upgraded Reliance Worldwide (ASX:RWC) to an outperform from a neutral with a price target of $5.95. The broker observed that trading is solid and the acquisition of EZ-FLO is a sensible move adding diversification to the business. There is only a 10 per cent overlap with the company’s products and provides the opportunity for cost and revenue synergies. Along with the broker upgrade, its target price was from $5.70 to $5.95. Shares in Reliance Worldwide (ASX:RWC) closed 4.6 per cent higher at $5.44 yesterday.

Morgans rates Woolworths (ASX:WOW) as a hold with a price target of $37.85. The first quarter sales were slightly weaker than expected by Morgans. Like-for-like sales growth for the key Australian Food business of 2.7 per cent was below the broker’s expectation of 4.5 per cent. The broker lowers its financial year 2022 underlying profit forecast by two per cent. The target falls to $37.85 from $38.40. Shares in Woolworths (ASX:WOW) closed 3.2 per cent lower yesterday.

Ex-dividend

There are seven companies set to pay eligible shareholders today.

Bank of Queensland (ASX:BOQ) is paying 22 cents fully franked
Centrepoint Alliance (ASX:CAF) is paying 1 cents fully franked
Gryphon Capital (ASX:GCI) is paying 0.75 cents unfranked
Perpetual Cred Trust (ASX:PCI) is paying 0.3167 cents unfranked
Qualitas Real Estate Income Fund (ASX:QRI) is paying 0.7814 cents unfranked
Red Hill Iron (ASX:RHI) is paying 120 cents fully franked
360 Capital Enhanced Income Fund (ASX:TCF) is paying 3 cents unfranked

Dividend-pay

There are seven companies set to pay eligible shareholders their dividends today.

Centuria Industrial REIT (ASX:CIP)
Centuria Office REIT (ASX:COF)
Clime Capital (ASX:CAM)
Clime Investment Management (ASX:CIW)
GenusPlus Group (ASX:GNP)
Gold Road Resources (ASX:GOR)
Turners Automotive Group (ASX:TRA)

AGMs

There are 15 companies set to meet with shareholders virtually today.

Sky Network Television (ASX:SKT)
Jumbo Interactive (ASX:JIN)
Medical Developments International (ASX:MVP)
Air New Zealand (ASX:AIZ)
Boral (ASX:BLD)
Reece (ASX:REH)
South32 (ASX:S32)
JB Hi-Fi (ASX:JBH)
Aussie Broadband (ASX:ABB)
Tassal Group (ASX:TGR)
Challenger (ASX:CGF)
4DMedical (ASX:4DX)
Corporate Travel Management (ASX:CTD)
The Star Entertainment Group (ASX:SGR)
Reliance Worldwide Corporation (ASX:RWC)

Quarter update

There are over 120 companies set to release a quarterly update including IGO (ASX:IGO), Fortescue Metals (ASX:FMG) and Newcrest Mining (ASX:NCM).

Commodities

Iron ore has lost 2.0 per cent to US$119.86. Its futures point to a 2.2 per cent fall.

Gold gained $5.40 or 0.3 per cent to US$1799 an ounce, silver was up $0.06 or 0.2 per cent to US$24.15 an ounce.

Oil was down $2.54 or 3.0 per cent to US$82.11 a barrel.

Currencies

One Australian Dollar at 7:30 AM has strengthened. Yesterday it punched through to 75 cents and now it’s buying 75.19 US cents, 54.73 Pence Sterling, 85.61 Yen and 64.81 Euro cents.