ASX to slip, Wall St dips, oil retakes $US100 mark

On Wall Street, US shares ended modestly lower, reversing early modest gains on the inflation data. Seven of the 11S&P 500 industry sectors fell, paced by financials and health care.

JPMorgan is first off the rank for major US quarterly reporting on Wednesday.

In a note, Fundstrat Global technical analyst Mark Newton said after a decline in seven of the last 10 trading days, “equities look to be close to short-term lows, and technically I’m expecting a bounce” into early next week.

The caveat: Newton said investors should use the “bounce” to sell because any advance is likely to prove short-lived.

The consumer price index increased 8.5 per cent from a year earlier following a 7.9 per cent annual gain in February, Labor Department data showed on Tuesday (Wednesday AEST).

“US stocks rallied after a cooler-than-expected consumer price report signaled that the inflation peak could be in place,” Oanda’s Edward Moya said in a note. “The rebound in equities did not last long as oil prices rebound back above the $US100 level.”

Oil rebounded after President Vladimir Putin said peace talks with Ukraine had reached a “dead end”, and he used his first extended remarks about the war in nearly a month to insist that Russia would persist with its invasion.

The latest monthly Bank of America fund manager survey, released overnight, found that investors see financial market stability risks at levels comparable to when COVID-19 first hit and during the Global Financial Crisis. “The high perceived risk to financial market stability points to a further decline in equity prices,” BofA said.

RBNZ decision ahead

A highlight for local investors on Wednesday will be the Reserve Bank of NZ’s policy decision at noon AEST.

Here’s what TD Securities expects: “The RBNZ has much work to do, and we suspect the board realizes this too. However, hiking in 25 basis point increments at consecutive meetings won’t fit the bill.

“The bank now needs to hike in 50bps increments at its next two meetings. We see no compelling reason for the bank to await incoming data before deciding to act more aggressively.”

RBC FX Trading: “The consensus forecast is for a 25bp RBNZ hike tonight, but there is a significant minority looking for a 50bp move (five out of 20 in Bloomberg’s survey). Market pricing is also skewed heavily to a 50bp move (about 45bp priced into forwards), which is our expectation.

“Since the last RBNZ decision in late February, when the RBNZ moving considered to 50bp hikes, most activity data have been firm. The main development, however, has been the repricing of rate expectations globally, including moving expectations to 50bp Fed hikes at the next two meetings.

“The case for sticking with 25bp moves revolves around waiting for the Q1 CPI data (due next week), though we don’t think that is compelling, given the upside surprises through the course of 2021. Beyond the rate decision itself, attention will focus on the statement and what it implies for the pace of hikes going forward.”

Capital Economics: “Inflation is set to exceed the RBNZ’s forecasts yet again this year. With the Bank becoming increasingly worried that soaring inflation will dislodge inflation expectations, we think it will hike rates by 50bp at its [Wednesday meeting] and follow up with another 50bp hike in May.”

Today’s agenda

Local: April consumer confidence; RBNZ policy decision at 12pm AEST

Overseas data: China March trade balance; Japan February machinery orders; Eurozone February industrial productions; UK March CPI; US March final PPI; Bank of Canada policy decision

Market highlights

ASX futures down 7 points or 0.1 per cent to 7417 near 7am AEST

  • AUD +0.5% to 74.56 US cents
  • Bitcoin on bitstamp.net -0.2% to $US39,748.64 near 7.15am AEST
  • On Wall St: Dow -0.3% S&P 500 -0.3% Nasdaq -0.3%
  • In New York: BHP +1.5% Rio +0.9% Atlassian -1.2%
  • Tesla +1.1% Apple +1.2% Amazon -0.2% Microsoft -1.1%
  • In Europe: Stoxx 50 -0.2% FTSE -0.6% CAC -0.3% DAX -0.5%
  • Spot gold +0.7% to $US1967.99 an ounce at 2.39pm New York time
  • Brent crude +6.2% to $US104.61 a barrel
  • US oil +6.7% to $US100.59 a barrel
  • Iron ore +2.8% to $US154.85 a tonne
  • 2-year yield: US 2.41% Australia 2.14%
  • 5-year yield: US 2.69% Australia 2.79%
  • 10-year yield: US 2.72% Australia 3.07% Germany 0.79%
  • US prices as of 4.59pm in New York

From today’s Financial Review

Labor changes poll tack as Albanese urged to sharpen up: Anthony Albanese and his team are contemplating urgent changes to the Labor leader’s campaign style after a disastrous start.

Business hit with record cost hikes push consumer prices higher: Business costs hit record highs in March as the tightening jobs market and growing inflationary pressures continued to build across the economy.

Chanticleer: Doubts over Brambles’ $950m US expansion: The logistics group is facing hard questions from major shareholder Perpetual about its proposed plastic pallet expansion in the United States.

United States

US inflation quickens to 8.5pc, increasing pressure on Fed: The March consumer price index reading represents what many economists expect to be the peak of the current inflationary period.

Apple poised to boost buybacks by $120b, Citi say: Citigroup also expects the iPhone maker to lift its dividend as much as 10 per cent when its releases quarterly results later this month.

Major US airlines are enjoying the strongest travel demand in three years, yet investors will focus on how they are mitigating mounting inflationary pressures when they report quarterly earnings starting on Wednesday with Delta Air Lines.

American Airlines is due to report first-quarter earnings on April 21.

GM said it would buy cobalt from miner Glencore to use in its electric vehicles (EVs), as automakers around the world scramble to stock up on the critical raw material amid supply chain disruptions.

