ASX slides as RBA won’t rule out further rate hikes; Myer and Nick Scali gain

By Millie Muroi
Updated

The Australian sharemarket continued its decline with miners, tech companies and utilities leading the fall after the Reserve Bank kept interest rates on hold but wouldn’t rule out further rate hikes as inflation remained high.

The S&P/ASX 200 dropped 56.9 points, or 0.8 per cent, to 7569.0 at about 2.35pm AEDT, having reached a record last week. All sectors except energy traded in the red, tracking Wall Street’s losses overnight. The Australian dollar gained 0.1 per cent, fetching 64.92 US cents.

Amid the sea of red, shares of Myer and Nick Scali stood out, rallying 15.8 per cent and more than 16 per cent, respectively, after both retailers released positive trading updates in the morning.

In a decision widely expected by the market, the Reserve Bank board held interest rates steady at 4.35 per cent following its first-ever two-day meeting as the economy continues to slow.

But the RBA board said despite inflation easing it remained high, and that it would be “some time” before inflation was sustainably back within its 2-3 per cent target range, leaving open the option of a further interest rate increase.

“The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks, and a further increase in interest rates cannot be ruled out,” the central bank warned.

Markets had been pricing in a 95 per cent chance of rates staying on hold following a raft of data which suggested the Australian economy is on track for a soft landing.

Growth stocks and miners were among the biggest large-cap decliners on the local bourse. Hearing implants maker Cochlear (down 6.1 per cent) and tech firms WiseTech (down 3.6 per cent) and Xero (down 2.8 per cent) all declined amid a 1.7 per cent drop in the IT sector and 0.6 per cent fall in the health sector.

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Miners (down 1.5 per cent) were also weaker as the world’s largest miner BHP lost 1.2 per cent, rival heavyweight Fortescue shed 3.2 per cent, lithium miner Pilbara Minerals lost 2.8 per cent and diversified miner South32 fell 3.1 per cent. The iron ore price dropped 0.5 per cent overnight.

Utilities (down 1 per cent) were among the weakest on the index as Origin shed 1.4 per cent and AGL lost 1.3 per cent.

Energy (up 0.3 per cent) was the only sector in the green, as heavyweight Woodside gained 0.6 per cent and Ampol climbed 0.6 per cent. Energy retailer Mercury NZ (up 2.1 per cent), GQG Partners (up 2.1 per cent) and Lynas Rare Earths (up 2 per cent) were among the biggest large-cap advancers.

Overnight on Wall Street, US stocks slipped following the latest signal that the world’s largest economy remains strong, which could delay the cuts to interest rates that Wall Street wants. The S&P 500 fell 0.3 per cent from the all-time high set on Friday. The Dow Jones dropped 0.7 per cent and the Nasdaq composite edged down by 0.2 per cent.

The US earnings season is near its midpoint, and roughly half the companies in the S&P 500 have reported their latest results, including many of the market’s most influential. Estee Lauder jumped 12 per cent after it reported better revenue and profit than analysts expected. McDonald’s, meanwhile, fell 3.7 per cent after its revenue for the latest quarter fell just short of forecasts.

Companies that have been missing analysts’ estimates for earnings this reporting season have been seeing their stocks get punished even more than usual, according to strategists at Bank of America.

The mood has become more sober on stock exchanges after last week’s record highs.
The mood has become more sober on stock exchanges after last week’s record highs.Credit: AP

Shares broadly felt pressure from another jump for yields in the bond market. They rose as traders on Wall Street delayed their expectations for when the US Federal Reserve will begin cutting its main interest rate.

The Fed has yanked the federal funds rate to its highest level since 2001 to bring down high inflation. High rates intentionally slow the economy by making borrowing more expensive and hurting investment prices.

US Federal Reserve Chair Jerome Powell said again in an interview broadcast on Sunday (US time) that the Fed may cut interest rates three times this year because inflation has been cooling. But he also reiterated in the interview on America’s 60 Minutes that it was unlikely to begin rate cuts in March, as many traders had hoped.

Following the interview, traders pushed out some bets for the cuts to begin in June instead of May, according to data from CME Group.

At Goldman Sachs, economist David Mericle was still forecasting cuts to begin in May. Following Sunday’s interview, though, he saw a greater chance of rate cuts beginning later than that and happening in a steeper fashion.

The yield on the 10-year Treasury climbed to 4.16 per cent from 4.09 per cent late on Friday and from less than 3.80 per cent late last year.

Caterpillar, the world’s largest manufacturer of construction and mining equipment which is seen as a bellwether of global economic strength, rose 2 per cent after its profit for the latest quarter topped forecasts.

Boeing fell 1.3 per cent after the discovery of another problem in some of its 737 fuselages that may delay deliveries of about 50 aircraft. Boeing and McDonald’s were two of the biggest reasons the Dow Jones Industrial Average lagged the market.

In stock markets abroad, Chinese indexes swung sharply following Beijing’s latest pledge to shore up its financial markets. Stocks sank 1 per cent in Shanghai after coming off their worst week in five years. Chinese stocks have struggled on worries about a troubled real estate industry and a disappointing overall economic recovery.

Stocks also fell nearly 1 per cent in South Korea, but index movements were more modest across the rest of Asia and Europe.

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Source: Thanks smh.com