Wall St lower, Square to acquire Afterpay for $39bn, Credit Suisse cuts Fortescue & Iress ratings: ASX to rise

The Australian sharemarket is set to rebound with the SPI futures pointing to a 0.5 per cent rise.

Major indexes across the globe closed in negative territory on Friday as rising Covid-19 cases put a lid on sentiment over the pace of the economic recovery, while Asian markets reversed gains closing the week out with a tumble.

Pandemic blues looms over earnings outlook as Amazon fails to impress

Wall St closed in the red with slight losses across the board, with the S&P 500 closing off July posting a gain for its sixth straight month, its longest winning streak since 2018.

We saw the major indexes hit new record highs earlier last week and on Friday, we saw them take a step back after investors digested disappointing earnings results from a few companies amid inflation data pointing to a rise above the Fed’s headline number.

Inflation rises ahead of Fed’s 2% target, consumer sentiment dips

Consumer spending rebounded 1.0 per cent in June after its dip of 0.1 per cent beating expectations while consumer sentiment took a dip on inflation concerns.

The Fed’s preferred inflation gauge, core personal consumption expenditures index spiked up to 3.5 per cent, the largest gain since December 1991.

With Americans splurging at restaurants and hotels last month, up 1.2 per cent, consumers spent more outside rather than shopping inside, which didn’t help the likes of Amazon. The eCommerce giant fell after revenue came in below expectations.

Amazon, the third largest company in the S&P 500 accounted for a large portion of Friday's drop. The giant retailer closed 7.6 per cent lower to US$272.33 after they missed revenue estimates for the second quarter posting US$113 billion. The online retailer banked over US$100 billion in revenue for three quarters in a row but the results sent the stock tumbling after they flagged that revenue is set to decelerate over the next few quarters as the country continues to reopen.

Moves in Pinterest saw the digital pinboard slump 18 per cent to US$58.90 after reporting a decline of more than 7 per cent in monthly U.S. active users to 454 million from April despite positive earnings beating expectations, as consumers shift outside instead of staying entertained on platforms.

The re-opening theme was at play with both these giants raking in revenue under the stay-at-home orders which helped boost online activity. Now with the country reopening, the platform providers have seen a shift in consumer habits reflecting on some of their numbers. People have gone from pinning their holidays to going on holidays from buying online to now being out and about.

Mega-cap tech titan’s Alphabet fell 1 per cent while Facebook lost 0.6 per cent as growth stocks came under pressure.

Wall St closes lower, 10-yr treasury ticks lower

At the close, the S&P 500 fell 0.5 per cent to 4,395 and rose 2.3 per cent in July, the Dow Jones lost 0.4 per cent at 34,935 and posted a 1.3 per cent rise in July while the Nasdaq closed 0.7 per cent lower at 14,673 and advanced 1.2 per cent for the month.

Across the S&P 500 sectors, consumer cyclicals underperformed while defensives led. Materials gained the most, up 0.4 per cent, Real Estate grew 0.3 per cent followed by Consumer Staples and Healthcare. Consumer discretionary was the outlier, down 1.9 per cent followed by Energy and Materials. Technology fell the least, down 0.1 per cent.

The 10-year treasury yield came in a tick lower at 1.22 per cent following softer than expected inflation data. Over the week, US 10-year note fell 6 points while the US 2-year yields dipped 1 point. Inflation concerns appeared to have tempered for now but the tick lower in the 10-year treasury yield could have led to a rally but disappointing results dragged the major indexes lower on Friday though rose as a whole for July.

European markets fall on Covid-19 uncertainty

Across the Atlantic, European markets closed lower. Paris lost 0.3 per cent and Frankfurt closed 0.6 per cent lower while London’s FTSE fell 0.7 per cent,

British-Airways owner IAG fell 7.4 per cent after refusing to provide profit guidance due to fluctuating Covid-19 restrictions. Defence engineering company Babcock crashed 16 per cent after announcing a $3.2 billion (£2b) write down warning investors that their full year results would see a significant tumble in their cash flow. The miners Rio Tinto dropped 2.9 per cent while BHP shares fell 1.9 per cent.

Asian stocks falls as China's regulatory crackdown continues

Asian markets closed lower after a volatile week of trade. Japan’s markets fell the most on concerns of the rising delta variant cases offsetting positive figures on their industrial output and retail sales, the Nikkei dropped 1.8 per cent.

In Hong Kong, the Hang Seng fell 1.4 per cent while China’s Shanghai Composite closed 0.4 per cent lower on Friday as gains in Chinese tech stocks reversed after a recovery climbed its way during the week following its dive.

