Wall St mixed, Iron ore falls on Evergrande rout, C.Suisse’s take on Santos & Oil Search: ASX to dip

A mixed market across the globe as U.S. stocks react to strong retail sales and a bump in jobless claims. European indices rallied as travel and leisure stocks take-off. Asian markets struggled on mounting concerns on the property sector. A buoyant session on the ASX as blue-chip players lead.

The Australian sharemarket is set to retreat with the SPI futures pointing to a fall of 0.2 per cent.

A mixed market on Wall St with the Nasdaq advancing as investors digested mixed economic data after watching the pullback in Asian markets.

Mixed performance as retail sales & jobless claims rose

Retail sales jumped 0.7 per cent versus an estimate of a fall of 0.8 per cent as per the Labor Department. This follows a 1.1 per cent drop in July. Online purchases helped drive sales higher which offset auto vehicle sales, as the ongoing chip shortage forced them to make production cuts, as we have seen not only in America but in Japan also.

Meanwhile, jobless claims notched higher to 332,000 from 312,000 the week before, slightly higher than expectations of 330,000. The economists were expecting a rise in the number of Americans filing for jobless claims after weeks of pandemic lows. Layoffs due to Hurricane Ida contributed to the marginal increase.

However, this number won’t be a large disrupter to the overall trend in the labour market as the rise was on the back of the hurricane, with 60 per cent of the weekly jobless claims attributed from the natural disaster. Economists expect a bounce back once activity resumes.

Despite this, data has signalled that the U.S. economy is headed in the right direction. Next week, the Fed Reserve could reinforce the tune that they will taper, however, if we see further data that shows an acceleration in the economy, we might see an earlier taper come in.

Technology stocks rise, gold falls on rising greenback

At the close, the Dow Jones lost 0.2 per cent to 34,751, the S&P 500 also fell 0.2 per cent to 4,474 while the Nasdaq closed 0.1 per cent higher at 15,182.

The yield on the 10-year treasury note fractionally rose by 3 basis points to 1.34 per cent, as gold sunk while the greenback rose.

Across the sectors on the S&P 500, there were the lucky three again dancing in the green. Consumer discretionary added 0.4 per cent, real estate gained 0.2 per cent followed by technology, marginally higher by 0.1 per cent. Materials and energy declined by 1 per cent followed by utilities. The rest closed lower.

European markets rallied supported leisure & travel stocks

Across the Atlantic, European markets closed firmer, supported by leisure and travel stocks. Paris added 0.6 per cent, Frankfurt and London’s FTSE both rose marginally by 0.2 per cent, with the FTSE’s performance defying the decline from their heavyweight miners.

Rio Tinto tumbled 4 per cent and BHP tanked 3.4 per cent as China reaffirmed plans to release copper, aluminium and zinc from its state reserves.

Oil players BP fell 1.1 per cent while Shell closed 0.8 per cent lower.

Asian markets struggles as missiles scare on weak economic data

Asian markets closed lower on weak economic data, casino crackdown and mounting concerns on Evergrande.

Tokyo’s index fell after North Korea fired what appeared to be two ballistic missiles into the Sea of Japan. A move that Prime Minister Yoshihide Suga slammed as “outrageous”. This comes days after testing a new weapon they believed to be capable of delivering a nuclear bomb to most of Japan. The Nikkei fell 0.6 per cent.

Hong Kong’s Hang Seng struggled for their fourth straight day to a 10-month low, down 1.5 per cent and China’s Shanghai Composite closed 1.3 per cent lower.

Hang Seng’s decline came as concerns of China’s slowdown in their economic growth outlook and their property sector came under pressure.

China’s Evergrande & declining iron ore prices

China’s second largest property developer Evergrande is now on the verge of collapse. Chinese authorities have told banks not to expect a loan repayment next week. Investors rushed to sell shares of other property developer stocks after Goldman Sachs warned Evergrande’s crisis could put the property sector under pressure.

Should Evergrande fold, construction would reduce significantly and so would the demand for iron ore. That means, the price for iron ore would fall further. As you can see, the price has taken a tumble by nearly 50 per cent since May this year. This could also put our miners under pressure and a bigger dent to our economic growth.
 
Buoyant day on the ASX 200 as blue chip players rally

Yesterday, the Australian sharemarket closed 0.6 per cent higher at 7,460 after a handful of blue-chip players unveiled strategies and sweetened deals.

The local bourse rose as high as 0.9 per cent before digesting the August jobs report which showed a fall in hours largely due to the lockdowns. The minor fade was pressured lower as iron ore prices weighed; however, energy stocks came to offset the trend as oil prices surged over 3 per cent.

Across the sectors, the gains were broadly across the board with consumer discretionary as the outlier by hugging the flatline. Energy powered up by 1.3 per cent as the best performer followed by financials and healthcare, up 0.9 per cent and industrials added 0.8 per cent. Materials and technology marginally rose by 0.2 per cent each.

