A weak start to trading is expected today, with SPI Futures pointing to a 0.6% decline at open.
That is despite Wall St stocks mostly closing higher on Friday: investor focus was on the quarterly results of large-capitalisation companies, which eased concerns over the Federal Reserve’s response to a much stronger-than-expected January jobs report.
Wages grew at the sharpest pace since May 2020 in the US.
This led markets to almost fully price in a 0.5% rate rise in March.
Economists have also indicated that US consumer price index (CPI) inflation rose by 7.3% year-on-year in January, its biggest increase since February 1982.
The Commonwealth Bank of Australia has flagged a 0.5% increase for both headline and core CPI.
“Omicron-related disruptions are prolonging supply side constraints and underpinning already high inflation,” CBA senior economist Belinda Allen said.
Here’s what we saw (source Commsec):
- The Aussie dollar fell from near US71.50 cents to US70.50 cents and was near US70.75 cents at US close.
- Global oil prices were close to 2.3% on Friday to 7-year highs, supported by ongoing supply concerns, frigid weather in the US and Ukraine-Russia tensions.
- The Brent crude price was US$2.16 or 2.4% higher to US$93.27 a barrel.
- The US Nymex crude price lifted by US$2.04 or 2.3% to US$92.31 a barrel.
- Crude prices rose for the seventh straight week with Brent crude up by US$3.24 or 3.6% while Nymex was up US$5.49 or 6.3%. “Those price rises should support the energy sector,” CommSec chief economist Craig James said. “We also saw the gold price up a smidgen as well, and iron ore producers should get a degree of support from the iron ore price rising to $US146.60 a tonne.”
- Base metal prices were firmer on Friday with aluminium and nickel up the most, lifting 0.7%.
- Lead fell 0.3%.
- Over the week metals were mixed with aluminium, zinc and lead lower, the latter down by 3.6%. Other metals rose with nickel up 2.7%.
- The gold futures price rose by US$3.70 or 0.2% to US$1,807.80 an ounce.
- Spot gold was trading near US$1,807 an ounce at US close.
- Over the week gold rose by US$21.20 or 1.2%.
- Iron ore rose by US65 cents or 0.4% to US$146.60 a tonne. Over the week iron ore fell by US$1.30 or 0.9%.
Australian markets
The ASX will ride the ebbs and flows of the current market volatility and is likely to start the week in the red.
However, energy and materials stocks are set to defy the odds.
“There’s enough in terms of what’s happened in the commodities markets to be able to support the energy and materials sectors,” James said.
“But there will also be some caution moving into the week and some fairly volatile times ahead as investors sort out in their own minds what’s going to happen with interest rates and just how aggressive the Reserve Bank will be.”
As for what to expect, James says Financials could get a boost from the rate outlook, while the technology sector will again come under pressure.
Investors will likely assess who the winner will be post COVID and in a higher interest rate environment and tech looks to be one of the most vulnerable sectors. Its volatility have been highlighted by the dumping of Meta stocks and the sharp movements up and down of Amazon, which fell 8% on Thursday before gaining 13% on Friday.
“It’s stupid moves really. There’s a lot of the seasoned veterans looking at the markets and rubbing their eyes. It just doesn’t make sense to be moving so much one day and then back the other direction the next day,” James said.
Retail trade data and job ads figures are due on Monday, which could also impact the market.
US markets
US markets finished mixed on Friday.
Shares in Amazon rebounded by 13.5% in response to its earnings result after falling by 7.8% the previous day.
At the close, the Dow Jones index was down by 21 points or 0.1%. But the S&P 500 index rose by 0.5%. And the Nasdaq index rose by 219 points or 1.6%. Over the week the Dow rose 1.0% with the S&P 500 up 1.6% and the Nasdaq up 2.4%.
Declines in UnitedHealth Group Inc. Home Depot and 3M Co. dragged down the Dow and overshadowed big gains in Goldman Sachs Group Inc. and salesforce.com. For the week, the Dow rose 1.1%.
The S&P 500 index rose 23 points, or 0.5%, to end at around 4,500, helped higher by consumer discretionary, up 3.7%, with Amazon.com Inc. serving as the sector’s biggest constituent. Some $11.8 billion of the $14.3 billion fourth-quarter profit Amazon reported was from its investment in Rivian Automotive, which went public in the quarter. The S&P 500 advanced 1.6% for the week.
The Nasdaq Composite Index was 1.6% higher to 14,098. It climbed 2.4% for the week.
Last week was the second straight weekly climb for the three major stock gauges and came as the US government reported that the economy added 467,000 jobs in January and hiring was much stronger at the end of 2021 than originally estimated.
The unemployment rate ticked up to 4% from 3.9%, while the percentage of people in the labor force ticked up to a pandemic high of 62.2%.
“Without a doubt, that jobs number makes it very clear a March rate hike is locked in and the wages data confirms that,” executive director and head of research at K2 Asset Management (ASX:KAM) George Boubouras said.
“For all earnings results going forward, the bar is raised because the risk-free rate is higher.”
Alphabet stock split
As we do each Monday, we ask Wealth Within founder and chief analyst Dale Gillham on his stake on a major development and this week he is focused on Alphabet’s stock split.
“Tech sectors around the world have been in the news of late, as the stock price of many major technology companies have been falling. The big news last week is that Google’s parent company, Alphabet, announced a 20 for 1 stock split, as they wanted to make the share price more affordable to the masses.
“On the surface this may appear as though Google is being nice to retail investors but don’t be fooled. If you own XYZ Company and the stock is trading at $10 and it does a 4 for 1 split, then you have four shares at $2.50, which means the value you own remains the same, as you still own $10 worth of shares.
"What Alphabet are betting on, however, is that retail investors mistakenly look at the stock’s price and think it’s cheap given that it is currently trading around $2,861 per share (as of writing) and, therefore, buy it to take the price higher.
“This is because following the 20 for 1 stock split each Alphabet share will be worth around $143, although, once again, the value to the shareholder remains the same, they now just own more shares.
"Interestingly, only about eight trading days ago Alphabet was trading down over 15% from its high on November 19, 2021, but following the announcement it quickly reversed and traded back above the high. So, in essence, Alphabet achieved exactly what it wanted, a higher stock price.
“It is common for investors to only look at the price of a share to determine if it is cheap or expensive, which is a flawed approach but it does explain why so many speculate on penny stocks only to lose.
“The fact is that when the stock split on Alphabet occurs, the value of the shares will remain the same as they did the day prior. To really assess the value of a stock, you need to look at what the company is worth and then compare it to the current share price because a $0.10 cent stock is very expensive if it is only worth $0.01 and a $100 stock is very cheap if it is worth $200.”
European markets
Were weaker on Friday.
Refinitiv reported "automobile stocks hit a one-month low (down 3.2%) on the prospect of tougher emissions tests, while a hawkish shift from the European Central Bank continued to rattle markets."
Reuters reported the European Union plans to toughen its method for measuring carbon dioxide emissions from plug-in hybrid cars, in a move would mean automakers will be required to sell more battery-operated vehicles to meet emissions targets.
The pan-European STOXX 600 index fell by 1.4% to be down 0.7% over the week. The German Dax index fell by 1.8% and the UK FTSE index lost 0.2%. In London trade, shares in Rio Tinto fell 0.1% while BHP rose by 0.2%.