Inflation data too strong for equity markets to maintain any momentum
Stocks slumped Friday, capping off a volatile week of trading, a day after posting a historic turnaround rally. Early gains were erased following the Michigan consumer sentiment report that showed an increase in one-year inflation expectations for the first time in seven months and came after Thursday’s hotter-than-expected CPI report. Both reports added scepticism to the peak inflation dynamic and supports recent Fedspeak that has continued to push a raise-and-hold narrative until inflation meaningfully comes down.
In the UK just over a month after Truss took office promising a new radical, tax-cutting Conservative government, the UK PM now faces political ruin, her signature economic policy rejected by markets, voters and her own MPs. Her chancellor the first casualty after his debt-fuelled “mini” Budget sent panic through markets.
On Friday, Dow Jones Industrial Average fell 403.89 points, or 1.34 per cent, to end the day at 29,634.83. Still, the index was up 1.15 per cent on the week. The S&P 500 shed 2.37 per cent to 3,583.07 and notched its seventh negative close in eight days. The Nasdaq Composite slipped 3.08 per cent, ending the day at 10,321.39, weighed down by losses in Tesla and Lucid Motors, which declined 7.55 per cent and 8.61 per cent, respectively.
At the same time, bond yields spiked, with the rate on the 10-year U.S. Treasury topping 4 per cent for the second time in two days as investors reacted to higher inflation expectations.
In company news, the reporting season kicked off with US banks – JPMorgan’s shares rose 1.7 per cent after the bank reported a less severe drop in third-quarter income than analysts had expected. Shares in Citigroup and Wells Fargo also picked up on the back of their third-quarter results, but Morgan Stanley dropped 4.8 per cent as it suffered from a drop-off in investment banking fees.
The largest US banks are benefiting from the Federal Reserve’s campaign to increase interest rates, charging more for consumer loans and corporate lines of credit without offering customers significantly better rates on deposits.
And the 91 year old Rupert Murdoch is at it again wanting to merge Fox with News Corp, a deal that would reunite the television group behind the Fox News cable channel with the owner of newspapers including The Wall Street Journal.
Across the sectors there was very little safe haven status with the fall in the oil price putting pressure on the energy sector once again.
Best performing industry was travel and bank stocks while EV charger, lithium, hydrogen stocks struggled.
On the currency front, sterling weakness remains the big FX story – with UK companies now very attractive from a valuation perspective for US competitors as one US private equity executive put it this week “everything in the UK is on sale”. UK companies are a lot cheaper than a few weeks ago, and traders expect a pick-up in UK M&A to be triggered by weakness in the pound. The same could happen in Australia given the falls in the $A.
Currencies
One Australian dollar at 7:15 AM has weakened compared to the US dollar on Friday, buying 62.15 US cents (Fri: 62.95 US cents), 55.38 Pence Sterling, 92.36 Yen and 64.08 Euro cents.
Commodities
Iron ore futures are pointing to a 1.5 per cent fall.
Gold lost $28.10 or 1.7 per cent to US$1649 an ounce.
Silver dropped $0.85 or 4.5 per cent to US$18.07 an ounce.
Copper lost $1.70 or 0.5 per cent to US$342.35 a pound.
Oil lost $3.50 or 3.9 per cent to US$85.61 a barrel.
Futures
The SPI futures are pointing to a 1.5 per cent fall.
Figures around the globe
Across the Atlantic, European markets closed higher. Paris added 0.9 per cent, Frankfurt gained 0.7 per cent and London’s FTSE closed 0.1 per cent higher.
In Asian markets, Tokyo’s Nikkei gained 3.3 per cent, Hong Kong’s Hang Seng added 1.2 per cent and China’s Shanghai Composite gained 1.8 per cent.
On Friday, the Australian sharemarket gained 1.8 per cent to close at 6759.
Ex-dividends
Cadence Capital (ASX:CDM) is paying 4 cents fully franked
CDO Opportunity Fund (ASX:CDO) is paying 7.5 cents fully franked
Future Gen Ltd (ASX:FGX) is paying 3.25 cents fully franked
WAM Active Limited (ASX:WAA) is paying 3 cents fully franked
WAM Capital Limited (ASX:WAM) is paying 7.75 cents fully franked
WAM Alternative (ASX:WMA) is paying 2 cents fully franked
Dividends payable
Carsales.com Ltd (ASX:CAR)
Cochlear Ltd (ASX:COH)
Garda Property Group (ASX:GDF)
SKS Technologies Group Ltd (ASX:SKS)
Super Retail Group Ltd (ASX:SUL)
Sources: Bloomberg, FactSet, IRESS, TradingView, UBS, Bourse Data, Trading Economics, CoinMarketCap.
Copyright 2022 – Finance News Network
Source: Finance News Network
