Domino’s stock falls on ASX, while local share market won’t drink ‘Kool Aid’ on inflation – Michmutters

Domino’s stock falls on ASX, while local share market won’t drink ‘Kool Aid’ on inflation

Australian fast-food chain Domino’s is losing ground on the local share market, as the global brand exits the country that made pizza famous.

The company that has the Australian franchise rights to Domino’s fell 6 per cent on the ASX on Friday, to $69.31.

ASX-listed Domino’s Pizza Enterprises not only runs the brand in Australia and New Zealand, but also in Belgium, France, The Netherlands, Japan, Germany, Luxembourg, Denmark and Taiwan, with a total of more than 3,100 stores.

The fall came after news broke that the global brand is exiting Italy, seven years after it opened its first store there.

While the Italian and Australian arms are not connected, some investors appear to have taken fright from the brand’s struggles internationally.

The rise of delivery services — such as Deliveroo, Just Eat and Glovo — took away any advantage the American company thought it would have in Italy, according to a report to investors in 2021 by its Italian franchise holder ePizza SpA.

In Australia, the same pressures are hitting the takeaway sector too.

Domino’s Pizza has more than 18,500 stores worldwide in at least 90 countries. Most are run as franchises, including in Australia.

Energy gains but ASX falls

The energy sector was the leading light on the Australian share market today, after oil prices climbed back above $US100 a barrel overnight, with the benchmark Brent crude oil futures contract sitting just below that mark at 4:50pm AEST.

Woodside Energy Group led the gains on the ASX 200, with a 3.7 per cent rise.

Beach Energy (+3.1 per cent) and Viva Energy (+2.6 per cent) also had strong sessions.

Coal miners New Hope (+3.5 per cent) and Whitehaven (+2.5 per cent) also jumped on board the energy bandwagon.

However, while rising energy costs are good for producers, they are bad for most of the rest of the economy and may also put pressure on interest rates to keep rising at a fast pace.

That saw the ASX 200 and All Ordinaries indices both fall 0.5 per cent, to 7,033 and 7,289 points respectively.

Industrials — many of which are exposed to rising energy costs — were the worst-performing sector, down 2 per cent.

Consumer cyclicals — generally very exposed to rising interest rates that reduce household spending — fell 1.2 per cent.

The worst-performing companies on the ASX 200 were Lake Resources (-13.5 per cent), Novonix (-8.6 per cent), Telix Pharmaceuticals (-7.7 per cent), Arena REIT No 1 (-6.7 per cent) and Nanosonics (- 6.4 per cent).

IAG returns to profit

Profit reporting season continued in Australia today.

Major results out today included insurer IAG.

It announced its net profit is up to $347 million. That comes after it lost more than $400 million the previous financial year.

Its profitability is up despite its overall revenue actually down $548 million overall on the previous financial year to $18.34 billion.

The insurer said its growth “predominantly reflected rate increases to offset inflationary pressures in the supply chain and natural perils.”

It said its insurance margins were 7.4 per cent below expectations after it had to pay out a large amount of premiums for natural disasters.

This year has seen enormous amounts of claims linked to the east coast floods and storms. IAG itself was hit by more than $1 billion.

IAG gained 1.1 per cent, to $4.66.

It is paying a dividend of 5 cents per share, down from last year’s 13-cent payout.

Investors not buying the inflation ‘Kool Aid’

The ASX traded down after Wall Street had mixed results overnight.

In the US, the Dow Jones closed flat, the S&P500 ended down 0.1 per cent, and the tech-heavy Nasdaq was off 0.6 per cent.

Wall Street surged the previous day when US markets rose after the world’s biggest economy released its latest inflation data.

The data showed price hikes were starting to ease, which might soften concerns about another big rate hike of up to 0.75 per cent next month.

However, San Francisco Fed president Mary Daly said it was too early to “declare victory” on inflation, despite the better figures.

Ms Daly also said a 0.5 per cent rate hike in September was currently her “baseline”, and jobs and worker data that would be out soon also needed to be taken into consideration.

Oil up as people switch from costly gas

US 10-year Treasury yields have risen slightly, in an indication that markets, too, are still betting on rate hikes.

City Index analyst Tony Sycamore said it looked like investors will still betting on the rate US hike to be as high as 0.75 per cent.

“The interest rate market is clearly not drinking the same post-inflation Kool Aid that the equity market has slugged on,” he said.

“Financial markets initially reacted positively to [US inflation] data that showed inflation in the US is moderating, but gains [were] then whittled away on concerns the market may have overreacted,” ANZ also noted.


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