A rise in stamp duty on share transactions in Hong Kong, the first move in nearly three decades, is set to come into effect today, five months after it was initially unveiled.

Shares in Tencent fell 2.6 per cent while Alibaba dropped 4.2 per cent. In the education space. New Oriental Group declined 7.7 per cent while Koolearn shed 3.4 per cent.

ASX gains for 10-mths in a row

On Friday, the Australian sharemarket closed 0.3 per cent lower at 7,393 but wrapped up July hanging onto its gains for its tenth straight month.

In terms of the best and worst performers over the week, Materials was the winning sector, up 3.3 per cent following mining giants posting earnings results. While Technology was the worst performer, declined over 2.5 per cent following moves from Wall St.

The worst performing stock was global online marketplace Redbubble tumbled over 17 per cent on no major company news, though the likes of Pinterest dived 18 per cent on Wall St, while the best performer was Lynas Rare Earths (ASX:LYC) jumped over 11 per cent after a 389 per cent increase in quarterly sales revenue to $185.9 million.

Local economic outlook

The Reserve Bank will take centre stage on Tuesday with the Board set to issue a Statement on Monetary Policy on Friday. This time round board members are faced with a different landscape crept up by the delta-variant when only the month before, Philip Lowe was praising on the economy’s bounce back coming in stronger than expected.

Also on the table are job ads, building approvals, house prices and lending, payroll jobs and wages along with retail and international trade figures.

Reporting season

Reporting season kicks-off this week with Credit Corp (ASX:CCP) on Tuesday, Newscorp (ASX:NWS), Resmed (ASX:RMD) and Centuria Industrial REIT (ASX:CIP) set to release results on Thursday with REA Group on Friday.

Overseas economic outlook

The jobs report is set to take the spotlight in the U.S. to see if the jobs growth will continue its momentum after companies hired 850,000 workers in June. Investors will look closely at the participation rate to see if higher wages and company benefits are enticing enough for recruits to return to the workforce amid labour shortages. This time round, some workers are now faced with mask and vaccine mandates.

Earnings season continues with Moderna in focus along with Uber, Etsy and Alibaba plus many more.

Breaking news

U.S. payment giant Square is set to acquire buy-now-pay-later darling Afterpay (ASX:APT) for $39 billion. Afterpay co-founders Anthony Eisen and Mick Molnar will join the ranks once the deal is sealed as they are set to bank $2.7 billion in Square stock for their Afterpay shares with the ability to dump their Square shares on the U.S. or Australian market. The deal has been struck at an implied price of $126.21 per Afterpay share, a 30 per cent premium to its closing price last week with the board recommending the transaction to its shareholders which will take place via a scheme of arrangement.

Broker moves

Credit Suisse downgrades Fortescue Metals (ASX:FMG) to a neutral from outperform with a price target of $22. The miner’s June quarter production beat their expectations along with the average price received for iron ore which offset costs. This jumped 17 per cent due to inflationary pressures and Covid-19 related expenses.The broker suspects efficiency initiatives are to limit cost escalation versus reducing costs.Credit Suisse envisages an opportunity to take profits on valuation grounds and downgrades to neutral with a reduced target price to $22 from $23.Shares in Fortescue Metals Group (ASX:FMG) closed 5.29 per cent lower at $24.91 on Friday.

Credit Suisse downgrades Iress (ASX:IRE) to a neutral from outperform with a price target of $13.50.The broker expects organic growth will be driven by the UK, Australian superannuation and OneVue. While the outlook has improved, the company has received a takeover interest which was rejected, the broker believes growth acceleration is required to accelerate growth and therefore, downgrades its rating but raises its target price is raised to $13.50 from $11.00.Shares in Iress (ASX:IRE) closed 1.4 per cent lower at $14.05 on Friday.

Ex-Dividend

NB Global Corporate Income Trust (ASX:NBI) is paying 0.8049 cents unfranked

Commodities

Iron Ore has lost 7.4 per cents to US$181.57.
Iron Ore futures suggest a 2.8 per cent fall.
Gold lost $18.60 to US$1817 an ounce.
Silver fell $0.23 US$25.55 an ounce.
Oil has added $0.33 to US$73.95 a barrel.

Currencies

One Australian Dollar at 7:45 AM was buying 73.44 US cents, 52.86 Pence Sterling, 80.56 Yen and 61.90 Euro cents.

Source: Finance News Network