ASX slumps after US inflation data shocks Wall Street; $A tumbles

By Sumeyya Ilanbey
Updated

The Australian sharemarket opened sharply lower after heavy losses on Wall Street, where hotter-than-expected inflation data for the US dashed hopes of an imminent rate cut by the Federal Reserve.

The S&P/ASX 200 fell 83.08 points, or 1.09 per cent, to 7520.50 at about 12.15pm AEDT. The only sector trading in the green was industrials (up 0.20 per cent), which was buoyed by a rally in Seven Group Holdings (up 6.24 per cent) and Computershare (up 4.35 per cent) following the release of their half-yearly earnings. The financial, real estate, IT and mining sectors each slumped by between 1 per cent to 2 per cent.

The Australian dollar fell sharply after the release of the US inflation data. It lost 1.2 per cent overnight and was fetching 64.47 US cents as of 12.17pm AEDT.

Wall Street has fallen sharply after worse-than-expected inflation figures.
Wall Street has fallen sharply after worse-than-expected inflation figures.Credit: NYSE

Financials stocks (down 1.7 per cent) recorded the greatest declines after the Commonwealth Bank’s $5 billion cash profit fell short of analyst expectations, with profit margins suffering from competition in the mortgage market, and CEO Matt Comyn warned that Australian households continue to feel pressure and cut back on spending in the current environment. CBA shares plunged 3 per cent, NAB fell 1.82 per cent, Westpac declined 1.91 per cent and ANZ was down 1.63 per cent.

A rally in AMP (up 7.73 per cent), which promised investors to return a further $295 million through dividends or buying back shares even as its net profit fell 32 per cent, was not enough to boost the rest of the sector.

Other poor market performers were Northern Star Resources (down 3.16 per cent), Newmont Corporation (down 3.24 per cent) and Harvey Norman (down 1.88 per cent).

On the flipside, IDP Education cemented itself as the best performing large-cap stock after its shares soared 12.06 per cent on the back of its earnings report showing a 23 per cent jump in net profit to $107 million.

Shares of industrial giant Seven Group hit a record after its half-year result beat market expectations and it raised its forecasts for the full year. A strong result from its industrial services businesses, Boral, Coates and Westrac, saw revenue jump 17 per cent to $5.4 billion and net profit soar 31 per cent to $474 million. The stock jumped more than 6 per cent to a record high of $38.66.

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On Wall Street overnight, the S&P 500 closed 1.4 per cent lower as traders delayed their forecasts for when the Federal Reserve will deliver the cuts to interest rates they crave so much. The hotter-than-expected inflation report may have put the final nail into hopes that the first cut could arrive in March. It also pushed many forecasts past May into June, according to data from CME Group.

The Dow Jones fell 1.4 per cent, retreating from its record set a day earlier. The Nasdaq composite, which has been flirting with its all-time high set in 2021, lost 1.8 per cent.

High interest rates hurt all kinds of investments, and they tend to particularly hurt high-growth stocks like technology companies. A 2.2 per cent drop for Microsoft and 2.2 per cent dip for Amazon were two of the heaviest weights on the market.

The losses were widespread, with roughly 90 per cent of stocks in the S&P 500 falling in a wipeout. Stocks of smaller companies fell even more than the rest of the market because high interest rates could hurt them more than their bigger rivals by making it more difficult to borrow cash. The Russell 2000 index of smaller stocks dropped 3 per cent.

Some analysts warned the inflation data could mean not only a delay to rate cuts but also the possibility that the Fed would raise rates further. The Fed has already pulled its main interest rate to the highest level since 2001 in hopes of grinding down high inflation. High rates work by slowing the overall economy and hurting prices for investments.

But it’s still just one data point, which followed several months of encouraging trends where inflation eased, said Chris Larkin, managing director, trading and investing, at E-Trade from Morgan Stanley.

“Until proven otherwise, the longer-term cooling inflation trend is still in place,” he said. “The Fed had already made clear that rate cuts weren’t going to happen as soon as many people wanted them to. Today was simply a reminder of why they were inclined to wait.”

Still, the reaction across Wall Street was immediate and negative.

Yields jumped in the bond market as traders built up expectations that the Fed will keep interest rates high for longer. The yield on the 10-year Treasury rose to 4.27 per cent from 4.18 per cent late Tuesday.

The two-year Treasury yield, which moves more on expectations for the Fed, leaped to 4.60 per cent from 4.47 per cent.

In stock markets abroad, indexes fell across Europe. In Asia, markets were closed in China for holidays, but Japan’s Nikkei 225 jumped 2.9 per cent and South Korea’s Kospi gained 1.1 per cent.

With AP

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Source: Thanks smh.com