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ASX 200 set to slide – CGF, AMP & BWX shares in focus

The ASX 200 (ASX: XJO) is expected to open lower this morning following another weak session for US tech stocks overnight. Here’s what’s making headlines.

GDP smashes expectations, economic activity expands

The S&P/ASX 200 continued its winning ways, gaining 0.8% on Wednesday following the release of Australian economic growth results in the morning. GDP growth for the December quarter smashed all expectations, hitting 3.1% and making Australia one of the fastest-growing developed nations in the world.

Economists and other experts predicting growth of just 2.5% were surprised by the strength in domestic consumption, which jumped 4.3% despite the inclusion of the Victorian lockdown.

Most importantly, private investment continued to improve, contributing 3.9%, offering hope for a sustained recovery. With the economy seemingly in rude health but the RBA indicating that monetary support will remain in place for at least three years, I must be missing something. The central bank is clearly not as confident about the outlook and the end of JobKeeper stands out as the potential ‘cliff’ for the economy.

That said, there are positive signs in both construction and motor vehicle sales, with the former hitting multi-year highs and the latter up 3.1% the fourth consecutive month of improvements. This has been supporting the likes of ARB Corporation Limited (ASX: ARB) and Eagers Automotive Ltd (ASX: APE).

Challenger looks at AMP, resources win the day

Reports are now suggesting that Challenger Ltd (ASX: CGF), the annuity provider and asset manager, has shown interest in the public markets portion of AMP’s Capital division. This comes after Ares Capital commenced negotiations to take a stake in the private markets unit. The Challenger share price finished 0.9% higher and AMP just 0.7% higher.

Skincare and beauty products manufacturer BWX Ltd (ASX: BWX) confirmed it had issued the first tranche of shares to Chemist Warehouse in a stock for sales deal that will see the brand’s entire suite products available across their huge network. Over 881 thousand shares were issued totalling around $38 million or 0.6% of BWX’s total capital, with the deal potentially taking this to 2.4%.

The materials sector once again won the day, gold miner Ramelius Resources Limited (ASX: RMS) jumping 13.7% on limited news, with Lynas Rare Earths Ltd (ASX: LYC) not far behind as investors continue to flock to one of the few global suppliers outside of China; shares were 6.0% higher.

Square launches its own bank, bond yields spook big tech

Inflation remains in focus in the US, with yields now pricing in the highest five-year inflation expectations since 2008.

As has been the case in recent weeks, the tech sector is the hardest hit whenever yields approach 1.5% with the likes of Apple (NASDAQ: AAPL), Amazon (NASDAQ: AMZN) and Netflix (NASDAQ: NFLX) down 2.2%, 2.7% and 4.6% respectively.

The Nasdaq fell 2.7% to a two month low, with the S&P 500 down 1.3%, with energy and financials unable to offset the weakness.

The most important question for markets is whether inflation is transitory, due to the huge stimulus, or sustained, the latter being the worst-case scenario. Hamish Douglass of Magellan Financial Group Ltd (ASX: MFG) this week suggested the former is more likely given the continued slack in the global economy.

Neobanks may not have the best track record in Australia, but Square (NYSE: SQ), led by Twitter founder Jack Dorsey, is in a different league. The company has been a key beneficiary of the e-commerce boom and move to a cashless society with a market cap now over US$110 billion. Overnight, Dorsey announced the company would be launching its own bank, Square Financial Services, as it seeks to capitalise on the network and loyalty effect from its many merchants and users.

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Disclosure: At the time of publishing, the author of this article does not have a financial or commercial interest in any of the companies mentioned.

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Wattle Partners is a financial advice firm, servicing clients around Australia, specialising in retirement planning (pre and post retirement). 

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