ASX steadies after Wall Street has worst day since 2022
The Australian sharemarket has halted its downward spiral after a sell-off on Monday and steep losses on Wall Street overnight, triggered by fears the world’s largest economy is tipping into recession.
The S&P/ASX 200 added 15 points, or 0.2 per cent, to 7664.60 at 10.46am AEST, with financials, industrials and consumer discretionary stocks trading in the green. The modest rise comes after the ASX plunged 3.7 per cent on Monday, its worst day since 2020, racking up than $130 billion in two sessions.
All eyes are now on the Reserve Bank’s interest rate decision to be handed down at 2.30pm.
Wall Street has kicked off its week with more heavy losses.Credit: Bloomberg
Energy stocks tumbled 1.7 per cent after index heavyweight Woodside retreated 4 per cent to become the worst performing large-cap in early trade. Pro Medicus (down 3.8 per cent), Newmont (down 3.6 per cent) and Evolution Mining (down 2.3 per cent) were among the biggest losers.
The financials sector lifted 0.3 per cent after suffering a huge setback on Monday. CBA (up 1.2 per cent) and NAB (up 0.1 per cent) advanced, while Westpac fell 0.1 per cent and ANZ was flat.
Telix Pharmaceuticals (up 2.6 per cent), GQG Partners (up 2.3 per cent) and NEXTDC (up 2.1 per cent) were the top performing large-cap stocks.
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Treasury Wine Estates climbed 0.8 per cent after saying it will sell its struggling commercial wine unit, which houses brands such as Yellowglen and Wolf Blass, to focus on its premium brands such as Penfolds. The move will incur a $290 million writedown in its full-year results.
Investors are now awaiting the Reserve Bank’s latest interest rate decision. The central bank is widely tipped to keep borrowing costs steady at 4.35 per cent following last week’s figures showing inflation is slowing in line with the central bank’s forecasts, but investors will be looking for clues as to when it will start cutting rates.
In commodities news, spot gold slid 1.8 per cent to $US2400.32 per ounce, Brent crude fell 0.3 per cent to $US76.61 a barrel and iron ore was down 0.3 per cent to $US103.55 a tonne.
On Wall Street overnight, the S&P 500 lost 3 per cent, its worst drop since 2022. The Dow Jones fell by 1084 points, or 2.7 per cent, and the Nasdaq composite crumbled by 3.7 per cent.
The drops were just the latest in a global selloff that began last week. Japan’s Nikkei 225 plunged 12.4 per cent on Monday for its worst day since the Black Monday crash of 1987.
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It was the first chance for traders in Tokyo to react to Friday’s report showing US employers slowed their hiring last month by much more than economists expected. That was the latest piece of data on the US economy to come in weaker than expected, and it’s all raised fear the Federal Reserve has pressed the brakes on the US economy by too much for too long through high interest rates in hopes of stifling inflation.
Professional investors cautioned that some technical factors could be amplifying the action in markets, but the losses were still neck-snapping. South Korea’s Kospi index careened 8.8 per cent lower, stock markets across Europe sank more than 1 per cent and bitcoin dropped below $US55,000 from more than $US61,000 on Friday.
Even gold, which has a reputation for offering safety during tumultuous times, slipped 1 per cent.
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That’s in part because traders began wondering if the damage has been so severe that the Fed will have to cut interest rates in an emergency meeting, before its next scheduled decision on September 18.
“The Fed could ride in on a white horse to save the day with a big rate cut, but the case for an inter-meeting cut seems flimsy,” said Brian Jacobsen, chief economist at Annex Wealth Management. “Those are usually reserved for emergencies, like COVID, and an unemployment rate of 4.3 per cent doesn’t really seem like an emergency.”
The US economy is still growing, and a recession is far from a certainty. The Fed has been clear about the tightrope it began walking when it started hiking rates sharply in March 2022: Being too aggressive would choke the economy, but going too soft would give inflation more oxygen and hurt everyone.
Goldman Sachs economist David Mericle sees a higher chance of a recession within the next 12 months following Friday’s jobs report. But he still sees only a 25 per cent probability of that, up from 15 per cent, in part “because the data look fine overall” and he does not “see major financial imbalances.”
Some of Wall Street’s recent declines may also simply be air coming out of a stock market that romped to dozens of all-time highs this year, in part on a frenzy around artificial-intelligence technology and hopes for coming cuts to interest rates. Critics have been saying for a while that the stock market looked expensive after prices rose faster than corporate profits.
Professional investors also pointed to the Bank of Japan’s move last week to raise its main interest rate from nearly zero. Such a move helps boost the value of the Japanese yen, but it could also force traders to scramble out of deals where they borrowed money for virtually no cost in Japan and invested it elsewhere around the world.
US stocks pared their losses on Monday after a report said growth for US services businesses was a touch stronger than expected. Growth was led by businesses in the arts, entertainment and recreation businesses, along with accommodations and food services, according to the Institute for Supply Management. Treasury yields also pared their drops following the better-than-expected data.
Still, stocks of companies whose profits are most closely tied to the economy’s strength took sharp losses on the fears about a slowdown. The small companies in the Russell 2000 index dropped 2.8 per cent, further dousing what had been a revival for it and other beaten-down areas of the market.
Making things worse for Wall Street, Big Tech stocks also tumbled as the market’s most popular trade for much of this year continued to unravel. Apple, Nvidia and a handful of other Big Tech stocks known as the “Magnificent Seven ” had propelled the S&P 500 to records this year, even as high interest rates weighed down much of the rest of the stock market.
But Big Tech’s momentum turned last month on worries investors had taken their prices too high and expectations for future growth are becoming too difficult to meet.
Apple fell 4.8 per cent after Warren Buffett’s Berkshire Hathaway disclosed that it had slashed its ownership stake in the iPhone maker.
Nvidia, the chip company that’s become the poster child of Wall Street’s AI bonanza, fell even more, 6.4 per cent. Analysts cut their profit forecasts over the weekend for the company after a report from The Information said Nvidia’s new AI chip is delayed. The recent selling has trimmed Nvidia’s gain for the year to 104 per cent from 170 per cent in the middle of June.
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Alphabet shares lost 4.8 per cent. Earlier in the day, a US judge ruled that Google violated antitrust law, spending billions of dollars to create an illegal monopoly and become the world’s default search engine, the first big win for federal authorities taking on Big Tech’s market dominance.
Because the Magnificent Seven companies are the market’s biggest by market value, the movements for their stocks carry much more weight on the S&P 500 and other indexes.
AP
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