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Morning Market Wrap: U.S. equities retreat in late trading, ASX to open lower

21 Jan 2022
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Shares on Wall Street reversed early gains to trade lower towards the close as data showed initial jobless claims rose more than forecast with Treasury yields edging lower.

As of 07:36 am AEDT the S&P500 was -0.28% lower with declines in technology -0.64% and consumer discretionary -1.33% weighing as 67% of stocks traded lower The Dow Jones declined -0.40%, the Nasdaq Composite weakened -0.75%, the Russell 2000 was also -0.48% lower while the VIX was -0.59% lower at 23.71. Shares in Peloton sunk -24.3% on a report by CNBC citing internal documents that the company is temporarily halting production of bikes and treadmills due to slowing demand. Netflix traded -0.99% lower ahead of reporting Q4 2021 earnings after the close where investors will be focused on subscriber growth.

U.S. initial jobless claims for January 15th were higher than forecast at +286k vs +220k predicted and +231k previously, although the weaker figures are likely the result of the Omicron variant rather than a change in the strength of the labour market. Continuing claims for January 8th rose to +1.635m vs +1.580m forecast. Treasury yields edged lower with the 2-year down -1 basis points to 1.047%, as did both the 10 and 30-year rates -3.4 and -3.7 basis points to 1.831% and 2.139%. The U.S. dollar extended its recent strength, rising +0.23% to 95.73.

European equities were higher after inflation was in line with estimates with core prices rising +2.6% over the year to December as forecast. Headline inflation rose +5% over the year as expected from +4.9% previously, up +0.4% over the month also in line with expectations. The Euro Stoxx 600 rose +0.51% lifted by industrials +0.75% and technology +1.15% as energy -1.05% lagged. The DAX also rose +0.65% as did the CAC +0.30% while the FTSE100 lagged -0.06%. 10-year bond yields across the region were lower ranging from -1.2 basis points in Switzerland to -3.7 in Italy, the Euro weakened -0.23% to 1.1317 and the Pound was unchanged at 1.3612.

*Note: These prices are based on futures and/or CFD pricing and may therefore differ slightly from spot pricing.

The ASX looks set for a weaker open with ASX200 futures down -45 points or -0.62% to 7,200. The index rose +0.13% on Thursday as gains in materials +2.99% offset weakness in financials -0.76% and real estate -1.06%. Gold miners were among the top performers after a strong gain in the precious metal with Northern Star Resources up +11.20%, as was Evolution Mining +8.92%, Chalice Mining +7.46% and Silver Lake Resources +6.96%. The unemployment rate reached a 13-year low in December, declining to 4.2% better than the 4.5% forecast with 64.8k jobs added in the month also higher than the 43.3k expected. The Australian dollar rose +0.29% to 0.7232 following the employment figures, lifting expectations that the Reserve Bank of Australia will lift rates with Westpac bringing forward its first hike expectations to August.

Oil prices were lower overnight with WTI down -0.07% to US$86.90 as was Brent -0.70% to US$87.77. Data showed U.S. crude stockpiles unexpectedly rose by +515k barrels against estimates for a -938k barrel decline as gasoline stockpiles rose +5.873m barrels, more than the +2.634m predicted. Iron ore was +2.52% higher on Thursday at US$133.83 and is a further +2.41% higher this morning at US$137.05. Gold edged -0.10% lower to US$1,838.61 following Wednesday’s strong gains while silver rose a further +1.43% to US$24.48 and Bitcoin rose +2.36% to US$42,707.

Economic data:

  • Japanese Inflation (YoY Dec) 10:30
  • U.K. Retail Sales (YoY Dec) 18:00
  • ECB President Lagarde Speech 23:30
  • Eurozone Consumer Confidence (MoM Jan) 02:00
  • U.S. Conference Board Leading Index (MoM Dec) 02:00

This article was written by James Woods, Portfolio Manager, Rivkin Securities Pty Ltd. Enquiries can be made via [email protected] or by phoning +612 8302 3632.

SHOW COMMENTS / QUESTIONS (22)

22
Comments

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Anonymous User

What is the price of Tesla Shares ?

James Woods

Hello,

The closing price from the 3rd of January 2022 was US$1,199.78.

Regards,

James

Graeme S.

