ASX flat as recession fears weigh on Wall Street

By Millie Muroi
Updated

The Australian sharemarket has traded largely flat on Friday, as domestic energy companies rallied against losses on Wall Street which deepened overnight on worries that the US may be headed for a painful recession.

The S&P/ASX 200 was up 11.5 points, or 0.2 per cent, at 7,446.8 about midday, as communication services and consumer discretionary sectors weighed on the index.

Wall Street has retreated this week.
Wall Street has retreated this week.Credit:NYSE

Energy companies were up 2 per cent, led by Whitehaven Coal which soared 7.2 per cent on the back of record expected earnings in the first half of 2023. Heavyweight Woodside added 1.6 per cent as oil prices gained 1 per cent on Thursday, rallying to their highest since December. The top performer was Pilbara Minerals, up 9.7 per cent after it announced strong sales and pricing outcomes for December on Thursday.

Consumer discretionary (down 0.8 per cent) and communication services (down 0.6 per cent) sectors led the fall, although the biggest large-cap decliners investment management firm Challenger (down 2.9 per cent) and plumbing supplier Reece (down 2.6 per cent).

The S&P 500 and Dow Jones Industrial Average each fell 0.8 per cent, their third-straight drop. The Nasdaq composite lost 1 per cent.

Every major index is on track for a weekly loss after the market kicked off the year with a two-week rally. Analysts expect the broader market to remain unsteady as investors try to get a clearer picture of inflation and the economy’s path ahead.

“It’s very reflective of the conflicting views that investors have with respect to where things are headed here in early 2023,” said Greg Bassuk, CEO at AXS Investments.

Reports showed weakness in several areas of the economy, including the housing industry and manufacturing in the mid-Atlantic region, though they weren’t quite as bad as expected and the job market appears to remain healthy. They follow worse-than-expected readings a day earlier on retail sales, a cornerstone of the economy, and industrial production.

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The weaker economic data “has investors a little bit on edge, questioning how much consumer resilience is left in the tank,” said Ross Mayfield, investment strategist at Baird.

The latest economic data paint a picture of an economy slowing under the weight of last year’s blizzard of rate hikes by the Federal Reserve. The central bank aggressively raised interest rates to purposely slow the economy and cool inflation. The strategy risks hitting the brakes too hard on economic growth and causing a recession.

The central bank has maintained that it won’t ease off its fight against inflation until it is sure that prices are cooling. However, that stance is making Wall Street more uneasy with every new report that shows the economy is slowing.

“The Fed is still out in the press with the same higher-for-longer mantra, so there’s a little bit of a risk-off sentiment on that,” Mayfield said.

Fed officials have also been closely watching several areas of the economy, including the labor market, to get a better sense of whether inflation is slowing. The latest weekly unemployment data shows that employment remains strong, which is good for workers but makes the Fed’s fight against inflation more difficult.

Investors are also monitoring political developments that could eventually hurt the economy. The Treasury Department says it has started taking “extraordinary measures” as the government has run up against its legal borrowing capacity. Treasury Secretary Janet Yellen sent a letter to congressional leaders Thursday urging them to act to raise the debt limit. The government can temporarily rely on accounting tweaks to stay open.

with AP

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