Wall St mixed on tech fall, Redbubble rated as Neutral: ASX to dip

 

Mixed closed on Wall St as cautious trading crept in ahead of the inflation figures. European markets fell on mobility restrictions. Asian markets mixed despite Evergrande’s moves, the ASX 4-day surge snaps. UBS rates Redbubble as Neutral.

The Australian sharemarket is set to open lower with the SPI futures pointing to a dip of 0.1 per cent.

US stocks mixed ahead of inflation data & Fed meeting

Wall St closed mixed after a strong three day surge as investors followed news on the Omicron variant of Covid-19. The overall performance was a breather from this week’s rally as tech stocks pulled back. The S&P 500 is within striking distance of record highs again after a strong recovery from Black Friday last week. After strong weekly jobless numbers, market participants shifted gears to upcoming economic data.

Tomorrow we're going to receive the November consumer price index providing the latest inflation pulse. These figures are expected to be even hotter than the previous month. To give you a sense, this morning when I checked the estimates, I was expecting it to be hovering near 6.2 per cent year-over-year, right now economists are expecting 6.8 per cent, so nearly the 7.0 per cent mark.

Adding to the inflation spike has been food and energy pressures. Rent is also included and makes up a large portion of the inflation basket. It’s expected that pressures will continue into early 2022 and fade as supply chain bottleneck eases.

Another factor to consider are wages, they have not kept up with inflation over the past few months but if you go back to the start of the pandemic, Americans are still ahead as inflation prior to the pandemic was low, while wage growth was strong.

Does the Fed look at PCI or PCE?

One thing to note is that tomorrow we will receive the consumer price index – the CPI figures, but the Fed looks at the core personal consumption expenditures, so PCE figures. The difference between the two inflation figures is rent and its allocation in the basket, and this index excludes food and energy, however the thematics are the same for both indexes, and rent pressures are on the rise.

So there are big questions as to what this will mean as we lead up to the Fed's two day meeting next week. Are we in a tight labour market? Are they going to focus on combating surging inflation? What does this mean for households, and if there is a political issue overlaying this all?

We will wait and see how they will treat the pace of taper of its asset purchases program, as well as the path forward for interest rates or borrowing costs.

Weekly jobless claims fall to 52-year low

The latest on the labour market front was weekly jobless claims falling to a new 52-year low of 184,000 as per the Labor Department. This is incredible, yes “years” not “weeks”, better than economists had expected and moving in the right direction.

The lower these numbers, the better, as they represent state unemployment benefits. It’s the latest sign of the jobs market in the US recovering after last year's lows when the pandemic first hit.

Now continuing claims rose to just under 2 million amid 11 million jobs available to fill as we talked about yesterday. We saw participation rate increase after it stalled for a few months in the latest non-farm payroll report. Overall picture at the moment is creating tension in this labour market with higher wages expected to persist due to that. The good news is that first time claims amid America’s winter months are not ticking up.

The inflation report tomorrow is likely to be our next catalyst for movement in the market, and again next week when we receive an update around the pace of the taper, and timing of the rate hike.

Wall St mixed as bond yield fall

At the closing bell, the Dow Jones closed flat 35,755, the S&P 500 lost 0.7 per cent to 4,667 while the Nasdaq closed 1.7 per cent lower at 15,517.

Across the S&P 500, healthcare and consumer staples were the only sectors that closed higher. The rest fell with consumer discretionary, and real estate as the laggards.

In tech standouts, Microsoft fell 0.6 per cent, Nvidia dropped 4.2 per cent, while Tesla closed 6.1 per cent lower.

Shares in Amazon fell 1.1 per cent after Italy's antitrust watchdog fined the ecommerce giant US$1.28 billion for alleged abuse of market dominance. Airliners fell with Boeing's turbulence down by 1.6 per cent and American Airlines closed 0.5 per cent lower.

The yield on the 10-year treasury note dipped 2 basis points to 1.49 per cent. Gold dipped on a weaker greenback.

European markets fell on Omicron jitters

Across the Atlantic, European markets closed lower. Paris fell 0.1 per cent, Frankfurt lost 0.3 per cent and London’s FTSE lost 0.2 per cent as worries over tighter Covid-19 mobility restrictions hit the travel sector overshadowing positive earnings results.

In UK trade, mining and oil giants closed mixed. BHP fell 0.8 per cent while Rio Tinto bucked the trend adding 0.8 per cent, BP lost 1.5 per cent while Shell dipped 1.4 per cent.

Rolls-Royce sunk 4.1 per cent on fears the aircraft engine business is slated to fall in air travel.

Asian markets mixed as caution creeps in

Asian markets closed mixed amid Chinese consumer prices rising 2.3 per cent year on year rise in November, up from 1.5 per cent in October but shy of expectations for a gain of 2.5 per cent. Meanwhile, producer prices soared 12.9 per cent.

Tokyo’s Nikkei fell 0.5 per cent snapping its 2-day win after surging 3.0 per cent over the past two days, Hong Kong’s Hang Seng added 1.1 per cent, while China’s Shanghai Composite closed almost 1.0 per cent higher.

ASX 200 snaps 4-day winning streak

Yesterday, the Australian sharemarket closed 0.3 per cent lower at 7,384 as optimism faded over the fight to combat the Omicron variant. The local market was trading in a narrow range with eight of the 11 sectors closing lower.

The energy sector was the worst performing sector followed by consumer discretionary, and information technology stocks. Utilities and healthcare were the only two outperformers.

