By Jessica Yun
The Australian sharemarket has lifted slightly at the open, shrugging off Wall Street’s wobbles overnight over worries about the banking system and the global economy. CBA shares lifted after the nation’s biggest bank revealed a record $10.2 billion profit.
The S&P/ASX 200 edged up 0.1 per cent, or 7.8 points, to 7,318.9 points as o 10:20am AEST, as financial stocks lifted the local bourse.
Commonwealth Bank was up 2 per cent after posting its result and revealing it will lift its dividend even as it sees increased risks from cost-of-living rises and high interest rates.
“The Australian economy has been resilient with the tailwinds of a recovery in population growth, relatively high commodity prices and low unemployment,” its chief Matt Comyn said in a statement.
Overnight on Wall Street, the S&P 500 fell 0.4 per cent and at one point was down nearly triple that. It was its fifth loss in the last six days after the index rocketed through the year’s first seven months. The Dow Jones retreated by 0.4 per cent and the Nasdaq lost 0.8 per cent.
In the US, bank stocks fell after Moody’s cut the credit ratings for 10 smaller and midsized lenders. It cited a list of concerns about their financial strength, from the effects of higher interest rates to the work-from-home trend that’s leaving office buildings vacant.
Across the Pacific, stocks sank after a report showed exports for China’s troubled economy shrank by the most since the start of the pandemic in 2020. And in Europe, bank stocks dropped after Italy’s Cabinet approved a proposal to tax a chunk of their profits this year.
The worries layered on top of a mixed set of earnings reports from big US companies.
Treasury yields fell in the bond market as investors moved into investments considered safer. It’s a comedown from the climb yields have been on recently, which has pressured the stock market.
The Federal Reserve has hiked its main interest rate to the highest level in more than two decades in hopes of grinding down inflation. High rates work by slowing the entire economy bluntly, which has raised the risk of a recession. And the much higher rates have hit banks particularly hard.
While downgrading credit ratings for 10 banks and putting six others under review, Moody’s said the rapid rise in rates has led to conditions that hurt profits for the broad industry. Higher rates also knock down the value of investments that banks made when rates were super low. Such conditions helped cause three high-profile failures for US banks this past spring, which shook confidence in the system.
Moody’s also said troubles may be coming for banks with lots of commercial real estate loans, which are threatened as work-from-home trends keep people out of offices.
“This comes as a mild US recession is on the horizon for early 2024 and asset quality looks set to decline from solid but unsustainable levels,” Moody’s Jill Cetina and Ana Arsov wrote in a report.
Later this week, the US government will release data on consumer and wholesale inflation, which could influence what the Federal Reserve does next with interest rates.
The hope on Wall Street is that the cooldown in inflation since it topped 9 per cent last summer will help persuade the Fed no more rate hikes are needed.
But some economists and investors say getting inflation down that last bit to the Fed’s target of 2 per cent is likely to be the most difficult. They’re saying that Wall Street has become convinced too quickly about a “soft landing” coming for the economy and that the 19.5 per cent run for the S&P 500 through the first seven months of this year was overdone.
In the bond market, the yield on the 10-year Treasury fell to 4.02 per cent from 4.10 per cent late Monday. It helps set rates for mortgages and other loans.
The two-year Treasury yield, which more closely tracks expectations for the Fed, slipped to 4.75 per cent from 4.79 per cent.
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Source: Thanks smh.com