Nasdaq gains for 3rd day on red-hot inflation, Commodity prices rally: ASX to open flat

 

Wall St firms up as the Nasdaq rallies for a 3rd day. US’ inflation print rises while China’s eases. European & Asian markets closed higher after Fed Chair testimony. ASX snapped 2-day losing streak. No local economic news today.

The Australian sharemarket is set to open flat as Wall St firmed up after the latest inflation reading in the US. The news followed China's inflation easing which we will cover shortly, but in the US we saw the opposite. Let’s dive into this.

US inflation hit 7% in Dec, fastest pace since 1982

Consumer prices rose seven per cent in the year to December, its fastest pace since 1982, but in line with expectations. This was driven by surging rental prices, used vehicles, and household white goods. Core prices, so this excludes the price of food and energy, jumped 5.5 per cent from a year ago, the highest growth since 1991 as per the US Bureau of Labor Statistics.

Now we knew that pricing pressures were going to persist, particularly on the vehicle front, with gas and energy prices as the main driver of inflation. Additionally, market participants were aware that inflation continues to remain elevated. The question is, now with these figures, what does the future look like, and how is the Fed going to respond?

If we loop in the labor shortages piece, it is going to play a role in all of this, particularly as consumers reallocate some of their spending away from goods and towards services. Meaning, instead of spending it on a new laptop, TV, entertainment system, monies would be spent on travel, restaurants, and outdoor experiences.

Now, if you look at the cost of services, it tends to be driven more by labour costs than price of goods. As we have been talking about for some time, the focus on the participation rate has been closely watched. It’s a gauge to see if people are coming back into the workforce, or if they’re dropping out. Between now and the March FOMC meeting, we have two more data prints on this front, and it will be interesting to see how the Omicron outbreak has affected the economy.

All in all, inflation doesn’t look like it's slowing down but the peak is not far away. If we dovetail this into the political arena and President Biden’s Build Back Better program, these figures could strengthen the case that this legislation will only push inflation higher. So let’s see if this program comes to fruition or not.

US crude inventory falls to 2018 lows

Meanwhile, oil prices rose after inventories fell to 2018 lows, as per the Energy Information Administration. It’s been an insightful day with not only this oil inventory report plus the CPI numbers.

With both inflation readings not far from its peak, and you could say the same about the Omicron wave amid low crude inventory levels, plus the widening gap between OPEC+ and their quota, it sets the foundation for energy stocks to shine.

Wall St numbers

At the closing bell, the Dow Jones gained 0.1 per cent to 36,290, the S&P gained 0.3 per cent to 4,726 while the Nasdaq rose for its 3rd straight day adding 0.2 per cent at 15,188.

Across the S&P 500, we only had one loser which was healthcare, down 0.3 per cent. The rest closed higher with materials as the best performer, up 1 per cent, followed by consumer discretionary, and information technology. Financials and consumer staples eked out a gain followed by energy.

The yield on the 10-year treasury note fell 1 basis point to 1.74 per cent, gold rose on a weaker greenback.

European markets rise after Fed Chair’s note

Across the Atlantic, European markets closed higher after Fed Chair Powell’s testimony before the senate banking committee. Paris added 0.8 per cent, Frankfurt added 0.4 per cent and London’s FTSE added 0.8 per cent.

Asian markets rise amid China’s easing inflation

Asian markets closed higher led by a tech jally joined amid China’s easing inflation figures. Consumer inflation eased from 2.3 per cent to 1.5 per cent year-on-year in December coming shy of the expected 1.7 per cent. Producer prices rose to 10.3 per cent year-on-year, missing forecasts of a 11.3 per cent rise, slowing from 12.9 per cent a month earlier as per China’s Bureau of Statistics.

Tokyo’s Nikkei gained 1.9 per cent, snapped a three-day losing streak, Hong Kong’s Hang Seng gained 2.8 per cent and China’s Shanghai Composite closed 0.8 per cent higher.

ASX 200 snaps 2-day losing streak

Yesterday, the Australian sharemarket closed 0.7 per cent higher at 7,439 snapping a two-day losing streak posting its first gain for the week. The local bourse rose was helped by resources, thanks to the support in commodity prices.

Energy and technology were the best performers while consumers staples, and industrials were the worst.

