Market sell-off across the globe as concerns mount ahead of the Fed Reserve meeting slated tomorrow. Worries from economic growth to monetary policy to contagion concerns in China. Plummeting iron ore prices continued to weigh on the ASX as investors felt the impact of steps taken from China around climate change.
The Australian sharemarket is set to drop with the SPI futures pointing to a fall of 1.4 per cent.
Market meltdown on Wall St on mounting concerns
A meltdown was seen across Wall St as investors scrambled to book their profits as they climbed the wall of worries. The last time we saw the S&P 500 and the Nasdaq tumble to their worst percentage fall was in May last year and July for the Dow.
There was not one shortage of a reason why investors were concerned ahead of the two day Fed meeting slated for tomorrow.
Fears are mounting on China’s giant property group Evergrande defaulting on their debt obligations of around $414 billion. If the property giant does collapse, investors are concerned that they might see a ripple effect in China’s economy and the broader market. The thought of contagion is triggering the time when Lehman Brothers went belly under in 2008. China is known to err on the more aggressive side of risk-taking so if the property giant does fall, it would send a pretty firm message to the market that they are taking debt control quite seriously. Investors are hoping that Beijing will step in to avoid the shake-up through their economy.
Investors are anticipating that a roadmap will be laid on the Fed’s asset program. A more hawkish view at scaling back the asset purchases program that has been helping with the economic recovery and recent corporate earnings. They are wondering if inflation is transitory and if Fed Chair Jerome Powell will keep his job when his term expires in February next year.
Covid-19 hospitalizations are climbing and consumer confidence isn’t looking positive. Investors are concerned more so around what restrictions would be placed on businesses if the delta-variant continues to spread.
There is rising geopolitical risk after U.S. troops left Afghanistan amid China’s regulatory crackdown. Then there is the debate around raising the debt ceiling to fund President Biden’s US$3.5 trillion bill and potentially delaying the plans.
Not to mention the ongoing chip shortage issues and Prime Minister Boris Johnson set to come after Amazon’s taxes.
One could say that today’s session is a healthy pullback. We haven’t seen a 10 per cent correction in a month that is historically known to be volatile. It might be time to let the steam out of the rally.
U.S. stocks dive, bond yields falls while gold rises
At the close, the Dow Jones lost 1.8 per cent to 33,970, the S&P 500 fell 1.7 per cent to 4,358 and the Nasdaq closed 2.2 per cent lower at 14,714.
The yield on the 10-year treasury note dropped 6 basis points to 1.31 per cent while gold got a boost.
Across the S&P 500, all the sectors closed in the red. Materials sank the most at 4 per cent, energy tumbled 3 per cent, financials and consumer discretionary fell over 2.2 per cent. Utilities shed the least, down 0.2 per cent.
There were a few green shots amid this red storm.
American Airlines took-off closing 3 per cent higher after the White House said they would ease restrictions on those travelling from the U.K. and European union. Those who travel will need to show a negative Covid-19 test 72 hours before. United and Delta Airlines also closed in the black on the news.
Pharma giant AstraZeneca jumped over 5 per cent after their breast cancer drug claimed to significantly decrease the chances of death.
European markets swims in red, travel stocks take-off
Across the Atlantic, European markets closed lower, Paris lost 1.7 per cent, Frankfurt dropped 2.3 per cent and London’s FTSE fell 0.9 per cent.
In U.K. trade, banks fell over 4.0 per cent as investors fled to government bonds on concern over China’s Evergrande.
Miners continued to tumble with Rio Tinto down 2.2 per cent and BHP shed 1.6 per cent. Meanwhile travel stocks continued to take-off on hopes that other countries will track the footsteps of the U.S. in relaxing travel restrictions.
Asian markets weighed down on Evergrande worries
In Asian markets, Hong Kong’s Hang Seng dropped 3.3 per cent while the Tokyo’s Nikkei and China’s Shanghai Composite were closed.
ASX 200 plunges for a 2nd day
Yesterday, the Australian sharemarket closed 2.1 per cent lower at 7,248 as iron ore prices continued to plunge. The local bourse continued its decline for the second straight day.
The sell-off was across the board with materials, down 3.7 per cent followed by energy at 3 per cent, then technology. We had one bright spot which was utilities, up 1 per cent.
Within that sector, we had one company doing the heavy lifting which happened to have been the best-performing stock in the ASX 200.
AusNet Services (ASX:AST) catapulted 19.2 per cent higher at $2.36 on a proposed takeover bid from private equity firm Brookfield Asset Management. The sweetened deal is for $2.50 per share. This comes after they rebuffed earlier offers in August. It was followed by shares in Endeavour (ASX:EDV) and Nufarm (ASX:NUF).
The worst-performing stock was Champion Iron (ASX:CIA), closing 12.3 per cent lower at $4.48, followed by shares in Lynas Rare Earths (ASX:LYC) and Pilbara Minerals (ASX:PLS).
Mergers and acquisitions were in the air yesterday. Transurban (ASX:TCL) went into a trading halt as it is set to raise funds to takeover the remaining 49 per cent stake of the WestConnex motorway currently owned by the NSW Government for $11.1 billion.
Childcare operator, G8 Education (ASX:GEM) is set to acquire Leor, a provider of in-home childcare and NDIS services for $2 million. The total consideration payable is roughly $9.5 million conditional on earnings targets. Shares closed 3.8 per cent lower at $1.01.
Local economic news
Today the RBA meeting minutes are slated along with the weekly consumer confidence from ANZ-Roy Morgan.
Also today mining giant BHP and energy firms Oil Search Ltd (ASX: OSH) and Santos Ltd (ASX: STO) are paying their dividends today. So we might see a rotation of funds back into the market.
Our weekly stock to watch this week is energy company Santos (ASX:STO). David Thang, Senior Private Wealth Adviser at Sequoia (ASX:SEQ) rates Santos as a buy. From a technical angle, the company is bullish for a number of reasons. Since printing a high of $7.87 in mid-June, sellers have managed to drag prices lower for the best part of two months.
Positively, a confluent region of support located between $5.87 and $5.89 has resulted in buyers to have stepped up to the plate as marked by the orange arrow.
This layer of support is made up of the 38.2 and 61.8 per cent Fibonacci retracement levels, coupled with structural support as shown by the horizontal-blue line.
Upward momentum has gathered pace over the course of September, therefore increasing the probability of a rotational move north. Should this bullish case evolve, then a continuation of the long-term uptrend is likely to follow.
Shares in Santos (ASX:STO) closed 3.3 per cent lower at $6.12 yesterday.
Kelly Partners Group (ASX:KPG) is paying 0.8 cents fully franked.
Milton Corporation (ASX:MLT) is paying 37 cents fully franked.
Qube Holdings Ltd (ASX:QUB) is paying 3.5 cents fully franked.
Iron ore has lost 8.8 per cent to US$92.98. Their futures are pointing to 6.9 per cent fall.
Gold has added $12.40 or 0.7 per cent to US$1764 an ounce while silver has fallen $0.13 or 0.6 per cent to US$22.20 an ounce.
Oil was down $1.68 or 2.3 per cent to US$70.29 a barrel.
One Australian Dollar at 7:20 AM has weakened from yesterday given what we are seeing with the iron ore price, buying 72.52 US cents, 53.10 Pence Sterling, 79.36 Yen and 61.82 Euro cents.
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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.