Global indexes tumbled on concerns of vaccine efficacy against the Omicron variant amid the Federal Reserve Chair’s hawkish tone. The news of potential tightening of monetary policy spooked investors.
The Australian sharemarket is set to fall with the SPI futures pointing to a dip of 0.5 per cent.
Wall St sank wiping yesterday’s gains adding to the rout we saw on Friday. Investors reacted to the Fed’s evaluation on the hot economy as the Omicron variant continues to take the bull by its horns.
Fed Chair acknowledges Omicron threat to economy
Fed Chair Jerome Powell testified before the Senate Banking committee that the central bank could accelerate its taper timeline even though he said that the new Covid-19 strain could threaten the economy.
“The recent rise of Covid-19 cases and the emergence of the omicron variant pose downside risks to employment and economic activity and increased uncertainty for inflation”.
A faster taper timeline means that we could see rate rises sooner rather than later. The central bank has been aiming to end the taper by August next year. They also flagged that rate hikes would not kick start immediately. To make it clear, it does not mean that there is a rate hike to follow after the tapering ends, it means that what the Fed initially anticipated is going to be brought forward given this backdrop.
Consumer confidence falls to 9-month low
This concern has appeared in consumer confidence with the reading tumbling to its lowest level in nine months in November amid elevated and sustained inflation. Americans had concerns about the rise in inflation and Covid-19 cases. The index came in at 109.5, down from 111.6 in October as per the Conference Board.
All eyes are on the mid December Fed meeting in regards to its taper timeline and interest rates. It’s very interesting to see the contrast where there is appetite to accelerate the taper timeline and wrap up its asset purchases program, but there’s also a handbrake when it comes to the economic growth if the Omicron virus spreads. Let’s see what happens on the 15 December when the Fed meets.
Moderna says vaccine might not be as effective to Omicron
Looking at vaccine makers, with Moderna that we have been watching. The CEO said that Moderna’s Covid-19 vaccine would be less effective against the omicron iteration of the coronavirus. Stéphane Bancel said the vaccine would see a “material drop” in effectiveness. He noted that there are chances of a higher number of mutations compared to delta, which meant it could take several months for vaccine makers to increase production. Shares fell 4.4 per cent.
Airline stocks saw turbulence as concerns mounted on the new Covid-19 variant. We have seen many countries around the world put in force travel bans from visitors coming from South Africa and surrounding areas. Shares fell in the order of 0.7 per cent.
UK tells Meta to sell GIPHY
In tech news, Facebook parent company Meta is under pressure to sell its GIPHY platform. The UK’s competition and market authority said that the deal with Meta and GIPHY could harm UK advertisers and social media users. Meta disagrees with the decision and is considering an appeal. Shares tumbled 4.0 per cent.
Oil prices gets hit on vaccine efficacy
Oil prices got hit amid news around the efficacy of the Covid-19 cases against the new strain. The greenback rallied as gold retreated after the Fed brought forward rate hike expectations. Market participants will wait to see the emergence of data in the coming weeks as to how severe the lockdowns and travel restrictions will be. If the appetite to enforce mobility restrictions occur, oil demand will continue to be under pressure. All this ahead of the OPEC+ meeting this week. They are likely to slow down or pause production increases in response to the coordinated approach for countries that agreed to tap into strategic reserves.
Wall St & European markets fall as bond yields fell
At the closing bell, the Dow Jones dropped 1.9 per cent to 34,484, the S&P 500 lost 1.9 per cent to 4,567 while the Nasdaq closed 1.6 per cent lower at 15,538.
The yield on the 10-year treasury note fell 9 basis points to 1.44 per cent, while gold dipped on a firmer greenback.
European markets closed lower. Paris fell 0.8 per cent, Frankfurt lost 1.2 per cent and London’s FTSE closed 0.7 per cent lower as oil, travel and banks fell. BHP rallied though Rio fell in tandem with oil giants.
BHP gained 2.4 per cent, Rio lost 0.2 per cent, BP fell 0.7 per cent, Shell dropped over 1.0 per cent.
Asian markets mixed on Omicron fears
Asian markets closed mixed on mounting nerves about Omicron. Tokyo’s Nikkei fell 1.6 per cent as investors piled into safe haven assets boosting the Yen, Hong Kong’s Hang Seng also lost 1.6 per cent amid an increase in manufacturing PMI put a lid on hopes of policy easing, while China’s Shanghai Composite closed flat.
ASX 200 modestly rise as Covid caution creeps in
Yesterday, the Australian sharemarket closed 0.2 per cent higher at 7,256, giving up earlier gains after the Moderna CEO expressed concerns on the efficacy of the vaccines against the new variant of Covid-19. Information technology stocks were the best performer while utilities were the worst with more winners than losers after a session which started on quite a rich note. Caution crept in after trading as high as 1.0 per cent in the morning.
Westpac (ASX:WBC) agreed on a civil penalty of $113 million with ASIC to settle six long-running matters between the bank and the corporate watchdog. Shares fell 1.9 per cent lower.
The other major banks closed mixed. National Australia Bank (ASX:NAB) added 0.4 per cent, ANZ (ASX:ANZ) rose 0.3 per cent while Commonwealth Bank (ASX:CBA) closed 0.6 per cent lower.
