All three major Wall Street indices advanced in trading yesterday, led by energy and information technology.
The ASX is set to follow suit, despite falling for the second straight session on Tuesday.
Fears over US tapering measures have now subsided, bringing some normalcy back to trading.
“Wall Street now has a better understanding on how the Fed will normalise policy and with the balance runoff likely taking up to four meetings. After Powell’s testimony, some investors feel they got the all-clear signal to buy the dip,” Oanda’s Edward Moya said.
Meanwhile, commodity markets performed well as concerns over tighter supplies surface, along with a Northern Hemisphere freeze and geopolitical tensions.
Brent Crude Oil (LSE:BRENT) was up 3.5% to $US83.67 a barrel as investors weighed supply risks against the limited demand impact from Omicron. OPEC’s struggle to deliver a monthly production increase of 400,000 barrels per day is supporting prices.
Iron ore futures also climbed. Iron ore was 2.8% higher with flooding in Brazil disrupting supply.
Major producer Vale was forced to suspend production at its Minas Gerais operations: the region produces approximately 40% of the company’s iron ore output.
Nickel prices hit a seven-year high of $US21,400 a tonne.
“Stronger electronic vehicle sales and restocking demand from auto manufacturers triggered fresh buying in nickel and other battery materials,” ANZ said.
Here’s what we saw:
- The Aussie dollar lifted from lows near US71.55 cents to highs near US72.13 cents was near US72.10 cents at the US close.
- Global oil prices climbed more than 3% with the Omicron variant not expected to derail a global demand recovery.
- The Brent crude price rose by US$2.85 or 3.5% to US$83.72 a barrel.
- The US Nymex crude price added US$2.99 or 3.8% to US$81.22 a barrel.
- Nickel rallied by 5.1% to the highest level in more than seven years: Tesla has moved to secure future supplies of the battery metal from Talon Metals.
- The gold futures price rose by US$19.70 or 1.1% to US$1,818.50 an ounce.
- Spot gold was trading near US$1,822 an ounce at the US close.
- Iron ore lifted by US$3.15 or 2.5% to US$128.60 a tonne after producer Vale halted production due to heavy rainfall in Brazil.
Australian markets
The Bank of Spain (BoS) has now approved Block’s acquisition of Afterpay Ltd (ASX:APT).
Macquarie analysts believe the full approval presents a short-term opportunity for Afterpay shareholders.
“Since announcement of the proposed acquisition, Afterpay shares have been trading largely in line with Square’s (Block), since the beginning of 2022, however, the discount gap has widened, in our view reflecting potential risk that the deal would not go ahead due to delays from BoS approval,” Macquarie analyst Wei Sim said.
“This has created a short-term opportunity for Afterpay shareholders as the gap between the two should now close as all regulatory approvals have been received.”
Macquarie notes that Afterpay’s share price should now trade in line with Block’s, which it feels remains undervalued and has retained its “outperform” rating on Afterpay with a price target of $160.
“APT’s share price should trade in line with SQ going forward and whilst the story is a bit more complicated now vs when the proposed acquisition was initially announced in terms of the BNPL operating environment, the potential impact to Cash App from waning government payments, and tech multiples coming in on higher rate expectations, SQ shares are still quite undervalued in our view.”
The acquisition can now proceed without the need for further shareholder or court approval.
“Afterpay, its leadership and team have shown that groundbreaking fintech innovation built in Australia can reach global proportions,” Afterpay’s chair Elana Rubin said of this final hurdle.
“The team are incredibly excited at the prospect of beginning an extraordinary next phase with Block, Inc. and look forward to implementation on February 1, 2022.”
Afterpay shares will be suspended from trading on the ASX from January 19 and Block CDIs will begin trading on the ASX under the symbol ‘SQ2’ on January 20.
Sell Fortescue says Citi
Citi analyst Paul McTaggart has cut Fortescue Metals Group (ASX:FMG) Ltd to Sell.
"While iron ore prices have surprised to the upside and dividend yields for the iron ore names remain robust, there’s now a large valuation gap between Fortescue and peers," McTaggart said.
"We don’t believe it possible for FFI (Fortescue Future Industries) to bridge the valuation gap – the math is just too demanding.”
Fortescue has seen a strong rise in its share price relative to iron ore prices in recent months.
FMG shares have risen more than 50% in the past two months, compared with the iron ore price rising about 30% in the same period.
US markets
All the talk has been around inflation and interest rates, but US Federal Reserve chairman Jerome Powell has indicated the central bank is ready to increase rates to keep inflation in check.
Speaking to the Senate confirmation hearing for a second term as Fed chairman, Powell said the "the economy no longer needs or wants the very highly accommodative policy" which has been the basis for ultra-low interest rates.
Powell said that normal monetary policy should now not harm employment and that while Omicron may play on nerves, traders are coming to terms with the end of cheap cash, which has helped global economic recovery.
"What we are seeing is an economy that functions through these waves of COVID," Powell said.
Data out today is expected to show US annual consumer price inflation hitting 7% in December, its highest level in 40 years.
However, other factors are at play.
“We have very strong demand in areas where supply is constrained, particularly around goods, particularly around things like cars,” Powell said, adding the central bank expects a “return to normal supply conditions” in the coming months.
But “if we see inflation persisting at high levels longer than expected… we will use our tools to get inflation back.”
In other news
Ken Griffin led Citadel Securities is now valued at $US22 billion after venture capital firm Sequoia Capital and crypto-focused investment company Paradigm made a $US1.15 billion minority investment in it.
Tesla sold 70,847 China-made vehicles in December. This is the highest monthly number since manufacturing began in Shanghai in 2019.
Shares of mega cap growth company Apple was 1.7% higher and Amazon was up 2.4% leading overall gains.
Genomic sequencing company Illumina (NASDAQ:ILMN)'s shares rallied 17% after it issued an upbeat revenue forecast.
Moderna shares fell 5.3% after the WHO said more research was needed on vaccine efficacy against the Omicron variant.
At the close of trade, the Dow Jones index rose by 183 points or 0.5% after being down 299 points at session lows. The S&P 500 index lifted 0.9% and the Nasdaq index added 211 points or 1.4%
European markets
Investors look to be moving back into tech stocks based on upbeat expectations for fourth-quarter earnings.
The tech rally led a European stocks recovery on Tuesday after fears of rising rates drove heavy losses in recent sessions.
The pan-European STOXX 600 closed 0.8% higher, recovering from its worst day in 1-1/2 months.
Technology stocks added 1.9% after tumbling nearly 8% over the past seven sessions.
“The market is grappling with a broad-based rotation and the potential for a hastened pace of rate hikes, which is leading to volatility,” UBS Private Wealth Management managing director, Greg Marcus said.
Germany’s Delivery Hero (ETR:DHER, OTCQX:DLVHF) jumped 5%, noting its food delivery business is expected to break even during the second half of 2022 on demand that has soared since the pandemic began.
“Regardless of the volatility seen in markets so far this year, corporate fundamentals are strong and we are expecting double-digit earnings growth this year, which should bode well for stock prices in 2022,” Marcus said.
Profit for companies listed on the STOXX 600 is expected to jump 49.3% in the fourth quarter to €109.1 billion from a year earlier, Refinitiv data showed.
The German Dax index added 1.1% and the UK FTSE index gained 0.6%.
In UK trade, shares in Rio Tinto (+1.9%) and BHP (+0.6%) both lifted.