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ASX 200 set to fall – A2M, WOW & VUL shares in focus

The S&P/ASX 200 (ASX: XJO) managed to eke out another small gain on Wednesday, keeping the run of positive days going.

Most weakness came from the consumer staples sector, down 1.9%, after Woolworths Group Ltd (ASX: WOW) delivered a difficult third-quarter update.

The mining and utilities sectors were also down over 1% with the defensive communication and healthcare sectors the major beneficiaries; CSL Limited (ASX: CSL) gained another 1%.

Woolies warns of inflation

Woolies shares fell 3.2% after management delivered an update following the “most challenging COVID quarter” due to supply chain and staffing disruptions.

Total sales were 7.8% higher than the previous year, with Australian food gaining 3.9% and online sales exceeding 12% of total sales after growing by another half.

The BIG W division was among the hardest hit, sales falling 17% as the majority of stores were closed and some 22,000 workers have been forced to isolate at some point in time.

Featured: Magellan’s AGM, Tesla & Netflix quarterlies on The Australian Investors Podcast

A2 Milk share price crunched

Shares in A2 Milk Company Ltd (ASX: A2M) gave back recent gains, falling 12% after the company unveiled a new strategy. The new CEO announced the target of reaching $1.9 billion in sales in the medium term.

Investors were clearly concerned that margins would fall into the ‘teens’ as the company seeks adjacent category growth in China and an expansion into other emerging markets.

In better news, the company has partnered with The Hershey Company to create a co-branded chocolate milk product.

Vulcan’s short report

Shares in ‘carbon free’ lithium explorer Vulcan Energy Resources Ltd (ASX: VUL) entered a trading halt on Wednesday.

This comes after short-selling research firm J Capital launched a highly publicised report on the firm which management has quickly rebutted. As usual, these things will take a few weeks to play out on the market.

Tepid inflation, CPI data sends bonds lower

Australia has joined the rest of the world with inflation jumping 3% in the third quarter compared to 2020 levels, slightly below estimates of 3.1%, with the rate 0.8% for the quarter.

As has been the case overseas, the increase was driven almost solely by higher fuel costs (up 7.1%) and new dwelling purchase costs (up 3.3%), with the underlying inflation rate closer to 2.1%.

Bond yields jumped on the result and some experts are now predicting rate hikes in 2022, despite the RBA reiterating their intention to hold off until 2024.

Ultimately, any changes in rates will come down to wages and a reduction in underemployment, both of which apart from a few sectors seem a long way off.

ASX 200 today

Looking ahead, the ASX 200 is expected to open lower on Thursday, following a mostly negative lead from US markets overnight.

This came despite Microsoft (NASDAQ: MSFT) and Alphabet (NASDAQ: GOOGL) jumping more than 4% after both tech giants reported strong quarterly results. To find out more, check out my US stock market report.

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Disclosure: At the time of publishing, Drew owns shares in CSL.

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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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