- The ASX 200 has fallen 0.5% to 6030 points, after big US indices fell 1.2%
- Falls for key resource stocks and Telstra weighing on the broader index
- The Australian dollar was trading this morning at around US77.91¢
- Retailer Harvey Norman sank 8% in early trade after a 19% fall in interim profit
Overnight and early trading
Major indices snapped their recent win streaks Tuesday, as Federal Reserve chairman Jerome Powell’s comments before Congress did little to assuage investors’ inflation fears.
In his first appearance on Capitol Hill since taking charge of the central bank, Mr Powell conveyed an upbeat picture of the US economy and indicated the Fed remained on track to gradually raise short-term interest rates.
Stocks, which had mostly bounced along the flatline early in the session, turned lower after Powell’s remarks, handing the Dow Jones Industrial Average
and the S&P 500
their first losses in four trading sessions.
Investors say they continue to worry that the economy could be growing so fast that it fuels inflation further, potentially forcing the Fed to step in and hasten its pace of interest-rate increases.
Those concerns already pressured markets earlier in February, when the Dow industrials and the S&P 500 tumbled into correction territory for the first time in two years.
The Dow Industrials fell 299 points, or 1.2%, to 25410, closing at session lows. The S&P 500 shed 1.3%, and the Nasdaq Composite declined 1.2%.
Government bonds also weakened, as the yield on the benchmark 10-year U.S. Treasury note rose to 2.910% from 2.862% on Monday. Yields climb as bond prices fall.
The AUD fell against the greenback and lost ground against most crosses. Photo: Shutterstock
While Powell maintained the Fed would keep to its plan of raising interest rates three times this year, his comments to lawmakers carried hawkish undertones.
Federal Funds futures, used by traders to place bets on the course of interest rates, recently showed a roughly 32% chance that the Fed would raise short-term interest rates at least four times by year-end, according to data from CME Group.
All 11 major S&P 500
sectors traded lower Tuesday, with consumer discretionary stocks shedding 2.1% and real-estate companies declining more than 2%.
Financial stocks were the relative bright spot early in Tuesday’s session, as rising bond yields helped push shares of those companies up. However, as markets fell later in the day, financial stocks turned lower.
Meanwhile, company earnings and actions contributed to some of the biggest individual stock moves.
Shares of Macy’s rose 3.5%, putting it among the S&P 500’s biggest gainers, after the retailer beat analysts' earnings expectations and gave upbeat guidance for the year.
Comcast shares dropped 7.4% after the company made a tentative $30.9 billion offer for British media group Sky.
That topped a rival bid from 21st Century Fox, whose shares declined 3%. Fox and News Corp -the owner of The Wall Street Journal - share common ownership.
Dow-listed entertainment group Walt Disney, which agreed to buy key parts of Fox late last year, declined 4.5%.
Declines in Europe followed weaker trading in Asia, where China’s Shanghai Composite Index snapped a six-day winning streak.
Local markets and commodities
- S&P/ASX 200 Index futures are down 0.4% to 6,011. Futures relative to fair value suggest an early decline of 0.4%.
- Bank of New York Australia ADR Index is down 1.7% to 286.6, BHP Billiton ADRs are down 2.0% to A$30.72 equivalent, a 1.2% discount to last Sydney close, Rio Tinto ADRs are down 2.4% to A$72.61 equivalent, a 11.0% discount to last Sydney close.
- Gold prices were down more than 1% Tuesday after the new US central bank chairman pledged to stick with gradual interest rate increases. Spot gold was down 1.16% at $1,317/oz. April US gold futures settled down $14.20, or 1.1%, at $1,318.60/oz. The dollar strengthened, pressuring gold, after US Federal Reserve chief Jerome Powell told USCongress members that rate hikes should continue despite the added stimulus of tax cuts and government spending.
