Wall St tumbles, Warren opposes reappoint of Fed Chair, CSL rated as Neutral: ASX to fall

 

Global stocks saw a sell-off while energy stocks climbed on a supply crimp. Fed Chair described as a "dangerous man" from Senator Elizabeth Warren amid scruitiny on trading conduct of FOMC members, including Mr Powell himself. Inflation worries ripple as treasury bond yields climb. Credit Suisse rated CSL (ASX:CSL) as a buy with a dampened outlook ahead. 

The Australian sharemarket is set to fall, with the SPI futures pointing to a drop of 1.1 per cent.

U.S. stocks closed lower as yields climb

A market meltdown again, moving at a fast pace compared to last Monday the was prompted by the Evergrande saga. This time, the bond bulls are back, the yields are rising, hurting stocks, as inflation expectations have been reset. We saw a taste of this reaction yesterday and it happened again today.

Now, why does rising bond yields hurt stocks? It pretty much eats away at the future profits of a company, especially if they are growth stocks, as they tend to be quite debt-heavy. This then pressures growth forecasts lower, so the knee jerk reaction is to book your profits and sell.

This surge in treasury yields is the achilles heel for the tech-heavy Nasdaq, and even the S&P 500 with their exposure to tech, more so over the value-driven Dow.

We have heard from the Fed that they know that inflation figures are high and deemed transitory, however with the current energy squeeze, this could have spooked investors along with his testimony today.

March bond sell-off on inflation worries

Nervousness has driven the bond market sell-off, amid economic data showing a slowdown. Investors fortunately or unfortunately, are somewhat conditioned to this rollercoaster ride as in March, the yield on the 10-year government bond jumped to almost 1.75 per cent, after starting around 0.9 per cent when inflation was expected to rise. Falling prices in tech were the beneficiary of this move.

Warren opposes reappointment of Fed’s Powell, “dangerous man” remarks

Compounding this, is the future leadership of the Fed, which took a turn today around the oversight of two of their members, and even on Chairman Jerome Powell on his conduct, apparently he placed a few trades through a trust structure, seen as a conflict of interest.

Chair Jerome Powell was at Capitol Hill today with Treasury Secretary, Janet Yellen speaking before the senate banking committee, on their bid to offset the impact from the pandemic from the economy.

Powell testified that the economy is a long way from maximum employment, and that inflation will persist longer than expected, but the Fed Chair’s remarks took a turn when Senator Elizabeth Warren went after Powell, saying that she would be against renominating him for a second term. 

“…. I know that some argue that your deregulatory actions are mostly harmless. I disagree. I think they’ve put taxpayers at risk for hundreds of billions of dollars. But even at that, so far you’ve been lucky. But the 2008 crash shows what happens when the luck runs out”.

“Your record gives me grave concern. Over and over, you have acted to make our banking system less safe and that makes you a dangerous man to head up the Fed, and it’s why I will oppose your renomination”.

Strong words there. Fed Chair Powell’s term is up in February next year, and Ms Yellen said that she supports a second term for Mr Powell.

U.S. trade balance widens amid lower consumer confidence

Investors also digested a raft of economic news which showed that the spread of the delta-variant and supply chain issues weigh on the economy.

The U.S. goods trade balance widened in August as imports were stronger than exports. The gap increased to US$87.6 billion last month from a revised US$86.8 billion in July, according to the Commerce Department. The housing market was a bright spot for the economy after home prices rose to their biggest increase in 30 years, up 19.7 per cent.

Consumer confidence fell for its third straight month in September on concerns about inflation. The index fell to 109.3 in September from a revised 115.2 in August, according to data from the Conference Board.

We are seeing inflation jitters, overheated housing market, and supply chain disruptions, and lowered consumer confidence. Let alone, the lingering threat of Covid-19 and China’s property giant, Evergrande and the looming debt ceiling and government funding. It’s time to brace yourself on what’s yet to come.

Wall St tumbles, bond bulls rage as gold falls

At the close, the Dow Jones dropped 1.6 per cent to 34,300, the S&P 500 lost over 2 per cent to 4,353 and the Nasdaq closed 2.8 per cent lower at 14,547.

The yield on the 10-year treasury bond rose 6 basis points to 1.54 per cent, while gold lost its shine against a stronger greenback.