The best-performing stock in the S&P/ASX 200 was Chalice Mining (ASX:CHN) closing 6.4 per cent higher at $7.85 followed by shares in AUB Group (ASX:AUB) and Incitec Pivot (ASX:IPL).

The worst-performing stock in the S&P/ASX 200 was Redbubble (ASX:RBL) closing 6.9 per cent lower at $3.81 followed by shares in Soul Pattinson (WH) (ASX:SOL) and Pilbara Minerals (ASX:PLS).

Bouncing back from the havoc of Covid-19, department store Myers (ASX:MYR) unveiled a $51.7 million profit for their full-year ending 31 July this year. The retail giant did bank $50.7 million in Jobkeeper subsidies, paying out $19.1 million to eligible employees but said that their after tax profit at $29.6 million without it. They declared no final dividend.

Retail conglomerate Wesfarmers (ASX:WES) closed 0.6 per cent higher at $56.98 on a sweetened the deal to takeover Priceline owner, Australian Pharmaceutical Industries (ASX:API) for $770 million. Shares in API catapulted 16.1 per cent at $1.47.

Telecom giant Telstra (ASX:TLS) closed 0.5 per cent higher at $3.95 on plans to slash $500 million of costs in a bid to focus on growth after it unveiled its T25 strategy and its plans around future payouts to shareholders. 

BHP (ASX:BHP), Commonwealth Bank (ASX:CBA) and biotech CSL (ASX:CSL) advanced by over 1 per cent. Woodside (ASX:WPL) closed 2.5 per cent higher while AMP (ASX:AMP) hit an all-time low of $1 closing flat. South32 (ASX:S32) closed 4.1 per cent higher on firmer metal prices.

Company news

Flying kangaroo Qantas (ASX:QAN) has sold $500 million of a seven-year bond to refinance an existing $300 million bond maturing in May 2022.

The airline upsized it to $500 million after the offer was oversubscribed by a factor of six, with a $1.9 billion book build, and met with highly competitive rates.

The new unsecured bond has a coupon rate of 3.15 per cent which is below the 7.75 per cent that applies on the maturing bond. The move follows better-than-expected net debt reduction as part of their restructuring program from their full-year results.

Shares in Qantas (ASX:QAN) closed 0.4 per cent higher at $5.45 yesterday.

Broker moves

Let’s take a look at what Credit Suisse said about Oil Search (ASX:OSH) and Santos (ASX:OSH).

The broker rates Oil Search (ASX:OSH) as a neutral with a price target of $3.89.

Credit Suisse now considers the valuation of Oil Search tied to Santos, with the latter now likely to emerge with growth across four geographical locations, namely Papua New Guinea, Northern Territory, Western Australia and Alaska along with synergy upside.

The broker envisages, while there is upside to valuation, much of the growth is priced in and there are risks on the political front, particularly in PNG.

Meanwhile, Santos (ASX:STO) also has a neutral with a price target of $6.98.

Credit Suisse believes Santos will have a higher-quality asset base after its merger with Oil Search and ample upside for synergies. The company could also be differentiated by LNG and its weighting to Asia-Pacific compared with its global peers.

The main catalysts are more detail on the progress of Papua LNG, exploration results in the Northern Territory, and any implications from the possible carve-out of infrastructure. The target price reduces the target to $6.98 from $7.08.

Shares in Oil Search (ASX:OSH) closed 2.1 per cent higher at $3.90 while Santos (ASX:STO) closed 2.2 per cent higher at $6.40 yesterday.

IPOs

There are three companies set to make their debut on the ASX today. Koonenberry Gold Limited (ASX:KNB), SSH Group Ltd (ASX:SSH) and Way 2 VAT (ASX:W2V)

Ex-Dividend

Ambertech Limited (ASX:AMO) is paying 1.6 cents fully franked.
Carsales.Com Ltd (ASX:CAR) is paying 22.5 cents fully franked.
GLG Corp Ltd (ASX:GLE) is paying 1.362 cents unfranked.
National Tyre & Wheel (ASX:NTD) is paying 5 cents fully franked.

Commodities

Iron ore tumbled 8.1 per cent to US$107.21. Their futures are pointing to 6 per cent fall.

Gold sunk has lost $41.90 or 2.3 per cent to US$1,753 an ounce. Silver fell $0.92 or 3.9 per cent to US$22.89 an ounce.

Oil price was steady at $0.03 or 0.04 per cent to US$72.58 a barrel.

Currencies

One Australian Dollar at 7:00 AM took a dip from yesterday, buying 72.94 US cents, 52.95 Pence Sterling, 80.16 Yen and 62.06 Euro cents.

Investor event

Please join us at our next online investor event on Tuesday 21 September at 12.30pm (AEST) with six CEOs presenting. Make your way to fnn.com.au to reserve your free spot.

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