ASX starts flat as inflation, rates weigh on Wall Street
By Jessica Yun
The Australian sharemarket has opened flat on Tuesday morning following Wall Street’s lacklustre performance overnight as investors fretted about higher interest rates and inflation.
The S&P/ASX 200 was down 0.1 per cent or 8.7 points to 7530.3 points at 10:30am AEDT, with tech stocks driving losses.
Beach Energy, Whitehaven Coal and New Hope Corporation have started the day at the top of the pack, up more than 2.6 per cent, while ARB Corporation, Telix Pharmaceuticals, and Chalice Mining are at the poorest performers so far, down 5 per cent, 3.6 per cent and 2.7 per cent respectively.
Overnight on Wall Street, the S&P 500 fell 25.40, or 0.6 per cent, to 4,111.08 for its second straight fall after a stunningly strong report on the U.S. jobs market dented the market’s hopes for easing interest rates. The Dow Jones Industrial Average fell 34.99 points, or 0.1 per cent, to 33,891.02, while the Nasdaq composite dropped 119.50, or 1 per cent, to 11,887.45.
Higher rates slow the economy by design, in hopes of limiting the purchases by households and businesses that can fuel inflation. But they also raise the risk of a severe recession and hurt markets in the meantime.
Friday’s jolting jobs report showed that US employers added a third of a million more jobs than expected last month despite higher rates. Normally, such strength would be good news for markets. At the least, it should mean higher sales for many companies.
But it also raised worries a too-strong labour market will keep inflationary pressures alive and force the Fed to keep rates higher for longer. That’s in direct opposition to hopes in the market that cooling inflation could get the Fed to pause its rate increases soon and then cut rates late this year.
Such hopes had driven a big rally on Wall Street to start the year, and the S&P 500 still remains up more than 7 per cent for 2023 so far. The stocks leading the way had been the ones most beaten down last year by the rattlingly swift rise in rates engineered by the Fed to combat inflation. Those include tech stocks and others seen as the riskiest or most expensive.
Investors came into the year extremely sceptical about such stocks, and once they got a spark higher, momentum for them quickly snowballed. Analysts have said the rebound was more about improvements in sentiment than any changes in the economy or other fundamentals.
The positive sentiment has been partially checked by more signs of softer demand in the technology sector and more caution about spending from businesses overall.
Fed Chair Jerome Powell may give some more clues about where rates are heading on Tuesday, when he’s scheduled to speak at the Economic Club of Washington, D.C.
Besides Powell, markets are also waiting to hear from nearly 100 companies in the S&P 500 this week about how much profit they made during the final three months of 2022.
The earnings reporting season is at its halfway point, with roughly half the companies in the S&P 500 companies having reported, and they’re on track for a roughly 5 per cent drop from year-earlier levels, according to FactSet. That would be the first such drop since the summer of 2020, when the pandemic was ravaging the global economy.
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Source: Thanks smh.com