Australian sharemarket slides as US jobs data dampens hopes of rate cut

By Millie Muroi
Updated

Welcome to your five-minute recap of the trading day, and how experts saw it.

The numbers

The Australian sharemarket closed lower in its fourth consecutive trading day of losses on Monday despite an increase in oil prices and a faintly positive lead from Wall Street, as US jobs data over the weekend dampened hopes of rate cuts.

The S&P/ASX 200 dropped 37.6 per cent, or 0.5 per cent, to 7451.5 as all sectors ended the day in the red after a day of mixed trading.

The Australian sharemarket traded slightly weaker on Monday despite a positive lead from Wall Street.
The Australian sharemarket traded slightly weaker on Monday despite a positive lead from Wall Street.Credit: Bloomberg

The lifters

Energy companies (down 0.03 per cent) were among the most resilient companies despite heavyweights Woodside (down 0.4 per cent) and Santos (down 0.7 per cent) giving back their gains after a positive start. Coal miner Whitehaven (up 2 per cent) was among the top performers.

IDP Education (up 2.6 per cent) and Domino’s Pizza (up 1 per cent) helped offset some of the losses in the consumer discretionary sector (down 0.2 per cent). Meridian Energy (up 2.2 per cent), infrastructure investment firm Infratil (up 2 per cent) and insurers IAG (up 1.9 per cent) and Medibank Private (up 0.8 per cent) were also among the biggest large-cap advancers.

The laggards

Miners (down 0.7 per cent) were among the weakest companies on the index as Pilbara Minerals (down 2.8 per cent) declined along with Lynas Rare Earths (down 1.9 per cent) and iron ore heavyweight Fortescue (down 1.6 per cent).

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Healthcare firms (down 0.8 per cent), information technology companies (down 0.8 per cent) and consumer staples (down 0.6 per cent) were also weaker as Cochlear shed 2.3 per cent, Treasury Wine Estates lost 2 per cent and Altium dropped 1.3 per cent.

The lowdown

A strong jobs report in the world’s largest economy over the weekend dampened investors’ hopes of rate cuts and weighed down sentiment in equity markets across the US and Australia.

Pilbara Minerals was down 2.8 per cent in trading on Monday.
Pilbara Minerals was down 2.8 per cent in trading on Monday.Credit: Christian Sprogoe

Interest-rate sensitive sectors including mining, healthcare and information technology were among those hardest hit on the ASX, although even companies that tend to be more resilient in high-interest and high-inflationary environments, such as consumer staples, also dived.

Despite an early boost for energy companies on the back of rising oil prices, the country’s heavyweight oil companies had dropped by the close, as prices for the commodity decreased during the day. Brent Crude Oil prices were 1.1 per cent lower on Monday.

On Friday, equities in the US had a dour start to the year as traders clung to wagers that a March interest rate cut was still on the table following a slew of mixed data in the jobs and US service sector.

The S&P 500 eked out a 0.2 per cent gain as Friday closed the sharemarket’s worst week since late October. The equities benchmark kicked off the new year by snapping its nine-week bull run. The Nasdaq 100 also squeezed out a small advance after five days of losses.

The first few days of the year started off with a sell-off in 2023’s big tech winners, including Apple and Nvidia.

The downbeat tone of the shortened holiday week signals rough waters ahead for equities in the first half, according to Fundstrat Global Advisors’ Tom Lee. The jobs data “adds to misery of early 2024”, he said.

“The first four trading days of 2024 have been a terrible start for equities,” Lee wrote in a note to clients. “The year tends to play out in January. Meaning, this turmoil in the first week of trading is telling us to brace for a challenging year.”

‘The year tends to play out in January. Meaning, this turmoil in the first week of trading is telling us to brace for a challenging year.’

Tom Lee, Fundstrat Global Advisors

The strategist, who was one of the few to forecast last year’s bull run, still expects a rally in the latter half of the year.

Richmond Fed president Thomas Barkin said on Friday the labour market was moving in a steady, softening pattern and the Federal Reserve can lower rates as the economy normalises and confidence grows about the downward path of inflation.

Friday’s strong jobs report initially battered stocks and bonds, but a brief rebound was staged after data showing the US service sector slowed in December but remained above a key level that indicates expansion.

US Treasuries ended Friday lower after a choppy session, notching a weekly slide. The yield on the 10-year rose to 4.05 per cent. US bonds were whipsawed after data showing non-farm payrolls rose by 216,000, a larger than expected gain, and the unemployment rate held steady at 3.7 per cent in December.

US Treasury secretary Janet Yellen is optimistic the US economy will avoid recession.
US Treasury secretary Janet Yellen is optimistic the US economy will avoid recession.Credit: AP

The jobs report initially cooled wagers on faster and deeper rate cuts from the Fed. But swaps traders eventually reformed bets on roughly 140 basis points of easing this year, with about a 70 per cent chance of a decrease in March. Some on Wall Street kept faith in the central bank’s ability to cool the economy while sidestepping a downturn.

“Clearly, the economy is strong enough as of now to withstand the Fed’s currently elevated interest rates,” according to Jeremy Straub, chief executive officer of Coastal Wealth.

Treasury secretary Janet Yellen was also optimistic the world’s largest economy was on the right path after declaring the US had achieved a much-anticipated soft landing.

But many were sceptical about the prospect of deeper rate cuts after the payrolls report – noting the devil was in the details. The data did little to change the views of economists at Goldman Sachs Group and JPMorgan, as the banks reiterated their forecasts on rate cuts.

“This number does question the confidence of the market around the March cut,” said Lindsay Rosner, a portfolio manager at Goldman Sachs Asset Management. “We’ve got three inflation prints between now and the March meeting. Every number counts.”

Investors will get a taste next Thursday. Consumer inflation for the year is projected to come in at 3.2 per cent, according to economists surveyed by Bloomberg. Investors will also be watching the financial sector next Friday as JPMorgan Chase & Co and other big banks kick off earnings.

BMO Capital’s Ian Lyngen said Friday’s better-than-expected jobs report “affords the Fed plenty of flexibility to delay cutting rates early in 2024”.

Vital Knowledge’s Adam Crisafulli was even more circumspect: “Hourly wage growth ran hot, and the participation rate sank, all of which suggests markets are far off the mark in terms of what they’re pricing in for 2024 Fed easing.”

The US dollar edged lower after being whipsawed by the data. Oil climbed, cementing a weekly gain, as simmering tensions in the Middle East and North Africa eclipsed signs of weakening US demand.

Tweet of the day

Quote of the day

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