The ASX is set to open higher today with ASX Futures (SPI 200) implying the ASX 200 will open 22 points higher, up 0.31%.
A strong opening would mirror Wall Street’s finish after US stocks continued their rally. The Dow Jones index closed higher by 151 points or 0.5%. The S&P 500 index rose by 0.4% and the Nasdaq index lifted by 81 points or 0.6%.
However, analysts at Morgan Stanley (NYSE:MS) suggest the markets haven’t finished the bear run and the upward trend is likely to come to an abrupt halt.
"The message from us for the next several months remains: risk/reward is unattractive, and this bear market remains incomplete. What's likely to drive the next leg lower in stocks? We think the catalysts will end up centering around earnings disappointment," Morgan Stanley (NYSE:MS) said.
While the Wall St rally is influential, China too is having an influence on markets.
As we reported yesterday, China cut its one-year medium-term lending facility loans to some financial institutions by 10 bps from 2.85% to 2.75% and the people’s Bank of China drained liquidity from the local financial system.
“Trying to ease conditions for the desperate while recognising a dip in credit costs still won't generate demand from the masses," China Beige Book International said.
The slowing Chinese economy saw the oil price plummet.
It is also a good sign for the rest of the world, with some analysts predicting this to be the start of a slow down by other central banks.
"The risk of a global recession is pretty high at the moment,” FHN Financial’s Chris Low said.
Low added that the weakening outlook could have a silver lining in that the Federal Reserve could move more quickly to slow its efforts to raise interest rates to quell red-hot prices.
"The Fed will stop sooner if inflation goes away and it’s more likely to go away sooner with the global economy slowing," Low said.
Here’s what we saw (source Commsec):
- The Euro fell from highs near US$1.0255 to lows near US$1.0155 and was near US$1.0160 at the US close.
- The Aussie dollar fell from near US70.85 cents to US70.10 cents and was near US70.25 cents at the US close.
- The Japanese yen lifted from near 133.52 yen per US dollar to JPY132.56 but was back near JPY133.30 at the US close.
- Global oil prices fell by near 3% on Monday to six-month lows after Chinese economic data fell short of analyst forecasts. Investors fear that the global economy will continue to slow, reducing oil demand and driving prices lower.
- The Brent crude price fell by US$3.05 or 3.1% to US$95.10 a barrel.
- The US Nymex crude price lost US$2.68 or 2.9% to US$89.41 a barrel.
- Base metal prices fell by between 0.7-4.5% on Monday with lead down the least and nickel down the most.
- The gold futures price fell by US$17.40 an ounce or 1.0% to US$1,798.10 an ounce.
- Spot gold was trading near US$1,779 an ounce at the US close.
- Iron ore futures fell by US$3.07 or 2.8% to US$106.79 a tonne.
Will BHP drive ASX 200 higher today?
Following up on Tony Sycamore’s BHP Group Ltd (LSE:BHP, ASX:BHP) report, the company today announced it had booked a $US30.9 billion net profit for the financial year, up 173% from last year, boosted by a $US7.3 billion gain delivered through the merger of its oil and gas assets with Woodside.
The $US9.7 billion turnabout in the results from its Queensland coal operations is also a factor in the positive result.
BHP booked $US34.43 billion in underlying earnings before interest and tax for the year, 15% above last year’s restated mark of $US29.85 billion.
It wasn’t all good news, as iron ore profits fell along with pricing, with underlying EBITDA of $US21.79 billion, 17.7% below last year’s restated mark of $US26.27 billion.
However, the poor performance of iron ore was mitigated by the strong performance of coal, with coal earnings of $US9.5 billion – a $US9.8 billion turnaround in a year.
The company’s final dividend of $US3.25 beat analyst expectations of a total payout for the year of $US3.12 a share. BHP paid a record $US1.50 a share half-year dividend in March.
BHP CEO Mike Henry believes the strong results will continue and, again, China is in play.
“We expect China to emerge as a source of stability for commodity demand in the year ahead with policy support progressively taking hold,” Henry said in a statement.
“At the same time, we expect to see a slowdown in advanced economies as monetary policy tightens as well as ongoing geopolitical uncertainty and inflationary pressures.
“The direct and indirect impacts of Europe’s energy crisis are a particular point of concern.”
Josh Gilbert, market analyst at the social investing network eToro, called the results monstrous (in a good way).
“This was a pretty monstrous report from BHP as it set records across the board at a time when investors are looking for high-quality, income-paying stocks. The Australian mining company has just announced a record annual dividend of US$3.25 and topped earnings estimates.
“It’s already been a rewarding year for BHP investors who received the payout from the Woodside/BHP Petroleum merger on top of this record dividend as underlying profits climbed by 39% for the full year.
“The only downside for investors is that China’s industrial data from yesterday showed steelmakers have seen a drop in production of almost 6% from last year. BHP relies on iron ore demand from China. With production slowing down and the stockpiles of the commodity growing, the risk of a decline in the iron ore price might have a negative impact on BHP’s future outlook.
“For now, BHP’s financial flexibility remains strong, with record free cash flow of US$24.3 billion, leaving plenty of capital for debt paydown, acquisitions, such as Oz Minerals, or more dividends to keep investors happy.”
In Europe
European markets also closed higher.
Weak Chinese economic data saw investors drift to defensive stocks.
The food and beverages sector rose 1.1% and healthcare and utilities rose by 0.8%. Miners fell 1.6% and the oil sector lost 1.3%.
Data showed that German wholesale prices fell by 0.4% in July, the first decline since October 2020.
The pan-European STOXX 600 index rose by 0.3%. The German Dax index rose by 0.2% and the UK FTSE index rose by 0.1%.
In London trade, shares of Rio Tinto fell by 2.2% while BHP shares fell by 0.8%.