Franchise Group, owner and operator of retail stores such as The Vitamin Shoppe and Buddy’s Home Furnishings, has entered the race for Kohl’s with a $US9 billion indicative offer, Reuters reported.

Europe

European shares fell on Tuesday as Deutsche Bank and Commerzbank slumped after a big stake sale.

The pan-European STOXX 600 index fell 0.3 per cent, paring some losses from earlier in the day, with healthcare stocks leading losses, and banks among the worst hit.

Deutsche Bank and Commerzbank fell 9.4 per cent and 8.5 per cent, respectively, after an undisclosed investor sold stakes of more than 5 per cent in Germany’s top lenders.

**

Germany’s leading economic institutes are slashing their 2022 growth forecast for Europe’s biggest economy to 2.7 per cent from 4.8 per cent due to the impact of the war in Ukraine, two people familiar with the matter told Reuters.

The five institutes – the RWI in Essen, the DIW in Berlin, the Ifo in Munich, the IfW in Kiel and Halle’s IWH – are due to release their joint forecast on Wednesday, amid spiking inflation and expectations for a dip in growth.

The institutes now see consumer prices jumping by more than 6 per cent this year, compared with a previous forecast for 2.5 per cent, issued in October 2021.

Asia

China stocks rebounded in afternoon trading to close higher on Tuesday, as hopes of easing in COVID-19 curbs in some pilot areas lifted tourism and consumer goods sectors.

The blue-chip CSI300 index ended 2.0 per cent higher at 4179.97, while the Shanghai Composite Index gained 1.5 per cent to 3213.33 points.

The Hang Seng Index rose 0.5 per cent to 21,319.13, while the China Enterprises Index gained 0.8 per cent, to 7264.43 points.

Tourism stocks surged 8.4 per cent, transport firms soared 5.1 per cent, while consumer staples added 3.9 per cent.

An unverified document about picking pilot regions, including Shanghai, for relaxed quarantine requirements is circulating and traders say it pushed up related sectors.

Currencies

Bitcoin briefly topped $US40,000 overnight, while day-trader favorite Shiba Inu surged more than 20 per cent.

Shiba Inu and three other tokens — Solana’s SOL, Polygon’s Matic and Compound’s COMP — were all listed for the first time on Robinhood Markets Inc.’s platform. Shiba, which trades at a fraction of one US cent, was the biggest gainer of the four, which all climbed in price.

Bitcoin and the broader crypto market have struggled in recent weeks as the Federal Reserve began hiking rates to combat stubbornly high inflation and geopolitical turmoil hurt risk appetite.

Bitcoin “is still consolidating in a triangle pattern stretching back to mid-January”, said Jeffrey Halley, senior market analyst at Oanda. “The lower and upper boundaries today are $US36,500 and $US47,500,” he said, implying that bitcoin was well within its range.

Noelle Acheson, head of market insights at Genesis Global Trading, says there are two big narratives at play for bitcoin: one is that the coin is a risk asset and it’s going to move in tandem with other riskier assets. She points to its correlation with a basket of non-profitable tech companies — a 90-day reading shows the highest correlation on record.

Another narrative is that long-term investors are accumulating bitcoin because they don’t see it as a high-volatility play — instead, they view it as a store of value or an inflation hedge.

“With so much accumulation and with more and more bitcoin being held in illiquid or longer-term addresses, whichever definition you wish to choose, there’s less available for the macro investors or for the new market participants,” she said by phone.

“Anyone new coming in has to source the bitcoin from an ever-dwindling stockpile of liquid bitcoin — in other words, those that are moved around by traders, which is what’s keeping the volatility relatively high.”

Commodities

IEA on the oil price outlook: “We expect the Brent price will average $US108 a barrel in the second quarter of 2022 and $US102/b in the second half of 2022. We expect the average price to fall to $US93/b in 2023. However, this price forecast is highly uncertain.

“Actual price outcomes will depend on the degree to which existing sanctions imposed on Russia, any potential future sanctions, and independent corporate actions affect Russia’s oil production or the sale of Russia’s oil in the global market.

“In addition, the degree to which other oil producers respond to current oil prices, as well as the effects macroeconomic developments might have on global oil demand, will be important for oil price formation in the coming months.”

**

Zinc prices climbed to their highest in more than a week as dwindling inventories and shortages, particularly in Europe where record-high power prices have led to large output cuts, spurred buying.

Benchmark zinc on the London Metal Exchange was up 2.6 per cent at $US4400 a tonne at 1615 GMT from an earlier $US4405.50, the highest since April 4. Prices of the metal, used to galvanize steel, hit a record high of $ US4896 a ton last month.

“There are serious shortages of zinc in Europe, this will remain the case as long as power prices remain high,” a zinc trader said. “Deficits mean consumers have had to turn to inventories, which are falling rapidly.”

Before power prices started rising last year, and energy accounted for about 40 per cent-50 per cent of zinc production costs in Europe.

Zinc stocks in LME registered warehouses at 120,825 tonnes are at their lowest since June 2020 and down more than 40 per cent since December.

Australian share market

Tech shares feel bond pain, pushing ASX to 0.4pc loss: There was no respite for technology and biotech stocks on the ASX on Tuesday after the Nasdaq fell 2.2 per cent on Wall Street, tipping Australian shares to a loss of 0.4 per cent.

How the ‘core-satellite’ approach can help handle market volatility: A well-diversified core and satellite portfolio, aligned to your risk appetite, can help you diversify.

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