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Energy boosts ASX, Citi cuts Fortescue

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The S&P/ASX 200 closed up on Wednesday, gaining 48.80 points, or 0.66%, to 7438.90. Energy stocks were higher after oil prices jumped.

The index was almost 1% higher at the open but slid through the day, with Consumer Staples Woolworths, Coles and Endeavour weighing on the market over supply chain concerns.

Citi says it’s too early to sell Pilbara Minerals based on the broker’s expectation that lithium prices will remain elevated through the first half of the year, according to The Australian Financial Review.

“We expect demand to remain strong amid mild supply growth over the next six months, resulting in pricing staying higher for longer through the first half of 2022,” said Kate McCutcheon, vice president of metals and mining at Citi.

Citi retains a Neutral and High-risk rating on Pilbara Minerals, and lifted its price target on the company from $2.50 to $3.60.

Citi downgraded Fortescue Metals Group to a Sell rating, saying that the iron ore producer now has too large of a valuation gap compared to its peers, reported afr.com.

In the past three months, Fortescue’s share price has jumped 46%, while benchmark iron ore is up 8% and the other iron ore producers are up around 6% on average.

While admitting there is an upside risk for the 2022 financial year from iron ore pricing, Citi analysts noted that it was hard to overlook the large valuation gap Fortescue possesses and the planned/unplanned departure of key staff. Citi has a price target of $17.20 on Fortescue.

Bloomberg is reporting that any rise in interest rates won’t derail momentum for record Australian merger and acquisition activity as pension funds continue to hunt for deals, according to Revolution Asset Management.

Despite market pricing for multiple rate hikes by the Reserve Bank of Australia this year, borrowing costs will remain historically very low in absolute terms, said Lucie Bielczykova, an associate portfolio manager at Revolution, a manager of private debt. And with Australia’s pension funds ramping up involvement in deal making, it only adds to the amount of cash hunting assets, she told Bloomberg.

In the US

Federal Reserve Chair Jerome Powell has pledged to do what’s necessary to contain an inflation surge and prolong the expansion, while steering clear of fresh details on the path of US monetary policy.

“If we have to raise interest rates more over time, we will,” Powell told the Senate Banking Committee on Tuesday under questioning at his confirmation hearing for a second term as central bank chief. “We will use our tools to get inflation back.”

The Dow Jones added as much as 180 points after falling more than 250 points earlier in the session, and the S&P rose 0.9%. Both indexes snapped a 4-day losing streak. The tech-heavy Nasdaq Composite extended previous session gains and jumped 1.4%.

Oil

Oil rose after Powell’s comments. West Texas Intermediate crude rose 3.8% to close above $US81 a barrel, the highest since November 11. Gold edged higher to trade above $US1810 on Tuesday, the highest since December 31.

Bitcoin

Bitcoin is moving more in line with stock prices than before the pandemic, raising the risk that volatility in the $US2 trillion crypto assets sector transmits a shock to destabilise financial markets, the International Monetary Fund has warned.

New IMF analysis says that since central banks slashed interest rates to near zero to support economies during the pandemic, there has been increased co-movement and spill overs between crypto and equity markets.

The IMF blog post, Crypto Prices Move More in Sync With Stocks, Posing New Risks, said the market development had raised the risk of contagion and “ripple effects” across financial markets.

Bitcoin hit a high of almost $US69,000 in November, before dropping to around $US40,000, and is trading currently around $US42,658.

Asia markets

The Nikkei 225 Index jumped 1.2% to 28,570 while the broader Topix Index gained 1% to 2008 on Wednesday, with both indices set to snap three days of losses as Japanese technology firms rebounded sharply following a strong overnight finish among Wall Street peers.

A gauge of Chinese technology shares rallied by the most in over a week, according to Bloomberg, as investors took advantage of attractive valuations in the battered sector and the prospect of looser monetary policy conditions.

The Hang Seng Tech Index rose as much as 3.8% on Wednesday, headed for its highest level since December 16. The move, which tracked a rally overnight for US-listed Chinese peers, was led by JD.com and Meituan, which advanced at least 7.7% each.

China's annual inflation rate dropped to 1.5% in December 2021 from 2.3% a month earlier, which was the highest rate since August 2020, and below market consensus of 1.8%, due to imposing lockdown measures in some regions to contain the spread of the Omicron variant. Food prices fell 1.2%, reversing from a 1.6% rise in November, dragged by a fall in cost for both pork and meat. Non-food inflation fell to 2.1% from 2.5%.

AUD/USD US72.16c

Bitcoin $US42,658

Gold $US1819.44 an ounce

Brent crude oil $US83.80 a barrel

WTI crude oil $US81.42 a barrel


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