Hi,
Could you please explain “the VIX curve snapping back to contango from backwardation, where near contracts trade higher than longer-dated contracts, which can be used as a risk-on signal”? I can see that VIX/VIX3M has come back below 1.0 – which must mean that VIX3M is again greater than VIX?
Cheers
Graeme

James Woods

Hi Graeme, That is correct, when the reading is below 1 it signals the VIX3M is greater than the VIX. Typically the curve for futures contracts is in contango, where prices further out trade at a premium. Backwardation is the inverse of this, and typically signals strong demand for shorter-dated contracts. When shorter-dated measures of volatility (VIX) are greater than longer-dated measures (three-month VIX) it signals a strong degree of short-term fear in the market and heightened volatility. These periods can offer good opportunities where emotional trading disconnects the price from underlying fundamentals but is not without risk. When the… Read more »

Anonymous User

I am interested in your opinion of the expected Westpac off market buyback when results are announced on Monday 1 November 2021.

Shannon Rivkin

Hi,
It is certainly a good chance we see an off-market buyback, but like with CBA, I don’t think there is an urgency to buy the stock before the 1 November and we should get a chance to get exposure to the buyback after the announcement.
Regards,
Shannon Rivkin

Anthony D.

Hi, I am interested in your thoughts on Redcape hotels (RDC), particularly in relation to their proposed delisting and the proposed buyback.

Regards,

Tony

Anonymous User

Hi, interested in your view on Strategic Elements (SOR), had gone up to 97c, now trading around 50c

Gobind D.

I am intersted in your opinion regarding GEM, ABClearning child care centre

John R.

As a blue sky punt, what do you think of Latrobe Magnesium Ltd. Just trying to get my crystal ball in sync with the future of battery technology!

Agustin Benitez

Hi John! Your question will be answered on the next Virtually Live to be published on Thursday, 5pm AEDT. Thanks!

Fred M.

Hi I just wanted to know your opinion about the effect of when the job keeper payments finish will have on the market? Regards Fred

Shannon Rivkin

Hi Fred,

To some degree, I think the market is anticipating an impact from the end of Jobkeeper and, on the back of the commentary from the banks, is pricing in some caution but how big an impact it has will play a role. We are definitely wary of this period but feel the banks are best placed to judge the future impact with the ongoing dialogue with their business and home loan customers. So, overall I would say we’re cautiously optimistic that the program has been successful and the economy can be weaned off it.

Regards,
Shannon Rivkin

Anonymous User

Sbm will be able to cross it’s historical high of 6 ? After all the price and production is getting better and when it was 6 it had much less to offer. Comments please!

Oliver Gordon

Hello, I get highs of around $5 a share from both July 2018 and February 2019. The share price has rallied quite a bit over the past 3-4 months, and with resistance at $4, not far above current levels, I would be surprised to see prices just continue higher at the recent pace. Also, what the gold price does from here will have a large impact. The price has recently gone to new all time highs above US$1960 an ounce, however it appears sentiment is getting very bullish at the moment, which often occurs closer to the end than the… Read more »

Riki S.

Hi Oliver – nice article.

As long as the US has a dysfunctional approach to virus reality and subsequent management, the economic risks are significant. There’s a complete and utter disconnect between the US equity market and the real economy, regardless of the typical forward looking perspective. The market sentiment is emotive, better to look at what’s happening in the bond market for something that is likely to resemble the underlying forward impact – if they push through recent low levels, then watch the …. hit the fan!

Brian S.

Why has ZEN dropped so much today? Doesn’t their latest report show that take over is still proceeding with the offer of $1.01 ?

Daryl L.

I bought more at this price Last Week! Good opportunity to park some $s for a Great return. VL recently confirmed this.

Shannon Rivkin

Hi Daryl,

Completely agree with you! Should be a stress-free parking spot.

Regards,
Shannon

Shannon Rivkin

Hi Brian,

I’m sorry I’m only getting back to you now as this question somehow slipped through the cracks. The short answer is that we have seen risk spreads blow out across all arbitrage investments. I don’t think this means the bid is less likely to go through but rather that the return required from investors is higher for their capital investments. The conditions attached to the deal look likely to be satisfied, so we remain happy for members to buy/hold at current levels.

Regards,
Shannon Rivkin

Anonymous User

Hello Shannon,, the banks stocks,, why have been in downtrend for nearly 5 years now?? Wespac example.. .. what is your opinion please?? target

Agustin Benitez

Hi!
Your question will be answered on Virtually Live this Thursday.
Thanks for your submission!

We are glad you liked it

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