ASX declines after Wall Street retreats on fading rate cut hopes

By Stan Choe and Miriam Steffens
Updated

The Australian sharemarket opened sharply lower on Thursday, tracking losses on Wall Street after another signal that the market may have gotten too optimistic about when the US Federal Reserve will deliver the cuts to interest rates traders crave so much.

The S&P/ASX 200 dropped 55 points, or 0.74 per cent, to 7338.10 as of 11.07 am AEDT, with all sectors in the red. The mining and real estate sectors led the declines, with falls of 1.2 per cent and 2 per cent, respectively. The Australian dollar continued to soften, trading at 65.51 US cents.

Wall Street posted a second-straight day of losses.
Wall Street posted a second-straight day of losses.Credit: AP

Market heavyweight BHP slumped 1.5 per cent after flagging it is looking to cut costs at its West Ausralian nickel operation following a 17 per cent fall in the price for the steel-making ingredient in the December quarter. The miner’s cash cow iron ore operation in WA’s Pilbara had a 3 per cent dip in output in the quarter, but this was more than offset by a 21 per cent rise in the average realised price for the metal.

Qantas Airways shed 1 per cent. The nation’s biggest airline said it has appointed Andrew Glance as the new head of its lucrative loyalty division after the departure of company veteran Olivia Wirth.

Wirth said in October she would leave in February after the Qantas board appointed Vanessa Hudson as CEO. Wirth was considered to be the only other likely candidate for the top job. Glance is currently the executive manager of commercial partnerships and business rewards.

APM Human Services dived more than 34 per cent after the employment services firm warned its first-half net profit would fall to $55 million from $74.5 million in the prior year due to persistent low levels of unemployment, which meant it was booking fewer placements in Australia and the UK.

The Australian market’s losses came after the S&P 500 fell 0.6 per cent overnight, its second straight stumble after trading near its all-time high. The Dow Jones dipped by 0.3 per cent and the Nasdaq composite slumped 0.6 per cent.

Rising yields in the bond market once again put pressure on stocks. Yields climbed after a report showed sales at US retailers were stronger last month than economists expected. While that’s good news for an economy that’s defied predictions for a recession, it could also bolster inflation.

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That in turn could push the US Federal Reserve to wait longer than traders expect to begin cutting interest rates after jacking them drastically higher over the last two years. Lower rates would relax the pressure on the economy and financial system, while also goosing prices for investments.

The yield on the 10-year Treasury jumped immediately after the retail-sales report and climbed to 4.10 per cent from 4.06 per cent late on Tuesday. Higher yields can crimp profits for companies, while also making investors less willing to pay high prices for stocks.

Higher yields hurt all kinds of investments, and high-growth stocks tend to be some of the hardest hit. Drops of 2 per cent for Tesla and 0.9 per cent for Amazon weighed on the S&P 500. The smaller companies in the Russell 2000 index also slumped as much as 1.5 per cent before paring their loss to 0.7 per cent.

The Dow Jones Industrial Average, meanwhile, has less of an emphasis on tech and high-growth companies. That helped limit its losses relative to the rest of the market.

The yield on the two-year Treasury, which more closely tracks expectations for the Fed, also jumped. It climbed to 4.34 per cent from 4.22 per cent late on Tuesday as traders trimmed their expectations for the Fed’s first rate cut to arrive in March. Traders are now betting on a less than 60 per cent chance of that, down from roughly 70 per cent a month earlier, according to data from CME Group.

A top Fed official, governor Christopher Waller, said on Tuesday (Washington time) that the US central bank could take its time before its next move on rates given how resilient the economy has remained.

“These comments leave a rate cut as early as March on the table but also indicate that such a move is not a done deal,” according to economists at Deutsche Bank led by Amy Yang.

Across the Atlantic Ocean on Wednesday (Brussels time), the head of the European Central Bank warned in a speech about the risks of cutting rates too soon.

If Wall Street’s predictions for the timing of the rate cuts it desires so much do indeed prove wrong, it would be just the latest example of over zealousness by traders. Interest rates are one of the main levers that set stock prices. The other is corporate profits, and several US companies reported weaker results on Wednesday than analysts expected.

US Bancorp fell 1.4 per cent after reporting weaker profit than analysts had forecast. Big 5 Sporting Goods fell 8 per cent after saying it expects to report a worse loss for the last three months of 2023 than earlier expected because of weak sales of winter-related products. The company said it was hurt by warmer temperatures and a lack of snowfall in America’s West from October through December.

Charles Schwab reported stronger profit for the latest quarter than analysts expected, but its stock still fell 1.3 per cent. Its revenue fell short of estimates, and analysts said its better-than-expected earnings were likely due in part to easier tax rates.

Spirit Airlines was under heavy pressure again and sank 22.5 per cent. Its stock nearly halved a day before after a US judge blocked its purchase by JetBlue Airways out of fear that it would lead to higher airfares.

Wall Street’s losses overnight followed a rough day for financial markets worldwide. Stock indexes fell roughly 1 per cent in Europe following the comments by the head of the European Central Bank, Christine Lagard.

They dropped even more sharply in Asia. Stocks sank 3.7 per cent in Hong Kong and 2.1 per cent in Shanghai as worries continue about a sluggish recovery for the world’s second-largest economy.

Japan’s Nikkei 225, which has been one of the new year’s biggest winners, also fell and slipped 0.4 per cent.

with AP

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