- Data showing net gold imports by top-consumer China, via its main conduit Hong Kong, surged 65.2% in January from the previous month, supporting the gold price. However, data released last week showed imports by Second highest consumer India fell 22% in January. Gold stocks in Toronto fell 2.41% overnight. Gold stocks: GOR, NCM, NST, AQG, EVN, KCN, RMS, RRL, SAR, SLR.
- Crude dropped the most in more than two weeks as the International Energy Agency warned about seemingly unstoppable US shale production. Futures in New York fell 1.4% on Tuesday after IEA Executive Director Fatih Birol said “explosive growth” in US output may extend beyond this year. Investors were also bracing for a government tally on Wednesday that’s expected to show American crude inventories rose to the highest since 2017.
- A strengthening greenback further eroded the appeal of dollar-priced commodities. As Opec works to trim output, producers are committed to bringing supply and demand into balance, United Arab Emirates Energy Minister Suhail Al Mazrouei said Tuesday in Abu Dhabi.
- Strong US shale growth could delay those efforts, Birol said the same day in a Bloomberg Television interview. American explorers have expanded the fleet of rigs searching for domestic crude to the highest since 2015 as the Opec-led supply curbs resurrected oil markets. West Texas Intermediate crude for April delivery fell 90 cents to settle at $63.01/b on the New York Mercantile Exchange.
- Total volume traded was about 21% below the 100-day average. Brent for April settlement, which expires Wednesday, declined 87 cents to end the session at $66.63 on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a $3.62 premium to WTI. As expiration nears, the front-month Brent futures’ premium over its second-month contract is at 11 cents, the smallest since November. Oil stocks: WOR, WPL, STO, SEA, BPT, OSH, HZN, AWE, KAR, ORG, SXY.
- The losses in the bulk sector were relatively limited, with iron ore futures ending the day down less the 0.1%. Steel prices remained well supported, following reports earlier this week that the curbs on steel production would remain in place in Hebei until November. The loss in iron ore was mirrored in the coking coal market, with premium hard coking coal prices inching lower. However interest in the physical market was high, with Chinese traders apparently keen to secure supply in light of some rising risks around supply disruptions in Australia. Spot iron ore was largely flat losing $0.02 to close at $77.48. Iron ore stocks: FMG, BHP, GBG, GRR, MGX, RIO, BCI, SDL.
- Copper fell more than 1% on Tuesday as the US dollar rose after Federal Reserve chairman Jerome Powell pledged to stick with gradual increases in US interest rates despite the added stimulus of tax cuts and government spending. London Metal Exchange copper closed down 1.3% at $7,021/tonne, off an earlier two-week low of $6,988.50/t. The discount for cash over three-month copper contracted to its narrowest in six weeks on Tuesday at $32.25, from $42.25 a week ago. LME aluminium ended the day up 0.4% at $2,147/t. Nearby aluminium spreads are under intense pressure, reflecting tightness in short-dated supply. The cost to roll aluminium for a day hit its highest since late 2016 on Monday at $11 and remains elevated at $10 a tonne. Copper stocks: OZL, SFR; Nickel stocks: IGO, WSA; Aluminium stock: AWC.
- Ex-Dividend: APN Property, Iress, Kogan, Navitas, Orora, Perpetual, Super Retail, Telstra.
- Ramsay Health Care (RHC) Affirms FY18 core EPS growth target of 8%-10%; Australia operating environment to remain positive; Europe to stay challenging. H1 net A$246.5m, down 3.7% y/y. Group Ebitdar A$872.5m, up 3.7%. Core profit A$288m, up 7.5% y/y. Core EPS A$1.39, up 7.8% y/y. Core Ebit A$470.4m, up 1.5% y/y. Rev. A$4.45b, up 3% y/y. Australia A$2.5b, up 4.3% y/y. Solid growth in admissions, procedural volumes. UK £206.2m, down 4.8%. European operations hit by pricing constraints, volume pressures. France €1.1bn, down 1.1%. Plans charge to shift non-hospital ops into a separate. Interim div. A$0.575; BDVD est. A$0.65.
