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ASX drops after US tech shares tumble

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The S&P/ASX 200 had its biggest daily drop since November 26, tumbling 2.7% to close at 7,358.30. The intraday low was 7,340.40. Next support is around 7300 at the 200-day moving average on a daily chart.

Technology stocks led the fall, with the Information Technology sector down more than 6% by the close. US futures are lower, indicating a negative start to the trading day in New York.

Asia markets fell across the region, Japan’s Nikkei 225 also falling by more than 2% through the day. The Australian dollar weakened against the US dollar, trading under US72c at around US71.85c Thursday afternoon.

Investors fear tightening monetary policy will choke global growth and crimp company profits just as the omicron Covid variant leads to fresh curbs, analyses Bloomberg. Fed officials said a strengthening economy and higher inflation could lead to earlier and faster rate increases than expected, with some also favouring moves to shrink the balance sheet soon after.

The Australian Financial Review is reporting that the post-pandemic windfall of dividends provided by the Australian share market in 2021 are expected to ease this year as companies become more confident about the economic outlook, and adopt a more aggressive approach to deploying capital, strategists say.

A bumper earnings season in August boosted total distributions paid in the 2021 financial year to $88 billion – just shy of the record $93 billion returned in 2019, according to data compiled by veteran Australian equity market strategist Richard Coppleson.

The biggest contributors to last year’s bumper payouts were the major miners as record iron ore prices fuelled a whopping $8.1 billion dividend from BHP Group, $6.5 billion from Fortescue Metals and $2.8 billion by Rio Tinto as announced in August.

But an anticipated decline in the big three’s earnings on the back of a lower iron ore price pose a challenge to yields.

Excluding the mining sector, however, JPMorgan is still anticipating growth of around 10% in dividends per share (DPS) this year. MST Marquee sees DPS rising 5 to 10%, with dividends contributing to more than 40 per cent of the total return.

Credit Suisse is more bullish on the dividend outlook in 2022 with its Australian chief investment officer, Andrew McAuley, saying he expects distributions to remain strong, according to afr.com.

US markets

US stocks ended sharply lower on Wednesday after the FOMC minutes showed the Fed will likely raise rates sooner than earlier anticipated and could reduce its balance sheet shortly after it raises rates. The Dow Jones sank 393 points or 1.1% to 36407, after closing at a record level the day before; the S&P 500 lost 1.9% to 4701; and the Nasdaq finished 3.3% lower at 15100. Tech shares resumed the slide, as soaring Treasury yields raised concerns over tech valuation, reports Trading Economics.

The hammering in technology stocks that began to spread into the broader market Wednesday is being fuelled by one of the most intense bouts of selling by professional speculators since the financial crisis, reports Bloomberg.

Hedge funds, which spent December unloading high-growth, high-valuation stocks, began the new year by jettisoning software and chipmakers at a furious pace. During the four sessions through Tuesday, these sales reached the highest level in dollar terms in more than 10 years, data compiled by Goldman Sachs Group Inc.’s prime broker show. The real estate sector also tumbled and AMC Entertainment and GameStop led a group of so-called meme stocks sharply.

AMC closed 11% lower in New York, while GameStop declined 13%, helping send the basket of meme stocks tracked by Bloomberg to its lowest close since January 21 when the market was swept up in the rise of retail trader-driven surges.

Private businesses in the United States hired 807K workers in December of 2021, the most in 7 months and more than double market forecasts of 400K, as the fallout from the Delta variant faded and Omicron’s impact had yet to be seen. Hiring was broad-based, though leisure and hospitality led with 246K new jobs.

Commodities

US natural gas futures jumped nearly 4% to $US3.8 per million British thermal units on Wednesday, amid forecasts of colder weather this month and as low temperatures have caused natural gas wells to freeze in Texas, New Mexico, and North Dakota. Also, demand from Europe and Asia remains historically high and US producers have been boosting LNG exports to Europe, according to Trading Economics. The United States will be the biggest exporter of LNG in the world through 2022 as a whole, according to forecasts from ICIS and the US Energy Information Agency, as the country's production and storage remains elevated.

WTI crude futures was holding above $US77 a barrel after rising as much as 2% to a session-high of $US78.53, as investors digest the latest OPEC+ decision to raise oil output by 400,000 barrels per day in February. Brent crude oil was sitting around $US79.85 a barrel.

Gold erased gains after Federal Reserve officials said a strengthening economy and rising inflation could spur faster interest-rate increases. Gold was trading lower $US1805 an ounce.

Bitcoin

Bitcoin, the largest cryptocurrency by market value, dropped below $43,000, taking the price to the lowest since it touched $42,296 during a weekend crash at the start of December. Bitcoin has surged by about 500% since the end of 2019 in the wake of stimulus measures put in place during the Covid-19 pandemic, according to Bloomberg data.


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