Shares in Oil Search (ASX:OSH) fell 1.4 per cent to $4.14 after Papua New Guinea’s National Court gave its final nod to the $23 billion merger with Santos (ASX:STO) with the final condition for the deal slated on Friday.

Santos (ASX:STO) lost 1.6 per cent to $6.62 after the oil giant inked a deal to divest a minority stake in its $5.1 billion Barossa gas project off Australia’s north coast to giant Japanese LNG buyer JERA.

Across the iron ore miners Fortescue Metals (ASX:FMG) rallied for its fourth straight day adding 1.5 per cent bucking the trend from BHP (ASX:BHP) falling 1.2 per cent and Rio Tinto (ASX:RIO) closing 0.9 per cent lower.

Meanwhile, gold miner Newcrest (ASX:NCM) rose 0.3 per cent after the company released "particularly encouraging" exploration results from its East Ridge prospect which is part of its Red Chris holdings in the Canadian province of British Columbia.

The session’s news was grouped into two categories. Mergers and acquisitions, and electric vehicles.

Starting with M&A’s, Sydney Airport (ASX:SYD) took off adding 2.9 per cent at $8.59 after the competition watchdog and the EU competition regulator approved the takeover of the owner of Kingsford Smith Airport by a consortium of superannuation funds and infrastructure investors.

Prime Media (ASX:PRT) added 1.2 per cent at $8.59 after the competition watchdog gave the tick of approval for the sale of Prime's business and assets to Kerry Stokes Seven West Media (ASX:SWM) which tumbled 3.9 per cent at $0.615.

Cleanaway Waste Management (ASX:CWY) fell 0.7 per cent at $2.92 after the ACCC waved through its acquisition of locally based assets from rival French group Suez.

In the EV space, Genex Power (ASX:GNX) jumped 2.6 per cent at $0.195 after the renewable energy generator inked an offtake deal with Tesla for the Bouldercombe Battery project near Rockhampton in central Queensland. Genex will use Tesla’s real-time trading and control platform, Autobidder. The EV car maker is already supplying the batteries for the project and will provide a minimum level of contracted revenue to support project financing for the development.

Meanwhile, Gina Rinehart-backed Vulcan Energy (ASX:VUL) inked a deal with auto giant Volkswagen to supply at least 34,000 tonnes of battery grade lithium for five years.
Volkswagen Group and Vulcan have also agreed to a first right of refusal to invest in additional capacity in the Zero Carbon Lithium™ Project. Underpinning the handshake included a successful kick off on commercial operation and full product qualification. The key ingredient in batteries for electric vehicles is slated for delivery for 2026 with pricing to be based on market prices or on a take-or-pay basis.

The best-performing stock in the S&P/ASX 200 was AGL Energy (ASX:AGL) closing 4.7 per cent higher at $5.84, followed by shares in Appen (ASX:APX), and Sydney Airport (ASX:SYD).

The worst-performing stock in the S&P/ASX 200 was Redbubble (ASX:RBL) closing 9.3 per cent lower at $3.02 amid a broker upgrade which I’ll cover in broker moves, followed by shares in Magellan Financial Group (ASX:MFG), and Zip Co (ASX:Z1P).

The major lenders closed mixed. Commonwealth Bank (ASX:CBA) and National Australia Bank (ASX:NAB) added up 0.2 per cent while Westpac (ASX:WBC) and ANZ (ASX:ASX) both closed 0.2 per cent lower.

Local economic news

The Australian Bureau of Statistics is set to publish the monthly business turnover indicator for October.

Broker moves

UBS rates Redbubble (ASX:RBL) as neutral with a price target of $3.45. The investment thesis relies upon the company's 'scale' target of $1.25 billion of revenue at an EBITDA margin of 13 per cent to 18 per cent over the medium term. The broker estimates the former is achievable by financial year 2028 though improving unit economics will be needed to achieve the latter. The analyst's forecasts are more conservative than consensus estimates as reinvestment is needed to drive double digit top-line growth. Furthermore, surging covid-related sales are expected to normalise. Shares in Redbubble (ASX:RBL) closed 9.3 per cent lower at $3.02.

IPOs

There is one company set to make its debut on the ASX today. Keep an eye out for Panther Metals (ASX:PNT).

Dividend-pay

There are two companies set to pay eligible shareholders today, CSR (ASX:CSR) and Whitefield (ASX:WHF).

AGMs

There are nine companies set to meet with shareholders.

Home Consortium (ASX:HMC)
Kalina Power (ASX:KPO)
MCS Services (ASX:MSG)
Pendal Group (ASX:PDL)
Polarx (ASX:PXX)
Pure Hydrogen Corporation (ASX:PH2)
Sprintex (ASX:SIX)
WA Kaolin (ASX:WAK)
Washington H. Soul Pattinson (ASX:SOL)

Commodities

Iron ore has lost 0.3 per cent to US$106.70. Its futures point to a 0.2 per cent fall.

Gold lost $9.20 or 0.5 per cent to US$1,776 an ounce, silver was down $0.46 or 2.1 per cent to US$21.97 an ounce.

Oil fell $1.90 or 2.6 per cent to US$70.46 a barrel.

Currencies

The greenback could get a boost after we receive the inflation results arresting its downward trajectory.

One Australian Dollar at 8:15 AM has weakened since yesterday, buying 71.50 US cents (Thu: 71.73), 54.10 Pence Sterling, 81.11 Yen and 63.32 Euro cents.
 
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