Wall St bounced back yesterday and the ASX defied the odds to finish higher, which all points to another good day on the local market today.
ASX futures were up 5 points or 0.1% to 7,266.
Investors seem to have recovered their risk appetite, but who knows how long that will last.
All indices in the US were higher, arresting a three-day slide.
It is likely investors saw President Joe Biden’s announcement that it would shun lockdowns as a positive sign, despite the rise of Omicron cases.
“Omicron is the single most important driver of markets at the moment, but just as Omicron has surged dramatically, we expect it to exit as swiftly,” wrote Thomas Lee, managing partner at Fundstrat Global Advisors.
National Securities chief market strategist Art Hogan agrees with the sentiment.
“The Omicron’s potential damage to economic activity will be reasonably short and shallow. With household and corporate balance sheets in good shape and sentiment still strong, we think it’s reasonable to expect that the economy will manage to navigate the rough waters.”
NAB economists wrote, “Omicron news [is] lifting sentiment, encouraging markets to price a less malicious outcome from the new virus wave.
“Omicron is and will continue to have an impact on the global economy, but now there is prospect that its impact could be shorter and shallower, favouring a positive outlook for 2022 with consumers and corporates well placed to support the economy next year, amid high levels of savings and employment.”
Focusing on the US and its recovery, the Senate will also vote on Biden’s Build Back Better economic plan in January despite Democratic Senator Joe Manchin’s opposition to it.
Manchin and Biden spoke on Sunday leaving the door open to negotiations.
“What we’re seeing today is a little bit of a buy-the-dip trend,” Wedbush Securities head of equity trading Sahak Manuelian told MarketWatch.
“This long-term bullish uptrend is still very much intact, but momentum is starting to wane in the near term,” he said.
Manuelian did say trading conditions “should get tougher and tougher going into next year.”
Here’s what we saw:
- The Aussie dollar lifted from lows near US71.09 cents to highs near US71.55 cents and was near the highs at the US close.
- Global oil prices rebounded as investors assessed the outlook for demand in relation to the spread of the Omicron variant.
- The Brent crude price rose by US$2.46 or 3.4% to US$73.98 a barrel.
- The US Nymex crude price added US$2.51 or 3.7% to US$71.12 a barrel.
- Base metal prices climbed on Tuesday as, according to Commsec, “investors prepared for further monetary easing in China that could boost demand in the world's top commodities consumer”.
- Aluminium gained 3.3%.
- The gold futures price fell by US$5.90 or 0.3% to US$1,788.70 an ounce.
- Spot gold was trading near US$1,788 an ounce at the US close.
- Iron ore lifted US60 cents or 0.5% to US$123.80 a tonne as moves in China to support its embattled real estate sector bolstered the demand outlook with steel mills expected to increase production.
Australian markets
The ASX was lifted by banks and materials stocks yesterday, offsetting a dive in lithium. Airlines rallied, with state governments not yet talking about border closures and lockdowns.
Qantas Airways (ASX:QAN) was 0.8% higher to $4.82, Flight Centre Travel Group rose 3.9% to $17.10, Helloworld Travel rose 2.6% to $2.33, Webjet soared 3.2% to $5.20 and Corporate Travel Management gained 0.3% to $20.97.
Marley Spoon gobbles up Chefgood
All eyes were on Marley Spoon yesterday.
The meal kit delivery provider is the second largest in the country and yesterday acquired Chefgood for $21 million.
“The acquisition would give Marley Spoon a foothold in a growing and complementary category and will allow the company to leverage its operational, digital and customer assets, providing synergies for both companies,” the company said.
This payout will be made in three tranches to May 2023 and includes additional earn-outs of up to $5.6 million over the next two and half years based on achievement of revenue targets.
The acquisition should be finalised in January and is likely to be funded by an $8 million equity placement with a long term European investor.
Chefgood joins a long list of companies in Marley Spoon’s growing portfolio including Martha Stewart & Marley Spoon, Marley Spoon and Dinnerly.
The company expects to integrate into more customer segments and meal occasions and increase its addressable market through astute acquisitions.
“We are very excited to be partnering with Michelle and the Chefgood team since we share the same vision of making our customers’ lives easier with easy, tasty and high-quality meal solutions,” Australia managing director Rolf Weber said.
The market was happy with the news with the company starting the day at 68 cents and finishing at 84 cents, an increase of 23.5%.
