It is likely to be a down day for the ASX today, with index futures suggesting a 40-point drop.
Stock indices were generally weaker across the board yesterday, with the Hang Seng suffering the biggest fall. US markets were brought down by commodity prices, the decline of which offset gains in tech.
Here’s what we saw:
- The Aussie dollar lifted from lows near US74.88 cents to highs near US75.34 cents and was near US75.20 cents at the US close.
- Global oil prices slid over 2% on Wednesday. Commsec reports that Iran and the EU have agreed to restart negotiations on a revival of the 2015 nuclear accord, potentially increasing Iranian supply.
- US crude oil inventories rose by 4.3 million barrels last week. This was above expectations for a 1.9 million barrel gain.
- The Brent crude price fell by US$1.82 or 2.1% to US$84.58 a barrel.
- The US Nymex crude price lost US$1.99 or 2.4% to US$82.66 a barrel.
- Base metal prices fell as China stepped up measures to ease a power crisis hampering economic growth and disrupting metals supply.
- Tin fell 5.5%.
- Aluminium fell 5.4%.
- Nickel fell 3.4%.
- Copper fell 2.9%.
- The gold futures price rose by US$5.40 or 0.3% to U$1,798.80 an ounce.
- Spot gold was trading near US$1,797 an ounce at the US close.
- Iron ore slid US$3.10 or 2.5% to US$119.65 a tonne on expectations that falling Chinese steel mill output will cap gains.
Australian markets
The S&P/ASX 200 closed slightly higher at 7,448.7 yesterday, despite an early setback from higher-than-expected inflation. However, it is expected to dip this morning.
Inflation discussion continues to dominate, with some in the market calling on the Reserve Bank of Australia to move on interest rates two years earlier than touted.
The September quarter inflation report was released yesterday, causing some gyrations in the market while the consumer price index rose 0.8% during the quarter for a 3% year-on-year gain.
The trimmed mean, which is the measure watched by the RBA, rose 0.7% for a 2.1% year-on-year gain. This brought the measure into the bank’s target band of 2% to 3% for the first time since the September quarter of 2015.
This is a level it hadn’t predicted to reach until 2024, but that has been fuelled by fuel and housing costs.
The attainment of the 2% to 3% target has led to calls for an interest rate hike.
RBA will meet on Tuesday to discuss rates but will need more data before it makes any calls on an interest rate hike.
Citi has been watching events closely. It has now revised up its inflation and RBA tightening forecasts.
"Fiscal stimulus, built-up savings, low interest rates and a strong demand for housing is leading to an increase in discretionary demand for durable goods," Citi Australia chief economist Josh Williamson said.
"Moreover, the supply issues that have plagued these goods are unlikely to be resolved until early-mid next year."
Williamson predicts underlying inflation will rise to 2.4% in 2022 from the previous forecast of 1.9% around the middle of the RBA's 2-3% target band by early 2023.
Citi expects the timing of the first rate hike to be brought forward from Q323 to Q123.
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Australian indices
- ASX 200 rose 0.071% to 7,448.70.
- ASX24 futures fell 0.5% to at 7,380.
- S&P/ASX Small Ordinaries fell 0.47% to 3,551.20.
- All Ordinaries fell 0.017%% to 7,758.00.
US markets
Quarterlies continue to have an impact, although the Dow and S&P 500 closed lower yesterday, ending a string of gains for the equity benchmarks.
Those gains have been on the back of upbeat quarterlies, but there are some companies doing it tough.
One of which is Boeing.
“The world’s largest aerospace company and leading manufacturer of commercial jetliners, defence, space and security systems, Boeing, announced its Q3 earnings of US$-0.60 per share on revenue of US$15.28 billion, compared to analyst expectations of US$-0.15 per share on revenue of US$16.52 billion,” eToro analyst Josh Gilbert says.
“As one of the many companies impacted by the global supply chain disruptions, Boeing has experienced significant delivery and production delays across its business. In turn, this has subsequently affected its top and bottom lines, with Q3 earnings missing the mark. The company’s revenues increased by only 8% year-over-year.
“Unfortunately for Boeing, these aforementioned issues are also causing substantial cash burn. The company is currently hoarding billions of dollars worth of planes and its free cash flow is still negative at US$-507 million. However, this is a huge improvement from Q3 2020 where cash flow sat at US$-5.08 billion.
“While deliveries on the defence, space and security front dropped from 42 in Q2 2021 to 37 in Q3 2021, Boeing has experienced an increase in demand for its commercial aircraft. Deliveries of Boeing’s commercial jets increased to 85 in Q3 2021 from 79 in Q2 2021.
“According to the company’s future guidance, it’s confident that long-haul travel will soon show signs of recovery. Boeing also anticipates the commercial aerospace industry to be supply-constrained until 2023. However, until Boeing manages to deliver the backlog of 787 jets that were produced while planes were grounded, its earnings are unlikely to improve.
“The global travel rebound has begun, although it's expected to potentially backpedal as interest in leisure travel generally fades in the winter months across Europe and the US. As a result, airline capacity is estimated to continue to remain lower than pre-pandemic levels well into Q4.
"Ultimately, this doesn’t paint a bright short-term picture for Boeing, particularly as competition intensifies from Airbus, who have delivered more commercial planes in 2021 so far."
Apple affected companies have mixed performance
Apple Inc (NASDAQ:AAPL).’s privacy-related changes to its mobile operating system continue to bite some, while others are powering along.
Those most affected are Snap, Facebook, Google and Twitter – but all in different ways.
Alphabet Inc (NASDAQ:GOOG). is so far winning the war, however, Snap Inc (NYSE:SNAP). is falling, down over 6%
The new settings allow mobile phone users to opt out of third-party tracking and marketing that helps advertisers target their markets.
Alphabet shares were up 5.8% yesterday, the best single-day performance since February. There was a slight impact to its YouTube business, but overall Alphabet is tracking well.
Twitter saw a 9.9% stock sell-off on Wednesday following its quarterly report.
This is only in part due to Apple’s changes as it tries to grow its direct response ad exposure. The bigger issue for Twitter is its user growth in the US.
“Despite a limited impact from iOS, we believe as DR becomes a bigger part of ad revenues, Twitter would need to develop workaround solutions due to the variability of iOS reporting,” wrote Mizuho analyst James Lee.
In other news, shares of Microsoft were up 4.2% - a record high after earnings beat analysts' estimates. McDonald's was up 2.7% and Coca-Cola was up 1.9%.
General Motors shares fell 5.4%, despite topping Wall Street's earnings and revenue estimates. Visa (NYSE:V) fell 6.9%, Texas Instruments fell 5.1% and Robinhood was down 10.4%.
US indices
- Dow Jones fell 0.7% to 35,490.69.
- S&P 500 fell 0.5% to 4,551.68.
- Nasdaq was flat at 15,2235.84.
European markets
European markets were down.
The German Dax was down as Deutsche Bank fell 6.9% after reporting a fall in revenues at its investment banking unit.
The UK FTSE index also fell after UK Finance Minister Rishi Sunak delivered his half-yearly budget update.
In London trade shares in Rio Tinto fell by 1.4% and BHP shares dropped 1.3%.
European indices
- STOXX 600 fell 0.36% to 474.04.
- German Dax fell 0.3% to 15,705.81.
- UK FTSE fell 0.3% to 7,253.27.