Across the S&P 500 sectors, all sectors closed in the red except energy which rose 1.8 per cent. Consumer discretionary was the worst performer, down over 2 per cent.

Bright spot with Ford Motors growth outlook

There is a bright spot after this tough day, Ford Motors rose 1.1 per cent after the company is set to build a new manufacturing plant for the first time in decades, plus three battery factories for electric vehicles.

European markets as petrol panic buying continues

Across the Atlantic, European markets saw gains disappear as inflation concerns rippled over. Paris dropped 2.2 per cent, Frankfurt lost 2.1 per cent and London’s FTSE closed 0.5 per cent lower.

European officials are crossing their fingers that Winter won’t be that cold. Natural gas prices might temper with the pandemic recovery which is fragile already.

This market is experiencing a supply issue when demand is high in Asia, and low reserves in Russia amid lowered production.

Let’s see what moves they will make ahead of the energy summit next month.

Asian markets move on further cash injection & pledge to protect

Asian markets closed mixed after the People's Bank of China injected more cash into the financial system, and pledged it would provide consumer protection to those exposed to the housing market.

Tokyo’s Nikkei closed 0.2 per cent lower, the Hang Seng gained 1.2 per cent after the Hong Kong’s gave 24 hours for banks to report their exposure to Evergrande, and China’s Shanghai Composite added 0.5 per cent.

ASX 200 tumbles as energy stocks surge for the 6th time

Yesterday, the Australian sharemarket tumbled 1.5 per cent at 7,276 after investors got nervous and booked their profits and piled into energy and utilities stocks.

The local bourse gave back its gains from Monday amid U.S. bond yields climbing.

The sell-off was almost across the board with healthcare stocks falling 3.6 per cent, its worst performance since September last year. A broker commented on CSL’s growth outlook, which I will cover shortly, with ResMed (ASX:RES) and Ramsay Healthcare (ASX:RHC) falling on weakness in healthcare stocks globally.

Technology stocks crumbled 2.8 per cent lower, pressured down by Xero, Appen and Megaport.

Financials shed the least, down 0.5 per cent after rallying earlier in the session.

Energy stocks rocketed higher for its sixth straight session, surged 4.3 per cent after oil prices rallied on increased demand from the northern hemisphere and China.
Oil search (ASX:OSH) leapt over 7 per cent to the highest level since March, Woodside Petroleum (ASX:WPL) rose over 5 per cent to a July high, while Santos (ASX:STO) gained over 5 per cent.

Beach Energy (ASX:BPT) was the best performing stock closing 10.5 per cent higher at $1.36 after they inked a five-year deal to supply liquefied natural gas (LNG) to BP Singapore. It was followed by shares in Oil Search (ASX:OSH) and Whitehaven Coal (ASX:WHC).

The worst-performing stock was Pro Medicus (ASX:PME), closing 6.7 per cent lower at $54.06, followed by shares in Evolution Mining (ASX:EVN) and Xero (ASX:XRO).

Broker moves

Credit Suisse rates CSL (ASX:CSL) as a neutral with a price target of $315. The broker believes it will be difficult for CSL to achieve the same IG market share gains it saw pre-covid, due to competition. This is evident in CSL’s rivals, with Spanish pharmaceutical giant Grifols acquiring more plasma, and Japanese pharma giant Takeda increasing scale. They are becoming more efficient in the plasma collection market which is what CSL relies upon to grow. The broker forecasts CSL’s share of plasma collected by the three players will fall to 37 to 38 per cent in 2020/21 from 42 per cent in 2019, and not recover to 42 per cent until 2025. Credit Suisse believes the company's strategy to build its greenfields centres will benefit in the long run, by having more efficient and higher-yielding centres. Shares in CSL (ASX:CSL) closed 3.9 per cent lower at $294.47 yesterday.

Macquarie upgrades Collins Food (ASX:CKF) to outperform with a price target of $12.50. The broker believes the recovery in the quick service restaurant market is improving and sees tailwinds for the company. Growth in earnings will be supported by a roll out of stores while noting that online traffic was up 3.4 per cent from the year before. Macquarie highlights chicken and Mexican-style fast food is growing faster than pizza, which puts the company's KFC and Taco Bell brands in a favourable condition. The rating is upgraded to outperform from neutral, with a raised price target to $12.50 from $11.15. Shares in Collins Food (ASX:CKF) closed 3.4 per cent higher at $12 yesterday.

