Powell says 1970s-style inflation is unlikely, Why Sonic Healthcare is a hold: ASX to dip

 

The Australian sharemarket is set to dip at the open despite Wall St closing in the black, after Federal Reserve Chairman Jerome Powell made a reassurance to calm markets.

The S&P 500 climbed 0.5 per cent to 4,246 after Mr Powell said that inflation pressures are only transitory even though markets have seen hot figures in recent months. The index got back within 0.2 per cent of a new closing record set two Mondays ago after dropping as much as 2.1 per cent.

The Dow Jones gained 0.2 per cent to 33,946 after it notched its best performance since March on Monday while the tech heavy Nasdaq clawed back losses to add 0.8 per cent to an all-time high to finish at 14,253.

In a testimony to the House Select Subcommittee, Powell said he’s got “a level of confidence” that prices will come down while job growth will pick up. He also said that it would be “very, very unlikely” to see a repeat of the 1970s-style inflation where rates were running as high as 7 per cent. Mr Powell said the rise in inflation is mostly focused in on areas where there is supply shortages. Due to this, he expects inflation to fade amid the economic recovery. In particular, he notes that rising prices for used cars and airfares were higher than the Fed expected but gave a reassurance that it’s only temporary.

Technology stocks added 0.9 per cent on the weakness in bond yields with the 10-year treasury note dipped to 1.47 per cent. Netflix added 2.4 per cent while Microsoft and Apple added over 1 per cent.

The best performing sector in the S&P 500 was Consumer Discretionary up 1.04 per cent while the worst performer was Utilities down 0.7 per cent.

Across the Atlantic, European markets closed higher. London’s FTSE gained 0.4 per cent, Paris added 0.1 per cent and Frankfurt closed 0.2 per cent higher. On the iron ore front, mining giants rose. Rio Tinto added 1.5 per cent while BHP gained 1.3 per cent. Iron ore lifted by 3 per cent to US$214.32. Its futures are pointing to 0.84 per cent gain.

Asian markets closed mixed as Tokyo’s Nikkei jumped 3.1 per cent recovering from its tumble on Monday. Hong Kong’s Hang Seng fell 0.6 per cent and China’s Shanghai Composite closed 0.8 per cent higher.

Crude oil dropped $0.60 to US$73.06 a barrel as investors reviewed Russia and other OPEC+ nations' moves on raising output at next week's meeting to avoid a price spike.

Gold had a stumble down $5.50 to US$1,777 an ounce while silver has shed $0.17 to US$25.90 an ounce.

ASX futures

Taking all of this into equation, the SPI futures are pointing to a 0.1 per cent fall.

Figures from around the globe

Wall Street closed higher yesterday: The Dow Jones Industrial Average added 0.2 per cent to 33,946. The S&P 500 gained 0.5 per cent to close at 4246. The Nasdaq closed 0.8 per cent higher at 14,253.

European markets closed higher, London’s FTSE gained 0.4 per cent, Paris added 0.1 per cent and Frankfurt closed 0.2 per cent higher.

Asian markets closed mixed, Tokyo’s Nikkei gained 3.1 per cent, Hong Kong’s Hang Seng fell 0.6 per cent and China’s Shanghai Composite closed 0.8 per cent higher.

ASX 200 – Tues wrap

Yesterday, the Australian sharemarket closed 1.5 per cent higher at 7,342 after the index rebound from the heavy sell down of 1.8 per cent on Monday. The local bourse had its best day in four months with a broad based advance across all sectors with Healthcare as the outlier down 0.6 per cent.

The moves followed Wall St with Energy as the best performer up 2.2 per cent led by Worley (ASX:WOR) jumped 4.5 per cent as oil prices continue to rise. Big growth names dipped with Zip Co (ASX:Z1P) fell 1.6 per cent while healthcare giant CSL (ASX:CSL) lost 1.5 per cent.

The best performing stock in the ASX 200 was Pilbara Minerals (ASX:PLS) soared 7.4 per cent higher at $1.45 while the worst-performing stock in the ASX 200 was crop protector Nufarm (ASX:NUF) declined 2.2 per cent lower at $4.52.

On the finance front, bank stocks reversed its wipe down from Monday led by Commonwealth Bank (ASX:CBA) gained 2.2 per cent followed by ANZ (ASX:ANZ) then Westpac (ASX:WBC).

Elsewhere Washington H Soul Pattinson (ASX:SOL) & Milton Corporation (ASX:MLT) have agreed to create a $10.8 billion investment giant. Under the agreement, Soul is looking to acquire 100 per cent of Milton's shares that it doesn't already own.

Local economic news

Today the IHS Markit preliminary purchasing manager indexes for June are due. Australian manufacturing activity grew at a record pace in May as the services sector saw the sharpest increase in employment on record that month.

The Australian Bureau of Statistics is set to release preliminary international trade data for May. Goods exports hit an historic high of $36 billion in April.

The Reserve Bank Assistant Governor (economic), Luci Ellis is to make a speech today at the Ai Group business lunch in Adelaide.

Broker moves

Citi downgrades Sonic Healthcare (ASX:SHL) as a hold with a price target of $37.50. The broker notes the stock has outperformed the ASX 200 by 6 per cent over the last quarter and 10 per cent over the last 12 months. The medical diagnostic imager has benefited greatly from coronavirus testing of which the broker anticipates peak earnings will occur in FY21.

While there is a risk FY22 earnings will also be elevated, the broker considers the stock fairly valued and downgrades to a hold from a buy. Meanwhile, the company has acquired Canberra Imaging Group which generates annual revenue of $60 million. The acquisition is expected to increase the company's imaging revenue by 10 per cent.

Shares in Sonic Healthcare (ASX:SHL) closed 1.07 per cent higher at $37.94 yesterday.

IPOs

Oil and gas explorer Tamboran Resources (ASX:TBN) is set to make their debut on the ASX today after raising $66 million. The company is slated to list with a market capitalization of $266 million making it one of the largest exploration and production IPOs in nearly a decade.

Ex – Div

Premier Investments (ASX:PMV) is paying 34 cents fully franked

Currencies

One Australian Dollar at 7:40 AM was buying 75.52 US cents, 54.16 Pence Sterling, 83.58 Yen and 63.28 Euro cents.

Commodities

Iron Ore has gained 3 per cent to US$214.32.
Iron Ore futures are pointing to 0.84 per cent gain.
Gold has dropped $5.50 to US$1777 an ounce.
Silver has fallen $0.17 to US$25.90 an ounce.
Oil was down $0.60 to US$73.06 a barrel. 
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