Global major indexes around the globe rally on easing Omicron concerns. Credit Suisse cuts equities weighting on Omicron & policy risks. Rio Tinto (ASX:RIO) rated as outperform. Overview of RBA meeting minutes yesterday.
US stocks snap 3-day losing streak
The Australian sharemarket is ready to rally after major indexes around the globe rebounded.
Wall St closed higher for the first time in three days after stocks were on a steep losing streak on growing Omicron concerns throwing all sorts of holiday plans up in the air.
It’s been a very volatile December after we saw the worst day for Wall St this year on Black Friday, the day after Thanksgiving. Market participants learnt about the first Omicron case which saw the spread of the virus a week later.
Nevertheless, investors have a plate of concerns heading into year end. Not only the rise in Omicron cases and what that means personally, but also the impact to the supply-chain disruptions that have added to persistent and hotter-than-expected inflation.
Even though there has been news around vaccine boosters offering some protection against Omicron, plus words from President Biden’s medical adviser, Dr Fauchi, market participants are still climbing the wall of worries as they review how to construct their portfolios for next year.
Credit Suisse cuts equities weighting on Omicron & policy risks
The moves come after Credit Suisse downgraded equities to neutral from overweight. The investment bank cited near-term risks associated with Omicron amid high inflation, which could lead to tighter monetary policy. They also cut UK stocks to neutral citing “deteriorating” earnings.
Amid this, the concerns led to President Joe Biden laying out new initiatives today at the Whitehouse to curb the spread of the new variant. This included free antigen tests, and enlisting military personnel to support hospitals, with lockdowns off the table.
President Biden also addressed the Build Back Better Plan. He said that “Senator Manchin and I will get something done”. This followed Manchin dealing a blow to his US$2 trillion package on the weekend. Biden’s comments helped reinforce the outlook for the economy and the sharemarket.
US 10- yr treasury price falls on energy surge
The rebound saw the 10-year treasury bond yield rise five basis points to 1.47 per cent, gold softened as investors rotated into energy stocks in optimism for holiday travel to remain. They were the best performer, surging almost 3 per cent on the S&P 500 sectors, followed by information technology, and consumer discretionary. The broad-based rally offset the two laggards, utilities and consumer staples, down 0.2 and 0.1 per cent respectively.
‘Just do It’ saw Nike top 2Q earnings
Meanwhile, Dow component Nike galloped over 6 per cent after they reported better-than-expected results in the last quarter. The company said that a 12 per cent increase in sales from its biggest market in North America helped drive revenue, despite supply chain issues and several factory closures in Vietnam.
All in all, market participants enjoyed this much needed rally despite shifting through a raft of concerns. The risk-on relief-rally bucked the sell-down this week as investors look through historic GDP figures, record high inflation, the Fed removing the punchbowl, ahead of the next quarterly earnings in under three weeks. Let’s see if this is the start of the Santa rally we have all been waiting for.
Wall St rises as Nasdaq outperforms
At the closing bell, the Dow Jones gained 1.6 per cent to 35,493, the S&P 500 added 1.8 per cent to 4,649 while the Nasdaq closed 2.4 per cent higher at 15,341.
European markets rally led by metal miners
Across the Atlantic, European markets closed higher. Paris, Frankfurt and London’s FTSE gained 1.4 per cent lifted by industrial metal miners and travel stocks despite UK Prime Minister Boris Johnson’s potential plans to introduce mobility restrictions.
BHP gained 2.3 per cent, Rio added over 3 per cent, BP climbed 2.6 per cent, Shell closed 2.8 per cent higher.
In UK trade, shares in Schroders rose 3.1 per cent after inking a deal to buy 75 per cent of fund manager Greencoat Capital for $664 million (£358m).
Asian markets leaps with recovery in mind
Asian markets closed higher after the People’s Bank of China said that they will sell the yuan to help lower borrowing costs according to Nomura, offsetting concerns that Hong Kong’s consumer price inflation surged to its highest level in four months.
Tokyo’s Nikkei gained 2.1 per cent, Hong Kong’s Hang Seng added 1 per cent, while China’s Shanghai Composite closed 0.9 per cent higher.
ASX 200 lifts higher as CSL surges
Yesterday the Australian sharemarket closed 0.9 per cent higher at 7,355, it’s best day in two week as the local bourse rallied to the close. The local bourse saw a broad-based rally with the help of CSL (ASX:CSL) offsetting a sell-off from shares in the lithium sector. The biotech last week tumbled over eight per cent after discounting the stock as part of raising funds to buy Swiss Vifor Pharma.
This helped the healthcare sector be the best performer, followed by energy, and materials. Real estate just didn’t make it, shedding 0.4 per cent as the only sector in the red.
RBA meeting minutes boost the AUD
Market participants also digested the minutes from the RBA meeting earlier this month. Investors read that the bank did not expect the Omicron variant to “derail the economic recovery”, however cited that it does pose “additional uncertainty for the near-term outlook.”
The board also said that they “will not increase the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range”. Right now, the inflation rate just tipped over the two per cent mark. The most important word in that sentence is “sustainably”, and given that we just hit 2.1 per cent, this measure will be one to watch to see how “sustainable” the inflation rate will be. Either way, this sends the message out that they have no intention to hike interest rates soon. Something we have been reassured a number of times.
