Miners drag down ASX despite positive inflation surprise

The Australian sharemarket ended the day firmly in the red on Wednesday despite a brief uptick following the latest consumer price index data, which showed inflation had slowed to the lowest rate since January 2022.

The S&P/ASX200 dropped 52 points, or 0.7 per cent, to 7468.5 at the close as miners, utilities and consumer staples dragged the index lower.

Investors are trying to assess the next interest rate moves.
Investors are trying to assess the next interest rate moves.Credit: Reuters

It comes after the monthly headline consumer price indicator cooled to 4.3 per cent in the year to November, from 4.9 per cent in October, according to the Australian Bureau of Statistics. The consensus forecast had been for an inflation rate of 4.4 per cent.

The inflation data will help guide the Reserve Bank’s decision on interest rates when it next meets on February 6 after its summer break. The central bank is looking for evidence of a slowdown in the Australian economy before ending its series of rate rises.

Independent economist Nicki Hutley said she felt reasonably confident about there not being a rate rise when the Reserve Bank next meets.

“The Reserve Bank is looking for things that would be an upward surprise,” she said. “And this, clearly, is not that. I think the language from the RBA has been ‘we’re steady as she goes’ unless something goes wrong, and this [the inflation data] gives confidence that what they’ve been doing is working.”

Mining stocks (down 2.1 per cent) dragged down the ASX, but interest-rate-sensitive sectors, including real estate investment trusts (REITS, up 0.6 per cent) and information technology (up 0.6 per cent), closed in the green after the inflation data dampened the likelihood of another interest rate rise.

GQG Partners was the biggest mega-cap advancer, with its shares lifting 3.2 per cent, followed by Altium (up 2.2 per cent) and JB Hi-Fi (up 1.7 per cent).

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REITS (up 0.6 per cent) were among the strongest on the local bourse with all its large-cap companies trading higher except LendLease Group (down 1.2 per cent). Information technology stocks (up 0.6 per cent) also rallied as data centre operator NEXTDC (up 1.2 per cent) stepped up.

Iron ore heavyweights BHP (down 2.3 per cent) and Rio Tinto (down 2.3 per cent) were among the biggest large-cap decliners, along with gold miner Newmont, which tumbled 4.4 per cent, lithium player IGO, which dropped 8.1 per cent and Mineral Resources, which lost 6.1 per cent.

Consumer staples (down 0.8 per cent) and utilities (down 1.1 per cent), which tend to perform relatively better in high-interest rate environments, were among the weakest sectors as supermarket giants Coles (down 1.4 per cent) and Woolworths (down 0.8 per cent) traded lower, along with electricity generator Mercury NZ (down 3.3 per cent).

The price of oil, which recorded its biggest drop in more than a month on Tuesday, rebounded overnight, with Brent crude lifting 2.2 per cent to $US77.8 a barrel. However, following an early gain, the energy sector closed 0.2 per cent lower.

US stocks fluctuated overnight as investors assess the timing and size of the Federal Reserve’s interest rate cuts in 2024 before US inflation data later this week.

The S&P 500 and Dow Industrials slipped, pressured by a modest rise in Treasury yields. Expectations the US central bank could begin cutting rates as soon as March have been slowly decreasing, with CME’s FedWatch Tool showing a 63.8 per cent chance for a cut of at least 25 basis points for the month, down from 79 per cent a week ago.

“It’s all speculation on what the Fed may or may not do, and the bond market clearly got ahead of itself in anticipating rate cuts starting in March,” said Tim Ghriskey, senior portfolio strategist at Ingalls & Snyder in New York. “The market is just jumping one way or the other trying to get ahead of things if they occur.”

The Dow Jones Industrial Average fell 0.4 per cent to 37,525.16 points; the S&P 500 lost 0.2 per cent while the Nasdaq Composite added 0.1 per cent.

Stocks had rallied in the previous session, with the Nasdaq and S&P 500 scoring their first daily percentage climbs of more than 1 per cent since Dec. 21 and biggest one-day percentage advances since November 14. In the local market, the S&P/ASX200 rallied 0.9 per cent to 7520.5 on Tuesday, with 10 out of 11 sectors trading higher.

Atlanta Fed president Raphael Bostic on Monday stressed the need to keep monetary policy tight, while Fed governor Michelle Bowman retreated from her persistently hawkish view and signalled a willingness to support eventual rate cuts as inflation eases.

Boeing weakened for a second straight session, down 1.3 per cent, as the US National Transportation Safety Board continued its probe into the plane maker following a blown-out panel on an Alaska Airlines flight over the weekend.

Juniper Networks surged 22.2 per cent after a source told Reuters that Hewlett Packard Enterprise was in talks to buy the networking product maker in a $US13-billion deal. The server maker dropped 7.3 per cent.

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