Evening Wrap: ASX 200 ahead of US inflation print, Origin surges, US futures higher

The S&P/ASX 200 closed 35 points lower, down -0.50%.

Resources and Tech erase Wednesday's gains, Origin receives a generous $9.00 per share takeover offer, Xero shares slide on an earnings miss, Republicans pull ahead in a rather close midterm election and all eyes on US inflation data tonight.

Let's dive in.

Markets

The ASX 200 sold off amid a wall of worries for equity markets. China is seeing a big jump in cases, reaching the highest since April. 5 out of Guangzhou's 11 districts are poised for mass testing, according to Reuters. US inflation data is due tonight, which could set off fireworks for Wall Street. The Republicans are pulling ahead in both the Senate and House, but still coming in rather close.

• Utilities surged after Origin Energy received takeover offer from Brookfield Asset Management for $9.00 cash per share, a 54.9% premium to its last close

• Defensive names pulled ahead, with names like Woolworths, Coles, CSL and Telstra closing slightly higher

• Materials and Energy underperformed as China's covid situation continues to worsen, threatening more lockdowns. A rebound in the US dollar also pressured commodity prices overnight

• Tech shares also led to the downside after disappointing earnings from Xero and a weak lead from Wall St

• 132 of the top 200 declined

Economy

No major economic updates.

Commodities 

"Weak economic data and expected gains in inventories weighed on sentiment. A stronger USD was also a headwind," said ANZ senior commodity strategist, Daniel Hynes.

• Newcastle coal futures -7.2% to US$300.1 a tonne

• Iron ore futures -1.6% to US$87.5 a tonne

Latest news

Post market brief

Buckle up, its US inflation print time.

Economists expect headline inflation to ease to 7.9% in October from 8.2% in September and core inflation to fall from 6.6% to 6.5%.

Last month, the print was hotter-than-expected (8.2% versus 8.1% est) but the S&P 500 rallied from session lows of -2.4% to close 2.6% higher. Back then, the S&P 500 was trading at year-to-date lows, so a rather depressing backdrop and short covering helped squeeze the market higher.

Earlier today, I looked at some inflation scenario analysis by JPMorgan. In summary, the investment bank says a headline print of:

• 8.4% or higher: S&P 500 falls 4.5% to 6.0%,

• 7.9% to 8.0%: the market rises 1.0% to 1.5%

• 7.6% or below: S&P 500 rallies 5.0% to 6.0%

We're still seeing investors load up protection against the potential fireworks, with put/call ratios higher than March 2020. Traders are bracing for volatility, so does this set the market up for another potential reversal?

CBOE options equity put/call ratio (Source: Stockcharts)

Index charts

S&P/ASX 200: A pullback from the key 7,000 level. Still holding above the 200-day. Let's see what the market looks like post CPI.

XJO chart (Source: TradingView)

Major announcements

Large caps (>$1bn)

• Origin Energy (ORG) +34.8% received an indicative takeover proposal from Brookfield Asset Management at $9.00 per share, a 54.9% premium to its last traded price  

• Perpetual (PPT) +14.8% rejected the revised takeover offer from BPEA of $33.00 cash per share as it ‘continues to materially undervalue the company’ 

• Sandfire Resources (SFR) +5.3% appoints Brendan Harris as CEO. Mr Harris has been a member of South 32’s executive management team since 2015

• Computershare (CPU) +4.1% upgraded its FY23 margin income outlook to $800m, up from the $520m guidance provided in August and $186.5m posted in FY22

• PSC Insurance (PSI) 1.0% reaffirmed its previous profit guidance of $70-73m and noted a strong first quarter of trading across all key businesses and segments

• Suncorp (SUN) +0.7% reaffirmed its FY23 targets of an underlying Insurance Trading Ratio between 10-12% and bank cost-to-income ratio of ~50% 

• Scentre Group (SCG) 0% observed 391m customer visits in the September quarter, up 16.7% YoY. Business partners were generating 14.8% more sales compared to 2019

• Nine Entertainment (NEC) 0% said it expects 1H23 EBITDA to be around the low end of its previous guidance of $380-400m

• Ansell (ANN) -2.1% reaffirmed its FY23 EPS guidance range of 115-135 US cents, but likely to be at the lower half of this range 

• Seven West Media (SWM) -2.2% trading update notes that Olympics is impacting relative trading conditions in 1H23, Seven’s total TV revenue is expected to decline -2% in 1H23 on an adjusted basis 

• Xero (XRO) -10.9% posted 11% earnings growth in 1H23 to $108.6m, below analyst expectations. Losses widened to -$16.1m from -$5.9m

Mid-to-small caps

• Centaurus Metals (CTM) +8.3% upgraded the Measured and Indicated component of its mineral resource estimate by over 100% to 730,300 tonnes of contained nickel

• Dexus Industria REIT (DXI) +3.4% sold its 1A and 1C Homebush Bay Drive properties, proceeds ($160.5m) will be used to repay debt

• Tietto Minerals (TIE) +0.6% said the construction of its 3.45m oz Abujar Gold Project remains on schedule for gold pour in 4Q22

Broker updates 

Scans