Energy company strength fails to power ASX into positive territory

The Australian sharemarket opened a touch weaker on Monday despite a step-up in oil prices following and a faintly positive lead from Wall Street.

The S&P/ASX 200 dropped 1.4 per cent, or 0.02 per cent, to 7487.7 at about 10.20am AEDT as all sectors except energy, financials and miners traded in the red.

The Australian sharemarket traded slightly weaker on Monday.
The Australian sharemarket traded slightly weaker on Monday.Credit: Bloomberg

Energy companies (up 0.6 per cent) were among the strongest companies on the local bourse on Monday as coal miners Whitehaven (up 2.5 per cent) and Yancoal (up 0.9 per cent) stepped up. Heavyweights Woodside (up 0.6 per cent) and Santos (up 0.1 per cent) were also stronger on the back of a jump in crude oil prices in the US on Friday. Brent crude rose 1.5 per cent on Friday to $US78.76 on the back of supply disruptions in Libya and higher tensions in the Middle East.

Miners (up 0.2 per cent) were also relatively stronger as gold producers Endeavour (up 1.3 per cent) and Northern Star (up 0.8 per cent) advanced on the back of a 0.2 per cent increase in spot gold prices.

Packaging company Amcor (up 1.5 per cent), Insurance Australia Group (up 1.4 per cent) and South32 (up 1.1 per cent) were also among the biggest large-cap advancers.

On the losing end, interest-rate sensitive sectors including utilities (down 0.5 per cent) and real estate investment trusts (REITS, down 0.3 per cent) were among the weakest sectors as Charter Hall Group shed 1.2 per cent and Origin Energy lost 0.7 per cent.

ProMedicus (down 0.8 per cent) was the biggest large-cap decliner, followed by lithium player Pilbara Minerals (down 0.8 per cent) and Resmed (down 0.7 per cent).

Consumer staples (down 0.4 per cent) were also weaker as Woolworths dropped 0.6 per cent and Treasury Wine Estates declined 0.8 per cent).

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

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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’s 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 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.

‘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

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.

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.

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 side-stepping 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.

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

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.

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