Record close on Wall St as earnings continue to impress while European markets close mixed on commodity drag. Asian markets fall as property developers flag concerns. Local bourse closed lower as investors digested the RBA announcement. Seven West Media rated as a buy.
The Australian sharemarket is set lift-off with the SPI futures pointing to a gain of almost 1.0 per cent.
Record close on the Dow, S&P 500, & Nasdaq
Wall St saw a clean sweep closing at record highs ahead of the Federal Reserve decision as investors digested more corporate earnings. U.S stocks have continued to rally, resetting record highs as companies weather the storm impressing investors with their quarterly results amid the labour shortages, the supply chain issues and the backdrop of elevated inflation.
We will wait and see what will happen tomorrow morning to see how market participants will react to the Fed’s announcement. The central bank has been taking us down a path with their intentions on tapering their bond purchases, also reinforcing that interest rate hikes are imminent, but not straight away. We might receive an updated forecast on inflation given the numbers we received last week.
Tesla shares fell 3.0 per cent after CEO Elon Musk tweeted on Monday night that the EV-maker had not signed a contract with Hertz. Last week, the rental car company said it would be ordering 100,000 Tesla cars by the end of 2022. In the statement, it said that Tesla had already started the delivery of the vehicles. Elon Musk also said that there was more demand than supply so vehicle sales will be sold at the same margin as consumers.
Meanwhile, Apple added 0.7 per cent, while Alphabet closed 1.5 per cent higher as bond yields trickled lower.
Pull-back in oil prices ahead of OPEC+ meeting
Oil prices have retreated after recovering over the past three sessions ahead of the OPEC+ meeting this week. With the energy crunch in the northern hemisphere, countries have been pressuring the alliance to step in to cool the market.
It is expected that it is unlikely that they will boost the pace of monthly output increases, but you never know, we could be in for a surprise and they might unleash a bit more if you’re bullish about this week’s meeting.
Though what could change things is if Russia sends more natural gas supplies to Europe. President Vladimir Putin said that they would step in and if so, that could reduce demand as an alternative source, however it’s really OPEC+ that has the influence around prices.
Wall St gains as bond yields dips
At the closing bell, the Dow Jones added 0.4 per cent to 36,053, the S&P 500 gained 0.4 per cent to 4,631, while the Nasdaq closed 0.3 per cent higher at 15,650.
Across the S&P 500 sectors, energy was the worst performer, down 1.0 per cent followed by consumer discretionary. Materials was the best performer adding 1.1 per cent followed by real estate and information technology. The rest closed in the black.
The yield on the 10-year treasury note dipped three basis points to 1.54 per cent, while gold dipped on a stronger greenback.
European markets mixed on commodity drag
Across the Atlantic, European markets closed mixed ahead of the Fed and the Bank of England policy announcement.
Paris added 0.5 per cent, Frankfurt gained 0.9 per cent and London’s FTSE lost 0.2 per cent dragged lower by heavyweight miners amid a decline in iron ore prices on weaker demand from steelmakers in China.
BHP fell almost 3.0 per cent, Rio dropped 2.2 per cent while Shell closed 0.8 per cent lower
Shares in BP lost 3.4 per cent after US$1.25 billion share buyback wasn’t enough to minimize declines. The energy giant posted better-than-expected third quarter profits of US$3.3 billion thanks to higher commodity prices, however investors were underwhelmed by the results.
Their profits were hit by accounting rules which meant the company slumped to a US$2.5 billion loss in the quarter. It meant that the company was forced to report larger book entry losses on contracts which they use to hedge its liquified natural gas shipments. BP trades natural gas and hedges delivery contracts to protect against price volatility.
Asian markets fall as property developers weighs
Asian markets closed lower as more property developers raised challenges. Tokyo’s Nikkei fell 0.4 per cent after the post-election rally, Hong Kong’s Hang Seng fell for the 2nd day this week, down 0.2 per cent as losses in property developers offset gains in tech stocks, while China’s Shanghai Composite closed 1.1 per cent lower.
ASX 200 wipes out Monday’s gains on RBA moves
Yesterday, the Australian sharemarket closed 0.6 per cent lower at 7,324 after the Reserve Bank ended its prior interest rate rise guidance. Amid this, commodity prices weighed on material and energy stocks wiping out almost all the gains from Monday.
The session marked an anniversary from the RBA’s major announcement, when the cash rate was cut from 0.25 per cent to 0.10 per cent.
The local bourse saw a late afternoon move as it started to claw back losses after its initial reaction to the monetary policy announcement. The central bank kept rates at 0.1 per cent which was no surprise.
However, for a year, Governor Philip Lowe had been saying that he didn’t see any rate rises till 2024. Yesterday, 2024 was deleted from its monthly guidance, however, it could be in 2023.