Woodside Petroleum (ASX:WPL) rose 4.1 per cent, Beach Energy (ASX:BPT) advanced 5.3 per cent, and Santos (ASX:STO) closed 3.3 per cent higher.

Pushing the tech sector, Afterpay (ASX:APT) surged 4.8 per cent after the Bank of Spain gave its nod of approval required for its takeover by US payments giant Block. Afterpay's last day of trade will be next Wednesday then by Thursday, Block is slated to start trading under ticker code SQ2 on a deferred settlement basis.

Elsewhere, Zip Co (ASX:Z1P) rose 1.8 per cent while Xero (ASX:XRO) closed 1.2 per cent higher.

Fast food players have pulled back after traders mulled on Inghams (ASX:ING) announcement on Monday. The chicken producer has been hit by the Omicron wave which has led to several products being suspended amid the supply chain disruptions. KFC parent Collins Foods (ASX:CKF) dipped 2 per cent to $12.06, while Domino’s Pizza (ASX:DMP) fell 4.5 per cent to $107.50 as the worst performer of the session.

It was followed by shares in Reece (ASX:REH), and IGA owner Metcash (ASX:MTS).

In the winners' corner was Nickel Mines (ASX:NIC) closing 6.5 per cent higher at $1.55 amid a surge in the price of nickel, another EV battery material. It was followed by shares in Life360 (ASX:360), and Imugene (ASX:IMU).

Along with Metcash (ASX:MTS), Woolworths (ASX:WOW) and Coles (ASX:COL) fell 0.7 per cent and 0.8 per cent respectively. They have continued to fall attributed to supply chain interruptions, and staff shortages due to the pandemic with no signs of abating anytime soon.

Coles (ASX:COL) has fallen 8 per cent for 2022 in all seven trading sessions. Woolworths (ASX:WOW) isn’t looking any better, with six sessions of losses, down 5.1 per cent so far.

Looking at iron ore miners, Rio Tinto (ASX:RIO) added 0.8 per cent, and BHP (ASX:BHP) closed 0.9 per cent higher. Though Fortescue Metals (ASX:FMG) lost 0.9 per cent amid a broker downgrade noted a large valuation gap with peers. Citi said its share price run had implied “unreasonable” valuation expectations for its Fortescue Future Industries division. To fill the valuation gap, the division would need 20 hydrogen energy projects costing more than US$20 billion.

Lithium player Liontown Resources (ASX:LTR) resumed trade after revealing its latest deal with LG Energy Solution. Under the terms, the Aussie player is set to supply to the South Korean company up to 150,000 dry metric tonnes per annum of spodumene concentrate. This is one of the ingredients to make batteries for electric vehicles. Shares closed 5.8 per cent higher at $1.64.

Lithium Power (ASX:LPI) has revealed its plans to spin off its Western Australian hard rock lithium in the next six months. The split will create a separate entity which will look to list on the ASX. Shares closed 1.7 per cent higher at $0.59.

Gold players rallied again with Northern Star (ASX:NST) and Newcrest Mining (ASX:NCM) both closing 2.1 and 2.4 per cent higher while Evolution Mining (ASX:EVN) came out on top, closing 3.1 per cent higher.

SPI futures

Taking all of this into the equation, if you follow the SPI futures, it’s pointing to a 0.04 per cent fall.

Dividend pay

SPDR S&P/ASX 200 Financials EX A-REIT Fund (ASX:OZF)
SPDR S&P/ASX 200 Resources Fund (ASX:OZR)
Sunland Group (ASX:SDG)
SPDR S&P/ASX 50 Fund (ASX:SFY)
SPDR S&P/ASX Small Ordinaries Fund (ASX:SSO)
SPDR S&P/ASX 200 Fund (ASX:STW)
SPDR MSCI Australia Select High Dividend Yield Fund (ASX:SYI)

Commodities

Iron ore has gained 1.8 per cent to US$124.48 a ton. Its futures are pointing to a rise of 2.1 per cent.

Gold added $8.20 or 0.5 per cent to US$1,827 an ounce. Silver was up $0.42 or 1.8 per cent to US$23.23 an ounce.

Oil rose $1.51 or 1.9 per cent to US$82.73 a barrel.

Currencies

One Australian Dollar at 8:15 AM has strengthened since yesterday (72.12 US cents), buying 72.91 US cents, 53.18 Pence Sterling, 83.49 Yen and 63.67 Euro cents. 
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