ASX to fall; Fed sees low rates until 2023; US tech slides

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Amazon, Tesla and Alibaba to win in low-growth world

Robert Guy

Technology plays like Amazon.com and Tesla offer protection from slower global economic growth that risks leaving investors overexposed to thousands of poor quality companies.

Hyperion’s Tim Samway likes Amazon.com and Tesla.  Jessica Shapiro

Hyperion Asset Management chairman Tim Samway warned the slowdown is a “substantial risk” for companies, saying the fall in global interest rates to unprecedented low levels had masked the impact of lacklustre growth and fuelled a re-rating of stocks.

“You have 10 years post the GFC where average businesses have struggled. The bad news is there is no joy in sight for those businesses.”

It’s that pressure that’s drawn the fund manager to technology stocks exposed to fast growing themes like e-commerce, cloud computing and the transition to electric vehicles and renewable energy.

“Modern information driven businesses not reliant on GDP growth are either expanding their addressable markets, taking market share or doing both,” Mr Samway said.

That’s why Hyperion likes Amazon.com. Mr Samway said US retail sales totalled $US5 trillion ($6.8 trillion), but e-commerce accounted for only $US600 billion – or 11 per cent – of the total.

He noted that e-commerce accounted for about a quarter of retail sales in China, suggesting plenty of room for Amazon.com to grow.

“You can draw your own conclusion about how far Amazon’s market share could rise from here. The number is substantial.”

Read more about the outlook for Amazon.com, Tesla and Alibaba here.

Australian economic hit softer than expected: OECD

Matthew Cranston

Australia’s recession will be less severe than expected but its recovery will depend on continuing fiscal support and no return to severe lockdowns, the Organisation for Economic Co-operation and Development says.

The Paris-based OECD also pointed to the need for industrial relations and tax reforms to ensure employment growth.

In fresh forecasts issued on Wednesday night, the OECD said Australia’s first recession in 29 years would see economic output contract 4.1 per cent this year, better than its June forecast of a 5 per cent contraction.

However, the local economy is tipped to rebound only 2.6 per cent in 2021, down from earlier projection of a 4.1 per cent bounce.

The forecasts assume sporadic local outbreaks of COVID-19 will continue, but that there will not be further, severe lockdowns.

The OECD, whose chief economist is Laurence Boone, pointed to renewed lockdowns such as Victoria’s dragging on the recovery and said the forecasts could be downgraded if further severe lockdown measures were imposed.

Read about the OECD’s forecasts for the Australian economy here.

Snowflake soars into tech big leagues on public trading debut

Crystal Tse, Nico Grant, Katie Roof

New York | Snowflake soared in a euphoric stock-market debut that transformed the eight-year-old software company into business valued at more than $US70 billion ($96 billion).

Snowflake’s $US3.36 billion initial public offering is a record for a software company and the biggest in the US this year. Its share price soared as much as 166 per cent Wednesday (Thursday AEST), minting fortunes inside the company and across Silicon Valley.

“So far, so good,” Snowflake chief executive officer Frank Slootman said in an interview. “IPOs for us are milestones along the way. They’re not endpoints.” Bloomberg

Shares of the cloud-data software maker opened at $US245 — more than double its IPO price — in New York trading. That 104 per cent gain at the opening bell was the third-highest such pop for an IPO of $US1 billion or more on a US exchange and the biggest since Florida-based equipment rental company Herc Holdings went public in 2006.

Snowflake sold 28 million shares at $US120 apiece on Tuesday. They were earlier marketed for $US100 to $US110 each after the range was boosted from $US75 to $US85.

The shares, which reached as high as $US319, closed up 112 per cent to $US253.93 in New York trading, giving it a market value approaching six times the $US12.4 billion it received in a private funding round in February.

That makes Snowflake, previously a little known firm based in San Mateo, California, more valuable than Uber Technologies, Dell Technologies and General Motors, according to data compiled by Bloomberg.

Fed signals rates will stay near zero for at least three years

Catarina Saraiva

The Federal Reserve left interest rates near zero and signalled it would hold them there through at least 2023 to help the US economy recover from the coronavirus pandemic.

The Federal Open Market Committee “expects to maintain an accommodative stance of monetary policy” until it achieves inflation averaging 2 per cent over time and longer-term inflation expectations remain well anchored at 2 per cent, the central bank said in a statement Wednesday (Thursday AEST) following a two-day policy meeting.

The statement reflects the central bank’s new long-term policy framework in which officials will allow inflation to overshoot their 2 per cent target after periods of under-performance. That shift was announced by Powell last month at the central bank’s annual Jackson Hole policy conference.

