ASX hits three-week low amid Wall St jitters

The lowdown:

It was “not a big surprise” that the local share market closed lower for the fifth time in the past six sessions, says IG market analyst Hebe Chen, “given that on Wall Street they’ve had one of the worst weeks of 2023.”

“There’s still quite a bit of talk about interest rates and inflation in the US, so that would definitely have kept the pressure on market sentiment.”

As company earnings reports start to pick up, the ASX will see have interesting week, says senior investment adviser Adam Dawes.

“Obviously in a couple of weeks we’ll be at the pointy end of the reporting season, but certainly the ones that stood out to me today were Endeavour, so that was pretty good. But the rest of them were pretty negative, like JB Hi-Fi and Star,” he says.

Looming interest rates rises by the US Federal Reserve and Reserve Bank will tinker with the market, but it’s the employment rate figures that will come down as the year progresses, says Dawes.

“The US employment data came out fairly strong, employment rose by 70,000 jobs, but, I think we’re going to be looking for more subdued number next time, which will help because I think that was definitely a blowout.”

Wall Street has ramped up bets on the US Federal Reserve’s peak rate to around 5.2 per cent, from under 5 per cent earlier this month, amid a barrage of hawkish remarks from US officials that followed a hot jobs market report. And that’s not all. Traders who had been positioning for the central bank to increase rates only once more are suddenly being confronted with wagers on at least three more rises.

That’s why the US consumer price index out on Wednesday Australian time is seen as a litmus test for the Fed’s ability to thwart inflation amid the most aggressive tightening cycle in decades. Core CPI will either point to the need to push further into restrictive territory or reflect the progress policymakers have made towards securing the anchor of inflation expectations, said Ian Lyngen at BMO Capital Markets.

“The new year’s bullishness has quickly faded as investors recalibrated forward expectations in the wake of the employment report,” Lyngen said.

‘There’s still quite a bit of talk about interest rates and inflation in the US, so that would definitely have kept the pressure on market sentiment.’

Hebe Chen, IG market analyst

Higher rates can drive down inflation, but they also raise the risk of a recession and drag down investment prices. And central banks around the world are intent on tightening the screws by raising rates further, even if at a slower pace than before.

The worries about rates mean much of Wall Street’s action has been in the bond market, where yields have climbed on expectations for a firmer Fed. The yield on the 10-year Treasury, which helps set rates for mortgages and other important loans, rose to 3.73 per cent from 3.66 per cent late on Thursday.

In corporate news, ride-sharing group Lyft tumbled the most on record after forecasting dramatically lower profits than expected and saying it would cut prices in an attempt to attract and keep customers.

News Corp’s US shares fell 9.4 per cent after the owner of The Wall Street Journal and other media reported weaker quarterly results than expected. It also said it would cut 5 per cent of its workforce in 2023 as it contends with higher interest rates and inflation. Travel group Expedia lost 8.6 per cent after reporting weaker profit and revenue for the latest quarter than expected.

Traders also kept an eye on the latest geopolitical developments.

President Joe Biden ordered the Pentagon to shoot down an object spotted at 40,000 feet over Alaska less than a week after fighter jets targeted an alleged Chinese surveillance balloon that had crossed the US and provoked a national uproar.

Elsewhere, oil gained as Russia plans to cut its oil output by 500,000 barrels a day next month, following through on a threat to retaliate against Western energy sanctions and sending oil prices sharply higher.

The yen strengthened after reports that Kazuo Ueda would be picked to become the Bank of Japan’s next governor. Investors initially interpreted the decision as likely a hawkish choice. Those gains were trimmed after Ueda spoke to reporters and said the BOJ’s stimulus should stay in place.

“Why do we care? Because the BOJ is locked into ultra-dovish policy,” said Chris Low at FHN Financial. “It is the only major central bank fighting to keep inflation high rather than trying to lower it. Now we’ll have to see how long he sticks to the old policy.”

Quote of the day:

“The best we can hope for is the Fed not raising rates too high and just being patient.”

Yung-Yu Ma, chief investment strategist at BMO Wealth Management

Tweet of the day:

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