Also, the central bank formally discontinued its yield curve control that had targeted three-year bonds expiring in 2024 at 0.10 per cent, which allowed banks to provide three-year fixed mortgages at a low rate. It also implied that the cash rate wouldn’t climb above 0.10 per cent until the most recent three-year bond expires in April 2024.
Last week, it climbed up to 0.5 per cent and continued to spike as you can see in this graph. So if you have been looking to purchase or invest into a property, you may have noticed that the interest rates on fixed and variable loans have increased. With this change, don’t be surprised if you start to see a disparity between variable and fixed rates.
The Materials sector was the worst performer falling 2.1 per cent as partly as the price of iron ore tumbled. Financials followed second. The best performer was real estate gaining 1.2 per cent followed by consumer staples and consumer discretionary.
Across the miners, BHP (ASX:BHP) lost 2.3 per cent to $35.56, Rio Tinto (ASX:RIO) fell 2.5 per cent to $88.66, while Fortescue Metals (ASX:FMG) closed 2.7 per cent lower to $10.48.
Westpac (ASX:WBC) shares fell for its second day, down 2.7 per cent to $23.13 dragging its shares to a level not seen since February. The nation’s oldest bank announced on Monday higher-than-anticipated costs despite posting a 138 per cent surge in net profit for the bank’s 2021 financial year.
The best-performing stock in the S&P/ASX 200 was Goodman Group (ASX:GMG) closing 5.6 per cent higher at $23.49 after upgrading its financial year earnings guidance from 10 per cent to an excess of 15 per cent per share. It was followed by shares in Charter Hall Group (ASX:CHC) and Megaport (ASX:MP1).
The worst-performing stock in the S&P/ASX 200 was Whitehaven Coal (ASX:WHC) tumbling 9.5 per cent lower at $2.37, followed by shares in IGO (ASX:IGO) and Champion Iron (ASX:CIA).
Local economic news
The Australian Bureau of Statistics is set to release the September dwelling approvals and selected living cost index report.
AiGroup and IHS Markit have also pencilled in the release of the survey results of purchasing managers in the services sector.
AMP (ASX:AMP) is set to divest its 19.13 per cent equity interest in Resolution Life Australasia for $524 million to Resolution Life Group. The sale will complete AMP’s exit from its former life insurance and mature business, AMP Life, which it sold to Resolution Life in 2020 for $3.0 billion. Keep an eye out for more updates. Shares in AMP (ASX:AMP) closed 2.3 per cent lower at $1.08 yesterday.
UBS rates Seven West Media (ASX:SWM) as a buy with a raised target price of $0.95. The broker believes the company has made a strategically sound move regarding the intention to acquire Prime Media Group (ASX:PRT) for $132 million. The analyst considers the deal accretive and increases financial year 2022 and financial 2023 earnings per share forecasts by six and eight per cent respectively. The target rises to $0.95 from $0.90 while the buy rating is maintained. Shares in Seven West Media (ASX:SWM) closed 3.9 per cent higher at $0.54 yesterday while shares in Prime Media Group (ASX:PRT) closed flat at $0.40.
There is one company trading ex-dividend today.
Acrow Formwork (ASX:ACF) is paying 1.15 cents fully franked
There are two companies set to pay eligible shareholders dividends today.
K&S Corporation (ASX:KSC)
There are four companies set to meet with shareholders today.
Cedar Woods Properties (ASX:CWP)
Domino’s Pizza Enterprises (ASX:DMP)
Tyro Payments (ASX:TYR)
There are three companies set to deliver their annual report today.
Pendal Group (ASX:PDL)
BPH Energy (ASX:BPH)
GTI Resources (ASX:GTI)
Interim report update
We are also going to receive an update from Pushpay Holdings(ASX:PPH), and Z Energy (ASX:ZEL).
There are two companies set to make their debut on the ASX today. Austral Resources Australia (ASX:AR1) and C29 Metals (ASX:C29).
Iron ore has lost 7.4 per cent to below US$100 to US$95.77. Its futures point to a 2.0 per cent fall.
Gold is struggling a little now trading below the $1,800 mark we saw last week and could see vulnerability if we see hawkish moves from central banks amid a stronger greenback.
Gold lost $6.90 or 0.4 per cent to US$1789 an ounce, silver was down $0.50 or 2.1 per cent to US$23.57 an ounce.
Oil was down $0.52 or 0.6 per cent to US$83.53 a barrel.
One Australian Dollar at 7:30 AM has weakened since yesterday after the RBA decision, buying 74.32 US cents from 75.20, 54.59 Pence Sterling, 84.69 Yen and 64.17 Euro cents.