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Iron ore down again, Twitter deal canned, US inflation soars: What we learned this week

Nicola Chand  |  15 Jul 2022Text size  Decrease  Increase  |  
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Twitter breakup turns nasty

After calling it quits last Friday, the $44 billion USD deal is still causing strife for both billionaire Elon Musk and Twitter’s current Chief Executive Parag Agrawal. Since calling the deal off, Musk and Twitter have both hired lawyers with Twitter’s chairman Bret Taylor making it clear on Saturday that Twitter plans to pursue legal action against Musk. Musk claims to have terminated the deal due to Twitter’s failure to provide him with information about spam accounts on the platform. However, Taylor reaffirmed that the board is committed to ensuring the takeover deal is completed for the agreed upon price with the agreed upon terms. Following Musk’s announcement that he will be pulling the plug on the takeover, Twitter’s share price fell 3.2% and plunged 7.8% in pre-market trading on Monday. On Wednesday, Twitter delivered the justice that Taylor had earlier promised. The social media company filed a lawsuit with a Delaware court requesting that Musk complete the merger for the agreed upon $US 54.20 per share. Twitter’s share price continued to tumble over the week, finishing 1.4% down on Thursday.

Zip ends long distance Sezzle-ship

Troubled Buy Now Pay Later (BNPL) company Zip (ASX: ZIP) called off the Sezzle merger on Tuesday this week. Unlike tech billionaire Elon Musk, Zip co-founders Larry Diamond and Peter Gary honourably intend to pay Sezzle $16.3 million as a break fee. Zip’s share price rallied on market open, climbing 12% in the first 45 minutes of trading on Tuesday. The Australian Financial Review reported that analysts at UBS saw the merger termination as somewhat beneficial, noting this may show signs of the BNPL company slowing cash burn and reevaluating strategy when it comes to expansion. This comes as only last week the company announced it would be closing its Zip Trade and Zip Trade plus businesses as well as their budget planning service Pocketbook.

Australian unemployment hits a 48-year low

On Thursday this week, the Australian Bureau of Statistics announced the unemployment rate had fallen 0.4% over the month to 3.5% in June - this is the lowest official rate since 1974. With the costs of living and interest rates on the rise, jobseekers have had pressure to enter the job market with haste, which economists believe is the underlying reason for the falling rate. Over the last two years, the unemployment rate has been tumbling since peaking at 7.5% in July 2020. Thursday’s figure means that 88,400 more people has jobs in June verses May.

US inflation shows no signs of slowing

US inflation took an unexpected turn for the worst in June, climbing 1.3% to a 41 year high of 9.1%. The CPI print came in 0.3% higher than the median forecast of 8.8%. The fruit and vegetable index rose 0.7% in June, while the energy index increased 7.5% over the month. The growing cost of living has caused traders to place even bigger bets on more aggressive rate hikes from the Federal Reserve, saying there could be a one percentage point hike in the works for the July meeting. If the Fed were to use a 100-bps hike at the end of this month to target growing inflation, the Fed funds rate would be at 2.58%. This is only 1.07% away from the 3.65% December rate that is being forecasted by future markets.

EML Chief Executive says bon voyage

EML Chief Executive Tom Cregan resigned on Monday after serving as the company’s CEO for 10 years. In an announcement made by the payment provider this week, the Board acknowledged that Cregan “has been an integral part of the EML growth story for over a decade”. Following the announcement of his departure from the company, the share price plummeted on Monday’s open, ending the day down 19%. Shares managed to recovery slightly during trading on Thursday, however still ended the week down 20.3%. The company specified in their announcement on Monday that non-executive Director, Emma Shand will be taking over as Managing Director and Chief Executive Officer effective immediately.

Battle of the late-night lattes

Hungry Jack’s announced on Monday they had invested $20 million to create ‘Jack’s Café’. The new café will be rolled out in 410 stores across Australia and will be a direct competitor of McCafé. Chief Executive, Chris Green who has also worked for fast food giant McDonald’s, believes there is a gap in the market for drive-through barista cafes. The rollout of Jack’s Café happened over the last two years during the pandemic, where 5000 baristas were trained and ‘structural changes’ were made. Next time you’re craving a late-night coffee, you’ll have more than option.