However, a requirement that the central bank is looking for is the “labour market to be tight enough to generate wages growth”, which they see “is likely to take some time”, citing that the “board is prepared to be patient”.
We also spoke about the RBA’s options around ending its quantitative easing program. If you recall, there were three options which included when they would consider winding up this program.
The minutes noted that the central bank would consider winding up in February rather than May if economic conditions improved. As we have chatted about around the US Federal Reserve and when their taper program ends, the same applies with us here. When it does end, it then means we will look out for the date when interest rates are set to kick-off.
Flight stocks took off despite NSW reporting a record number of Covid-19 cases, while Prime Minister Scott Morrison said his government would not impose lockdowns.
Flight Centre Travel (ASX:FLT) added almost 4 per cent to $17.10, Webjet (ASX:WEB) rose 3.2 per cent to $5.20, Qantas (ASX: QAN) gained 0.8 per cent to $4.82, and Corporate Travel Management (ASX:CTM) closed 0.3 per cent higher to $20.97.
Air New Zealand to cancel 120 services
Meanwhile, Air New Zealand (ASX:AIZ) said it is cancelling around 120 services until the end of February. The move is due the government’s decision to postpone quarantine-free arrivals. Shares took off 2.1 per cent to $1.44.
An important ingredient for batteries used in electric vehicles, lithium, took some attention. Shares in Pilbara Minerals (ASX:PLS) slumped after the lithium miner downgraded its production guidance for the December quarter and financial year 2022. Its Pilgangoora project in Western Australia is behind due to a shortage in skilled workers for roles in construction, production and maintenance.
They were the worst performing stock, closing 9.1 per cent lower at $2.51, bringing shares in lithium colleague Liontown Resources (ASX:LTR), and Novonix (ASX:NVX) with it.
The best-performing stock in the S&P/ASX 200 was Nanosonics (ASX:NAN) closing 7.5 per cent higher at $6.34, followed by shares in Zip Co (ASX:Z1P), and CSL (ASX:CSL).
Marley Spoon plates Chefgood for $21m
Elsewhere online meal delivery provider Marley Spoon (ASX:MMM) skyrocketed 21 per cent to 84 cents after revealing its plans to buy Chefgood for $21 million. Additional earn-out clauses could add another $5.6 million to the deal over the next 2.5 years. The deal will be funded by an $8 million share placement at $1 per ASX-listed CDI, which is equal to a 43 per cent premium to its previous closing price of 69.5 cents. The deal is slated to be complete by January next year.
Major banks lifted with NAB (ASX:NAB) up 0.6 per cent, Westpac (ASX:WBC) gained 0.4 per cent, Commonwealth (ASX:CBA) rose 0.3 per cent, while ANZ (ASX:ANZ) closed 0.2 per cent higher.
Rio Tinto (ASX:RIO) rose 3 per cent, BHP (ASX:BHP) added 1.5 per cent, and Fortescue Metals (ASX:FMG) closed 1.6 per cent higher.
Join me for Stocks of the Hour here where I cover AMP (ASX:AMP), Magellan Financial (ASX:MFG), and Australian Clinical Labs (ASX:ACL).
Looking ahead, the local bourse is set to rally for a second day, with the SPI futures pointing to a 0.2 per cent gain.
Local economic news
The Australian Bureau of Statistics is set to release the weekly payroll jobs and wages.
We talked about BHP for Stock watch this week, so let’s take a look at Rio Tinto today. Macquarie rates Rio (ASX:RIO) as outperform with a price target of $133.
Rio Tinto and Turquoise Hill have made an offer to the Mongolia government to forgive and write-off the US$2.3 billion shareholder loan. The broker estimates this will bring forward dividend payments to the government by 13 years. Macquarie has made minimal changes to earnings forecasts and retains its outperform rating and $133 target price. This is due to the risk to earnings forecast led by iron ore price movements.
Shares in Rio (ASX:RIO) closed 3.2 per cent higher at $101.40 yesterday.
There is one company trading ex-dividend today. Kelly Partners Group (ASX:KPG) is trading 0.363 cents fully franked
There are three company set to pay eligible shareholders today, Cardno (ASX:CDD), Collins Foods (ASX:CKF), and Orica (ASX:ORI).
There are four companies set to meet with shareholders.
Accent Resources (ASX:ACS)
Carawine Resources (ASX:CWX)
Swick Mining Services (ASX:SWK)
Tulla Resources Group (ASX:TUL)
There are four companies set to make their debut on the ASX today. Keep an eye out for IT services group Atturra (ASX:ATA) after raising $24.8 million. Plus three mining companies, DMC Mining (ASX:DMM), Falcon Metals (ASX:FAL), and Infinity Mining (ASX:IMI).
Iron ore has gained 0.5 per cent to US$123.80. Its futures point to a 1.4 per cent gain.
Gold lost $6.20 or 0.4 per cent to US$1788 an ounce, silver was up $0.21 or 0.9 per cent to US$22.50 an ounce.
Oil added $2.86 or 4.2 per cent to US$71.47 a barrel.
One Australian Dollar at 8:15 AM has strengthened since yesterday with the help of the RBA meeting minutes, buying 71.54 US cents (Tue: 71.10), 53.94 Pence Sterling, 81.65 Yen and 63.42 Euro cents.