- Adelaide Brighton sees strong demand for materials in 2018 on east coast and South Australia amid infrastructure projects, increasing building and construction activity. Expects above inflation price increases for cement,aggregates, concrete products in 1H. Sees 2018 capex A$100m-A$110m. FY net A$182m, down 2.3% y/y; Net income GAAP est. A$196.2m (9 analysts). Underlying profit ex-property A$189.3m; saw A$188m-A$198m. Ebit A$266.5m; Ebit ex-one time items A$288.8m; est. A$288.9m. (7 analysts). Headline Ebit included A$17m doubtful debt provision. Underlying Ebit margin 18.5% vs 19.2% yr ago. Final div. A$0.12; BDVD est. A$0.11; To pay A$0.04 special div. Rev. A$1.56b; est. A$1.48b (8 analysts). Net debt A$371.6m vs A$288.5m yr ago; Gearing 29.8% vs 23.6% yr ago. RoFE 16.7% vs 17.5%. 3 buys, 8 holds, 2 sells; avg PT A$5.66: Bloomberg data.
- SpeedCast reported net income for the full year of A$5.5 million. FY revenue A$514.2 million. Final dividend per share A$0.048. FY Underlying NPAT A$24.1M. Says CFO Ian Baldwin to Leave Co. at Month-End. Sees Stronger organic Growth in FY18.
- In other news: Commonwealth Bank (CBA AU): Is Said to Plan to Issue A$1.25B in Hybrid Market: AFR; Emeco Holdings (EHL AU): Non-Deal Roadshow Set By Morgans for February 28; Galaxy Resources (GXY AU): Buy SQM After Slump, Investment Thesis Intact: JPMorgan; Mineral Deposits (MDL AU): Non-Deal Roadshow Set By Morgans for March 7; Oil Search (OSH AU): Review of PNG Quake Damage to Take at Least a Week; Pilbara Minerals (PLS AU): Posco Acquires 4.75% Stake to Secure Lithium Supplies; Prospect Resources (PSC AU): Starts Commissioning Zimbabwe Lithium Plant; Santos (STO AU): Seeking Lenders to Back Bid for Brookfield Stake in Quadrant, Worth ~A$1.5b: Australian; Villa World (VLW AU): Non-Deal Roadshow Scheduled By Morgans for March 7; Westfield (WFD AU): Is Said in Talks to Sell $278m London Office Project
- APA Group (APA AU): Upgraded to Equal-weight at Morgan Stanley; PT A$8.24
- AUB Group (AUB AU): Upgraded to Buy at Baillieu Holst; PT A$14.50
- Caltex Australia (CTX AU): Downgraded to Neutral at JPMorgan; PT A$37.50
- Costa (CGC AU): Upgraded to Overweight at JPMorgan; PT A$7.52
- Select Harvests (SHV AU): Upgraded to Buy at Bell Potter; PT A$5.60
- Senetas (SEN AU): Cut to Hold at Baillieu Holst; Price Target A$0.13
Australian corporate earnings
- Wednesday: Harvey Norman, Ramsay Healthcare, Adelaide Brighton
Offshore yuan (USDCNH
) has ended a four-day rally as both USD and treasury yields strengthened on the back of the hawkish testimony from the new Fed chairman Jerome Powell.
Yield curves (10-2, 30-10) remained flattened as a result of the front end yields pushed higher.
USDCNH has fallen more than 10% from 2017 top 6.9870 and since then USDCNH has formed a diamond reversal pattern that usually has similar characteristics as inverse head and shoulders.
We look to get long on the break of 6.33 although a clear breakout above 6.35 would be required to confirm further scope for higher moves towards the next resistance level 6.47.
USDCNH quarterly chart
US treasury 10 year yield curve
US Treasury 2-year yield curve
-- Edited by Adam Courtenay
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