Wall St stocks ended lower for a second straight session yesterday, ahead of the Federal Reserve’s policy update which is due Wednesday afternoon (US time).
Selling was sparked by inflation fears as the US government released data confirming rising wholesale prices. The producer-price index rose 0.8% in November, above the 0.5% advance forecast by economists polled by The Wall Street Journal.
This was an annual increase of 9.6%. The cause of the sharp rise is supply constraints and the problem is no one knows when they will ease.
Wall Street’s performance will once again impact the ASX which is likely to open lower.
ASX SPI 200 futures were 0.4% lower to 7351 as of 8.10am AEDT.
Here’s what we saw:
- USD was down 0.4% to 71.04 US cents.
- Spot gold was down 0.8% to $US1772.19/ounce.
- Brent crude lost 1.9% to $US72.99 a barrel.
- US oil fell 1.9% to $US69.95 a barrel.
- Iron ore dropped 2% to $US111.90 a tonne.
- 2-year yield: US 0.65% Australia 0.59%.
- 5-year yield: US 1.23% Australia 1.24%.
- 10-year yield: US 1.44% Australia 1.53% Germany -0.37%.
Australian markets
Market news
Vifor Pharma shares surged for the second day in a row yesterday following confirmation that CSL would acquire the Swiss company for $16.4 billion.
Vifor Pharma soared 12.62% to 158.00 CHF ($240.68). It is now 30% higher since the start of the week, with the share price close to par with the $US179.25 ($252.29) CSL will pay per share.
Wesfarmers is blocking Woolworth’s $870 million bid for Priceline owner API. Wesfarmers currently has a 19.3% stake in API and has made it clear it will not accept any takeover bid from Woolworths.
The company said: "Wesfarmers would vote its existing shareholding and any other API shares that it may acquire against any scheme of arrangement pursuant to which Woolworths would acquire API."
Wesfarmers wants API for itself and sees this as in the best interest of shareholders as well as community pharmacists and Priceline franchisees.
Wesfarmers has the right to match any proposal for the purchase of API.
Woolworths made a move last Thursday for a $1.75 per share indicative bid – higher than Wesfarmers’ $1.55 per share deal made in July.
Wesfarmers continues to develop its takeover bid.
"We have met with and listened to representatives from across the sector and we’re confident our proposal supports community pharmacists and their businesses, for the long-term," Wesfarmers managing director Rob Scott said.
"Pharmacists face various competitive pressures and Wesfarmers is uniquely placed to support the growth of community pharmacies including Priceline franchisees."
Evolution Mining Ltd (ASX:EVN) has sold its Mt Carlton gold mine to Navarre Minerals Ltd (ASX:NML) for $40 million, comprising $26.8 million in cash and 176,565,396 Navarre shares.
This is a 12.9% share in Navarre.
The agreement includes up to $25 million payable on cumulative gold production milestones from Crush Creek.
A further $25 million will be exchanged in the form of a 5% gold price linked royalty payable from 2023 up to 15 years should the average spot gold price be greater than $2250/ounce in a given quarter.
General news
NAB released its business confidence report yesterday.
CreditorWatch chief economist Harley Dale had this to say, “One might be forgiven for thinking that the result for the November NAB Business Confidence Index is a tad disappointing. That would be overstating the result. The update shows that business confidence remains well above the long-term average and aggregate business conditions improved again.
“Conditions strengthened noticeably in the retail and transport sectors in November. This is consistent with CreditorWatch data which has already noted that the retail sector – much-maligned throughout extended lockdowns – is bouncing back. Related sectors such as food and beverages are getting back into the groove but are still high in terms of payment arrears. It will take time for those who survived to revive balance sheets, customers and a COVID-normal trading environment.
“We have a balance here. An economic recovery is underway, but while some industries and geographical jurisdictions will blossom heading into 2022, some will falter or go backwards before lifting later next year.
“The outcome reflects the November results for the CreditorWatch Business Risk Index, which highlighted that Australia’s economic recovery will take time, patience and won’t happen all at once. There will be larger than normal industry discrepancies, however, it is very encouraging that Australia is firmly heading in the right direction.”
US markets
All eyes are on the Federal Reserve, which has kicked off its two-day meeting.
The focus is on preventing higher inflation from becoming entrenched.
The Wall Street Journal believes the Fed’s postmeeting statement, which would generally indicate future policy, could be overhauled by the end of the meeting on Wednesday.
Omicron's rise could have an impact on policy and investors are anxiously waiting to see what this impact may be.
Investors are also waiting for any indication on how quickly interest rates will rise, with experts flagging at least two rises next year.
On the good news front, the US government will invest nearly $US9 billion to increase lending to racial minorities and poorer individuals.
"We know that the communities hurt most by Covid-19 have often been communities of colour, and Treasury has implemented relief legislation with equity in mind," Treasury Secretary Janet Yellen said in a statement.
The funding was announced by Yellen and US Vice President Kamala Harris and will be allocated through the Emergency Capital Investment Program.
A total of $US8.7 billion will be invested, of which $US3.1 billion will go to institutions controlled by minorities.
"In America today, deep racial disparities continue to hold people back from achieving all they can," Harris said.
"When every community reaches its full potential, so, too, does America," Harris said.
Pfizer rising
The latest trial results of Pfizer’s antiviral drug paxlovid shows it cuts the risk of death and hospitalisation by up to 89% in high-risk COVID-19 patients.
The risk of hospitalisation and death for standard-risk patients has also been cut by 70%.
This news pushed Pfizer shares up 0.4% to $US55.48 shortly before close.
European markets
European shares were also down, losing early gains and ending lower for a fifth straight session.
The markets were weighed down by tech stocks.
Tech stocks lost 2.1%, tracking US peers.
Healthcare slipped 1.2%.
Meanwhile, the International Monetary Fund has urged the Bank of England to avoid an “inaction bias” when it comes to raising interest rates as it forecast higher inflation.
In Germany, the Ifo institute slashed the country’s GDP growth forecast for 2022. IFO reported that a fourth COVID-19 wave and supply bottlenecks are slowing down Europe’s largest economy.