ASX slips after Fed jitters spoil mood on Wall Street
By Rita Nazareth, Stan Choe and Najma Sambul
The Australian sharemarket has slipped at the open as the profit reporting season extends into its second week and global markets brace for the latest news on inflation in the US economy on Wednesday.
The S&P/ASX200 dropped 15 points, or 0.2 per cent, to 7,418.70 at 10.05 am AEDT.
Materials, industrials, health care and tech all suffered the biggest losses, while consumer staples was the only sector to open in the green. Sleep disorder and breathing devices company ResMed and consumer electronics giant JB-Hi Fi both lost 1.60 per cent and 1.65 per cent, respectively. Carsales.com and SEEK were also both in the red.
The big miners Rio Tinto and BHP took losses in the early trade, while Fortescue had a slight bump of 0.36 per cent.
Among the lifters were IAG insurance and Ampol, both gaining just over 1 per cent each, while gas and oil giant Santos was up 1.58 per cent.
ASX futures traded unchanged at 7357 over the weekend after the S&P/ASX 200 lost 0.8 per cent on Friday as corporate results weighed on investor sentiment. On Wall Street, stocks indexes drifted to a mixed finish on Friday, ending the worst week for stocks and bonds this year so far as investors were coming to grips with the idea that the US central bank may indeed have to keep interest rates higher for longer as it wages a war against inflation.
The S&P 500 rose 0.2 per cent, but it still ended the week with a drop of 1.1 per cent. The Dow Jones Industrial Average gained 0.5 per cent, while the Nasdaq composite fell 0.6 per cent.
Wall Street has ramped up bets on the Fed’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 hike only once more are suddenly being confronted with wagers on at least three more increases.
That’s why this week’s consumer price index 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 toward 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.
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 best we can hope for is the Fed not raising rates too high and just being patient, letting them remain at that level for a while to see how things play out,” said Yung-Yu Ma, chief investment strategist at BMO Wealth Management.
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 pe cent late Thursday.
In corporate news, Lyft tumbled the most on record after forecasting dramatically lower profits than expected and saying it will 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 will 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 news 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.”
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