Check out the menu here: https://www.hungryjacks.com.au/menu/jack-s-cafe

Iron ore miners can’t catch a break

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Share prices at Rio Tinto, BHP and Fortescue Metals Group all took a tumble in Friday’s open, amid sliding iron ore prices overnight. Losses continued throughout Friday’s trading session with Fortescue Metals Group leading the pack falling 6.2% by close, while Rio Tinto and BHP slumped 2.9% and 3.5% respectively. The iron ore price fell below $US 100 per tonne on Friday morning as a result of renewed Chinese lockdowns and impacts on the property market. Bloomberg reported on Thursday that China is dedicating 7.2 trillion yuan (AUS $1.6 trillion) to infrastructure spending to kickstart the Chinese property market after lockdowns impacted domestic economic growth. However, fears of mounting debt for Chinese developers have made investors more cautious about jumping on the fiscal stimulus train.

ASX takes a tumble: Market recap

The Australian share market has clawed back some of its morning losses but still closed lower after iron ore prices tumbled to a 10-month nadir overnight on demand fears from China.

After falling by 113 points, or 1.7 per cent, in the first 45 minutes of trading, the benchmark S&P/ASX200 index climbed more or less steadily to finish Friday down 45 points, or 0.68 per cent, at 6,605.6.

The broader All Ordinaries closed down 50.6 points, or 0.74 per cent, at 6,798.
The ASX200 was down 1.08 per cent for the week, with materials once again the worst-performing sector.

The mining sector dropped 3.2 per cent on Friday to finish the week down 6.1 per cent, its sixth consecutive week of declines.

Chinese economic data released at midday Friday showing the world's second-largest economy grew just 0.4 per cent in the second quarter, well below expectations for a 1.0 per cent rise, did nothing to help commodity prices.

"China's adding to angst I think locally, because on the one hand they're talking up a big stimulus program to fire up the economy, and on the other hand, they're still pursuing a zero-COVID policy," Betashares chief economist David Bassanese told AAP.

"So it's fair to say that the Chinese outlook is very mixed and uncertain at the moment."
Rio Tinto finished down 2.9 per cent to $93.27 after the miner reported that skilled labour shortages and inflation had hit its second-quarter earnings.

"There might be a positive read on this quarter from costs not moving higher however there isn't too much else to get too positive on and this was only enabled by the very weak Australian dollar," RBC Capital Markets analyst Tyler Broda wrote in a note.

BHP and Fortescue likewise hit their lowest level this year, with the former down 3.5 per cent to $36.10 and the latter falling 6.2 per cent to $16.33.

Goldminers Newcrest, Northern Star and Evolution were all down by around two and a half per cent, hitting multi-year lows, as the price of the precious metal danced around a one and a half year low of $US1,700 an ounce.

Several of the big banks ended mostly lower after US banking giants JPMorgan and Morgan Stanley reported a bigger-than-expected drop in second quarter profits as a pandemic-era boom in listings, mergers and acquisitions came to an end.

Pendal Group was down 7.8 per cent to a nine-year low of $3.76 after the fund manager announced funds under management dropped to $111 billion in the June quarter, from $124.9 billion.

Blood products giant CSL was up for an 11th straight day, rising 1.0 per cent to an eight-month high of $299.25.

"CSL's probably benefiting from a weak Aussie dollar - and the moves are now going towards defensive, it's seen as a defensive stock, so that would be supportive," Mr Bassanese said.
In tech, Wisetech Global was up 3.4 per cent to $44.13 after upgrading its full-year revenue guidance.

The global logistics company said it expects to earn between $310 million and $320 million, up from February's estimate of $275 million to $295 million.

Blue chip movers

  • Magellan Financial Group ↓ 3%.
  • Telstra ↑ 2.1%.
  • AGL ↓ 2.9%.
  • Supermarkets: Woolworths ↑ 1.9% / Coles ↑ 3.4%.
  • Resources: Rio Tinto ↓ 4.3% / BHP ↓ 8% / Fortescue metals ↓ 5.6%.
  • Big banks: NAB ↑ 1.2% / Westpac ↓ 0.6% / CBA ↑ 0.7% / ANZ ↓ 4.7%.

What we’re watching next week

  • Monday: Goldman Sachs quarterly earnings, Bank of America quarterly earnings
  • Tuesday: RBA meeting minutes, Great Britain unemployment rate, RBA Governor Lowe Speech, Netflix quarterly earnings
  • Wednesday: Great Britain inflation rate, Tesla quarterly earnings

One good read

Chinese homebuyers refuse to pay mortgages on unfinished homes.

is a wealth and finance journalist with Morningstar

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