Rio to acquire Rincon
Mining giant Rio Tinto will acquire the Rincon lithium project in Argentina from Rincon Mining for $825 million.
The companies have entered a binding agreement for the sale of the asset as Rio looks to build its battery materials business and strengthen its portfolio for the global energy transition.
“This acquisition is strongly aligned with our strategy to prioritise growth capital in commodities that support decarbonisation and to continue to deliver attractive returns to shareholders,” Rio chief executive Jakob Stausholm said.
Rincon is a large undeveloped lithium brine project in Argentina. The project is in the heart of the famed Lithium Triangle in the Salta Province.
According to Rio, it is a long life, scaleable resource capable of producing battery-grade lithium carbonate.
Woolworths makes assurances to Pharmacy Guild
Woolworth CEO Brad Banducci has made his own appeal to pharmacists after Wesfarmers stirred the pot earlier this week.
Banducci has assured pharmacists that Woolworths is not out to disrupt the market. He penned an open letter to calm their anxiety.
“We are not here to disrupt the sector. We are here to help strengthen it. We strongly believe that a strong local community pharmacy health model is key to the health and wellbeing of our local communities and our nation overall.
“Through our proposal to acquire API, we are committed to helping those in the sector successfully operate their independently-owned businesses.
“Our investment revolves around bringing a set of capabilities we believe can help strengthen the existing vital role you play in the community for the benefit of both patients and customers.
“As I have communicated to both the leadership of your industry bodies and to Federal and State political stakeholders, Woolworths Group fully supports the existing community pharmacy model, including the long-established ownership and location rules.
“To allay any misplaced concerns, quite simply, you will not see pharmacies relocated into any of our supermarkets. The law does not allow it, and we have not in my time, and will not, advocate for any change to those laws.
“To the extent that our supermarkets and Big W stores participate in the health and beauty space (which is on a limited overlap basis, primarily in toiletries and personal care), we are very aware of the practical reality of the distinct shopping missions and fundamentally different customer experiences of pharmacy versus supermarket shopping.”
US markets
Wall St recovered from Monday’s battering with Nike and Micron leading the way following strong earnings.
Technology stocks also bounced back.
Nike gained 6.5%, leading the Dow and beating quarterly estimates for profit and revenue. It believes supply chain problems will not be an issue next year.
Micron Technology gained 9.9%, leading chipmakers, after it forecast upbeat second-quarter earnings.
Positive updates allayed supply chain fears.
Citrix Systems (NASDAQ:CTXS) shares soared 13.6% after Bloomberg reported that Elliott Investment Management and Vista Equity Partners are considering a joint bid for the software maker.
“We got oversold yesterday and we are bouncing back a little bit today. This market is more a dead cat bounce as opposed to this new bull market that is going to rage into 2022. There are just too many concerns,” Bright Trading proprietary trader Dennis Dick said.
Tesla, Microsoft, Apple, Amazon, and Alphabet all rose between 0.2% and 1.3% after falling sharply on Monday.
At the close of trade, the Dow Jones index rose by 561 points or 1.6%. The S&P 500 index lifted by 81 points or 1.8% with the Nasdaq index up by 360 points or 2.4%.
European markets
European equities also bounced back, recovering from their worst fall in three weeks.
Recovery in Europe was also based on optimism surrounding Omicron.
The Stoxx Europe 600 Index made its biggest gain in two weeks, with travel and leisure leading the way.
Energy and miners were also higher on the back of a commodity recovery, and as with the US, technology was boosted by Micron Technology’s upbeat forecast.
Caution will still be seen, especially with the rise in hospitalisations in London and Prime Minister Boris Johnson leaving the dooor open for tighter restrictions.
“Omicron is seen as causing a pause in the recovery but it’s clearer that the variant is more contagious but less lethal,” said Francisco Simon, head of discretionary tactical asset allocation for global multi-asset solutions at Santander Asset Management.
“Omicron and hawkishness are the main drivers of the market moves in this year-end.”
It is also unclear the effect Omicron will have on inflation.
“If there are further lockdowns and sharp restrictions on the economy, demand could decline and more likely could result in downward pressure on inflation,” European Central Bank Governing Council member Madis Muller said.
“On the other hand, if supply-chain problems, for instance, last longer due to omicron, there could be upward pressure on inflation.
“Today it’s hard to say which way it will go,” he said.
The pan-European STOXX 600 index added 1.4% with travel and leisure stocks up 3.5%. The German Dax and UK FTSE indexes also both lifted by 1.4%.