Australian shares drop on hotter-than-expected inflation data in US

By Millie Muroi
Updated

The Australian sharemarket fell on Friday after data released in the US overnight showed inflation was stronger than expected and traders pared back their expectations of an early interest rate cut.

The S&P/ASX 200 dropped 20.6 points, or 0.3 per cent, to 7485.4 at about 10.40am AEDT as nine out of the eleven sectors traded in the red.

The ASX is expected to inch up at the open as traders digest the latest data from the US.
The ASX is expected to inch up at the open as traders digest the latest data from the US. Credit: Louie Douvis

Miners (up 0.4 per cent) and energy companies (up 0.1 per cent) were the only sectors in positive territory. Iron ore heavyweights Rio Tinto (up 1.2 per cent), Fortescue (up 0.8 per cent) and BHP (up 0.4 per cent) were among the biggest large-cap advancers as the iron ore price increased 1.1 per cent overnight. Santos (up 0.5 per cent) was also stronger on the back of a 0.6 per cent lift in Brent crude oil prices.

Packaging company Amcor (up 0.9 per cent), health equipment supplier EBOS Group (up 0.9 per cent) and gold company Northern Star (up 0.8 per cent) also stepped up.

Meanwhile, interest rate sensitive sectors including utilities and information technology were weaker.

Energy retailer AGL (down 2.2 per cent) was the biggest large-cap decliner, and along with Meridian Energy (down 1.9 per cent), dragged down the utilities sector (down 1.5 per cent) where companies tend to have large borrowing costs for infrastructure.

Information technology companies (down 1 per cent) were also weaker with TechnologyOne (down 1.4 per cent) and WiseTech (down 1.1 per cent) both falling.

The big four banks traded in the red. CBA shed 0.3 per cent, NAB lost 0.9 per cent, Westpac declined 0.7 per cent and ANZ fell 0.8 per cent as the broader financials sector dropped 0.5 per cent. IDP Education (down 2.1 per cent), Cleanaway Waste (down 1.9 per cent) and Qube Holding (down 1.2 per cent) were among the biggest large-cap decliners.

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US stocks fell overnight as news of hotter-than-expected inflation and signs of labour market strength dampened hopes for early interest rate cuts by the Federal Reserve this year.

Equities opened higher and the benchmark S&P 500 briefly surpassed its record closing high of 4,796.56, hit in January 2022, before erasing initial gains.

After ending 2023 with a strong rally, stocks have struggled to find upward momentum, with the S&P 500 slightly negative on the year, as mixed economic data and Federal Reserve officials’ comments have led investors to scale back expectations for the timing and size of any rate cuts from the US central bank this year.

The US Labor Department reported that consumer prices rose more than expected in December, with Americans paying more for shelter and healthcare. A separate report showed the number of people filing new claims for unemployment benefits unexpectedly fell last week to 202,000.

“Today’s inflation report reinforces the notion that the market had gotten a little overexcited around the timing of rate cuts,” said Seema Shah, chief global strategist at Principal Asset Management in London.

“These are not bad numbers, but they do show that disinflation progress is still slow and unlikely to be a straight line down to 2 per cent. Yet, while the market was probably overenthusiastic in its initial expectations, the stars should finally align for Fed cuts – most likely around mid-year.”

Comments from some Fed officials have pushed back on potential rate cuts. On Wednesday, Federal Reserve Bank of New York President John Williams said it was too soon to call for rate cuts as the central bank still had some distance to go on getting inflation back to its 2 per cent target.

Cleveland Federal Reserve President Loretta Mester said on Thursday the path of inflation back to the 2 per cent target rate reflected in the latest CPI figures meant it was likely too soon to cut rates in March. Richmond Fed President Tom Barkin said he was still waiting to be convinced the pace of price increases would stabilise, and inflation gains have been too narrowly focused on goods.

The Dow Jones Industrial Average fell 64.84 points, or 0.19 per cent, to 37,631.42. The S&P 500 dropped 12.62 points, or 0.25 per cent, to 4,771.38 and the Nasdaq Composite lost 31.90 points, or 0.21 per cent, at 14,938.63.

Microsoft briefly overtook Apple as the world’s most valuable company, after the iPhone maker’s shares dropped nearly 4 per cent since the year began due to concerns over falling demand. Microsoft’s shares rose 0.5 per cent, while Apple dipped 0.6 per cent.

Nearly all the S&P 500’s 11 major sectors declined, with only energy and technology in positive territory.

Crypto stocks such as Coinbase, Bitfarms and Riot Platforms reversed early gains and turned lower. The US securities regulator approved the first US-listed exchange-traded funds (ETF) to track spot bitcoin late on Wednesday.

Citigroup fell 2 per cent after a filing showed the lender booked about $3.8 billion in combined charges and reserves that will erode its fourth-quarter earnings, due to be reported on Friday.

Other banks like JPMorgan Chase lost 0.7 per cent, Bank of America fell 1.7 per cent and Wells Fargo shed 1.6 per cent ahead of their earnings reports on Friday.

Declining issues outnumbered advancers for a 1.9-to-1 ratio on the NYSE and a 2-to-1 ratio on the Nasdaq.

The S&P index recorded 33 new 52-week highs and one new low, while the Nasdaq recorded 84 new highs and 127 new lows.

With Reuters

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Source: Thanks smh.com