IPOs

There is one company set to make their debut on the ASX. Keep an eye out for Touch Ventures (ASX:TVL) after they raised $100 million at 40 cents a share. They are set to debut with a market cap of $285.3 million backed by Afterpay (ASX:APT), who will have over 24 per cent stake in the business.

Ex-dividend

There are 30 companies slated to trade ex-dividend today with a number of property companies.

APN Industria REIT (ASX:ADI) is paying 4.325 cents unfranked
Australian Unity Office Fund (ASX:AOF) is paying 3.8 cents unfranked
APN Convenience Retail REIT (ASX:AQR) is paying 5.725 cents unfranked
Arena REIT (ASX:ARF) is paying 3.95 cents unfranked
Aventus Group (ASX:AVN) is paying 4.5 cents unfranked
Boom Logistics (ASX:BOL) is paying 1 cent unfranked
Centuria Industrial REIT (ASX:CIP) is paying 4.325 cents unfranked
Charter Hall Long WALE REIT (ASX:CLW) is paying 7.62 cents unfranked
Cromwell Property Group (ASX:CMW) is paying 1.625 cents unfranked
Centuria Office REIT (ASX:COF) is paying 4.15 cents unfranked
Charter Hall Social Infrastructure REIT (ASX:CQE) is paying 4.175 cents unfranked
Cedar Woods Properties (ASX:CWP) is paying 13.5 cents fully franked
Coventry Group (ASX:CYG) is paying 3 cents fully franked
Elanor Commercial Property Fund (ASX:ECF) is paying 2.35 cents unfranked
Energy One Limited (ASX:EOL) is paying 6 cents unfranked
Fonterra Shareholders' Fund (ASX:FSF) is paying 12.3403 cents unfranked
Gryphon Capital Income Trust (ASX:GCI) is paying 0.74 cents unfranked
Garda Diversified Property Fund (ASX:GDF) is paying 1.8 cents unfranked
HomeCo Daily Needs REIT (ASX:HDN) is paying 2 cents unfranked
Kkr Credit Income Fund (ASX:KKC) is paying 1 cent unfranked
ALE Property Group (ASX:LEP) is paying 5.5 cents unfranked
Meridian Energy (ASX:MEZ) is paying 10.4826 cents unfranked
Perpetual Credit Income Trust (ASX:PCI) is paying 0.3063 cents unfranked
Qualitas Real Estate Income Fund (ASX:QRI) is paying 0.7507 cents unfranked
Rural Funds Group (ASX:RFF) is paying 2.9331 cents unfranked
360 Capital Enhanced Income Fund (ASX:TCF) is paying 3 cents unfranked
360 Capital Group Ltd (ASX:TGP) is paying 1.5 cents unfranked
360 Capital REIT (ASX:TOT) is paying 1.5 cents unfranked
VIP Gloves (ASX:VIP) is paying 0.05 cents unfranked
Waypoint REIT (ASX:WPR) is paying 3.95 cents unfranked

Dividend-pay

There are 14 companies set to pay eligible shareholders today, these include AGL (ASX:AGL), Commonwealth Bank (ASX:CBA), ASX (ASX:ASX), Base Resources (ASX:BSE), Bravura Resources (ASX:BVS), Ironbark Capital (ASX:IBC), Motorcycle Holdings (ASX:MTO), Northern Star Resources (ASX:NST), Tassal Group (ASX:TGR), Universal Store (ASX:UNI), VGI Partners (ASX:VGI), and Worley (ASX:WOR).

Commodities

Iron ore has fallen 6.1 cent to US$112.06, its futures are pointing to 0.4 per cent gain.

Gold has dropped $14.50 or 0.8 per cent to US$1738 an ounce, while silver fell $0.23 or 1 per cent to US$22.47 an ounce.

Oil was down $0.16 or 0.2 per cent to US$75.29 a barrel.

Currencies

One Australian Dollar at 7:20 AM has weakened from yesterday, buying 72.41 US cents, 53.49 Pence Sterling, 80.80 Yen and 61.97 Euro cents.
 
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