In M&As, GUD Holdings (ASX:GUD) went into a trading halt to raise $405 million raising at $10.40 per share versus its closing price on Monday at $12.03 to partly pay for the $745 million acquisition of automotive accessories maker Autopacific from private equity group Pacific Equity Partners and management. The remainder of the takeover consideration will come from debt of $282 million and $75 million of scrip to the vendors.
Credit Corp (ASX:CCP) rallied after inking a deal to buy Radio Rentals leasing business for $60 million from the Thorn Group (ASX:TGA). Shares in Thorn surged almost 10 per cent at $0.255.
Orocobre (ASX:ORE) charged up after the lithium miner said that they expect demand to offset supply as the world moves to reduce its carbon footprint at its AGM.
Collins Foods (ASX:CKF) skyrocketed after the owner of KFC, Taco Bell, and Sizzler stores popped a 13 per cent rise in first-half financial year 2022 continuing operating earnings. The fast food franchise posted a 8.5 per cent rise in revenue to $354 million driven by a return to growth in its European operations.
The best-performing stock in the S&P/ASX 200 was Collins Foods (ASX:CKF) closing 12.6 per cent higher at $14.10, followed by shares in Credit Corp Group (ASX:CCP), and Orocobre (ASX:ORE).
The worst-performing stock was St Barbara (ASX:SBM) closing 4.3 per cent lower at $1.35, followed by shares in Perseus Mining (ASX:PRU), and Cochlear (ASX:COH).
In other news, Nuix (ASX:NXL) sank 11.7 per cent after the software provider said that operating earnings to 31 October was down 27 per cent compared to a year ago attributed to a “large and ongoing increase” in its cost base. The embattled tech company has struggled with higher staff costs in a tight labour market, and increased legal expenses.
Macquarie (ASX:MQG) added 1.8 per cent after the investment bank said its capital surplus would more than cover an expected $2.2 billion rise in regulatory capital requirements. The news followed APRA’s final revisions to the Basel 3 capital framework.
A touch point across the major players, Woolworths (ASX:WOW) and Telstra (ASX:TLS) both added 1.8 per cent, Wesfarmers (ASX:WES) sank 2.3 per cent, Afterpay (ASX:APT) lost 1.5 per cent while CSL (ASX:CSL), and Coles (ASX:COL) closed 0.1 per cent lower.
Local economic news
Today the Australian Bureau of Statistics is set to unveil the September quarter GDP figures which are expected to show a decline reflecting the hit from the NSW, Victorian and ACT lockdowns.
It is expected to fall by 2.5 per cent but upon reading economic insights, the range is quite broad ranging from a decline of 2.5 to 4.5 per cent. Aside from the developing news we are likely to hear around the new Covid-19 strain, this report will also take a bit of attention and could add further moves to the local bourse depending on the range.
Also IHS Markit and Australian Industry Group have slated the purchasing managers figures in the manufacturing sector.
CoreLogic is also on the table with its national home value index for November with prices expected to rise around 1.0 per cent.
Metal detector and wireless business Codan (ASX:CDA) has unveiled plans to buy UK-based company Broadcast Wireless System for $3.7 million. The deal also comes with an additional $4.8 million if earn-out targets are met and is expected to be earnings per share accretive from day one. Shares in Codan closed 0.9 per cent higher at $9.74 yesterday.
Citi rates Worley (ASX:WOR) as a buy with a price target of $11.31. Following reports that engineering giant’s half-on-half earnings will be largely flat, Citi has adjusted earnings expectations and decreased financial year 2022 underlying earnings by 16 per cent. The rating is retained given expectations that the first half of financial year 2022 was a cyclical earnings low but the target price decreases to $11.31 from $12.28. Shares in Worley (ASX:WOR) closed 2 per cent higher at $9.54 yesterday.
There are four companies trading ex-dividend today
Aristocrat Leisure (ASX:ALL) is paying 26 cents fully franked
Incitec Pivot (ASX:IPL) is paying 8.3 cents 14 per cent franked
NB Global Corporate Income Trust (ASX:NBI) is paying 0.8049 cents unfranked
United Malt Group (ASX:UMG) is paying 3.5 cents unfranked
There is one company set to pay eligible shareholders today. Dicker Data (ASX:DDR)
Synlait Milk (ASX:SM1) is set to meet with shareholders today as AGM season starts to wind down.
There is one company set to make their debut on the ASX today. Cosmos Exploration (ASX:C1X).
Iron ore has gained 0.2 per cent to US$100.10. Its futures point to a 1.5 per cent gain.
Gold lost $11.00 or 0.6 per cent to US$1774 an ounce, silver was down $0.02 or 0.1 per cent to US$22.83 an ounce.
Oil dropped $3.21 or 4.6 per cent to US$66.74 a barrel.
The Aussie dollar has slipped into the early 70 cents mark, its lowest level since early November 2020. Against the greenback, the Aussie dollar has tumbled 5.7 per cent. Keep an eye out for the GDP figures today as I wouldn’t be surprised if it weakens further.
One Australian Dollar at 8:20 AM has weakened from yesterday, buying 71.29 US cents, 53.59 Pence Sterling, 80.59 Yen and 62.87 Euro cents.