The vote, in the FOMC’s final scheduled meeting before the US presidential election on November 3, was 8-2.

Dallas Fed president Robert Kaplan dissented, preferring to retain “greater policy rate flexibility”, while Minneapolis Fed president Neel Kashkari dissented in favour of waiting for a rate hike until “core inflation has reached 2 per cent on a sustained basis”.

Read more about the Federal Reserve’s economic projections here.

ASX to slip, Powell disappoints, US techs selloff

Timothy Moore

Australian shares are set to edge lower, as gains on Wall Street faded after Federal Reserve chairman Jerome Powell made clear that it was up to US politicians to keep the economic recovery from faltering.

That’s not exactly inspiring given the extended deadlock in Washington between Republicans and Democrats on a new round of stimulus measures.

Mr Powell’s push for more fiscal stimulus came after Fed policymakers made clear they see US interest rates flat for at least the next three years.

Not helping sentiment, investors renewed their selling of US mega tech shares. Facebook paced the losses with a 3.3% drop, Apple fell 3% while Amazon and Netflix each slid 2.5%.

ASX futures were down 9 points or 0.2% to 5942 at 6.41am AEST; reversing an earlier double-digit advance. The local currency was little changed at about 6.52am AEST.

On Wall Street, after some relatively mild swings, the Dow settled slightly higher, while both the S&P 500 and the Nasdaq ended lower. As a sign of the market’s uncertainty, six of the S&P 500’s industry groups fell; energy surged more than 4% in line with a rally in the price of oil.

In a tweet after the closing bell, Allianz’s Mohamed El-Erian said: “Interesting question for #investors: With the #FOMC meeting out of the way and this price action, will #short sellers challenge current valuations?”

One positive: shares in cloud-date company Snowflake surged 112% in their debut session.

In its statement at the end of its two-day meeting, the Federal Open Market Committee said it “expects to maintain an accommodative stance of monetary policy” until it achieves inflation averaging 2 per cent over time and longer-term inflation expectations remain well anchored at 2 per cent.

Dallas Fed president Robert Kaplan dissented, preferring to retain “greater policy rate flexibility”, while Minneapolis Fed president Neel Kashkari dissented in favour of waiting for a rate hike until “core inflation has reached 2 per cent on a sustained basis”.

The yield on the US 10-year note rose 2 basis points to 0.70% at 4.28pm New York time.

The spot dollar index was up 0.1%, reversing earlier modest losses, to be at 93.1640 as of 4.20pm; it was trading at 93.0490 ahead of the statement.

US oil leapt 5%, extending gains from earlier in the session. The advance came after an unexpected drawdown in US crude and gasoline inventories and as Hurricane Sally forced a swath of US offshore production to shut.

US crude stocks fell 4.4 million barrels last week to 496 million barrels, their lowest since April, the US Energy Information Administration said, compared with analysts’ expectations in a Reuters poll for a 1.3 million-barrel rise.

“The Fed essentially acknowledged they were a bit behind the curve with their forecast on the economy, as projections needed tweaking to reflect the current path of the recovery,” said Charlie Ripley, senior investment strategist for Allianz Investment Management.

“However, with near-term risks to the outlook still intact, the Fed continues to reiterate that it is too early for victory laps on the economic recovery,” Mr Ripley also said.

“On the horizon, the path of the virus, the upcoming election, and the motivation for additional fiscal stimulus are all hurdles the economy needs to overcome.”

Market highlights

ASX futures down 9 points or 0.2% to 5942 at 6.41am AEST

  • AUD flat at 73.05 US cents as of 6.52am AEST
  • On Wall St: Dow +0.1% S&P 500 -0.5% Nasdaq -1.3%
  • In New York: BHP +0.9% Rio -0.9% Atlassian +0.1%
  • Tesla -1.8% Facebook -3.3% Apple -2.9% Amazon -2.5%
  • In Europe: Stoxx 50 +0.2% FTSE -0.4% CAC +0.1% DAX +0.3%
  • Spot gold +0.7% to $US1966.84/oz at 2.21pm New York time
  • Brent crude +4.2% to $US42.23 a barrel
  • US oil +5% to $US40.18 a barrel
  • Iron ore -3.4% to $US124.20 a tonne
  • 2-year yield: US 0.14% Australia %
  • 5-year yield: US 0.28% Australia %
  • 10-year yield: US 0.70% Australia 0.86% Germany -0.49%
  • US prices as of 4.55pm New York

Read Timothy Moore’s Before the Bell here.

Good morning

Good morning and welcome to Markets Live for Thursday.

This blog is not intended as investment advice.

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