Source : THE AGE NEWS
The Australian sharemarket wiped out its morning gains and finished in the red after shock inflation figures put another interest rate hike on the table, while investors digested a flurry of corporate results.
The S&P/ASX 200 was down 36.8 points, or 0.4 per cent, at 9127.80 at Wednesday’s close, having risen as much as 0.6 per cent in early trade following its gains over the past two sessions.
The market fell into negative territory as bets rose that the Reserve Bank will raise interest rates again next month, after data showed inflation failed to slow as quickly as the central bank hoped.
The Australian Bureau of Statistics said this morning monthly inflation eased to 3.5 per cent in July, after coming in at 3.8 per cent in June. Of more concern to the RBA was a 0.5 per cent lift in underlying inflation, which had been forecast to ease but instead remained steady at 3.6 per cent.
The data had an immediate impact on the currency market, with the Australian dollar lifting on the greater chance of a rate hike next month. The Australian dollar was trading US71.77¢ late afternoon.
The surprise reading prompted economists like Deutsche Bank’s Phil O’Donaghoe to change their RBA calls. Having previously predicted rates to stay on hold, “we now expect one more hike by 25 basis points by the RBA at its upcoming meeting on 29 September”, O’Donaghoe said in a note to clients. “Risks are skewed to a delayed hike until November but the evidence is clear to us. Further policy tightening is needed, and the earlier, the better.”
CreditorWatch chief economist Ivan Colhoun said the inflation data “really leaves the RBA board no option but to raise Australian interest rates further at the upcoming September board meeting. The board is dealing not with upside inflation risks and cost pressures but with upside inflation reality.”
Financial stocks, which make up about a third of the ASX, tipped into the red after the data, with Westpac finishing down 0.6 per cent, ANZ dropping 0.2 per cent, and CBA – which also agreed to settle a class action lawsuit against it launched in 2018 for $249 million – lost 1 per cent.
Shrugging off the rate concerns were consumer staples, with Woolworths jumping 3.4 per cent after saying its winter sales have been boosted by its popular Ooshies collectables campaign. In the first eight weeks of its new financial year, food sales at its Australian supermarkets jumped 7.6 per cent, with the Disney plastic figurines having generated up to 2 percentage points of that growth.
Food sales rose 4.6 per cent in the year to June 30, helping the nation’s biggest grocer grow its net profit by 18.1 per cent to $1.14 billion and raise its final payout to shareholders to 52¢ a year, up from 45¢ a year ago. Coles, which on Tuesday said its sales had taken a hit from its rival’s Ooshies campaign, added 1.2 per cent.
Nine Entertainment, the publisher of this masthead, rallied 7.2 per cent after the media company’s full-year net profit from its continuing businesses rose 7 per cent to $142.4 million, and revenue lifted 3 per cent to $2.19 billion, despite a tough advertising market. In a major step for the company, Nine has shifted its focus away from traditional broadcasting, writing down the value of its TV business by more than half, to $360 million, and emphasising growth at its subscription streaming and publishing businesses and outdoor ad firm QMS.
Lovisa soared 12.7 per cent after saying it lifted its net profit by 10.7 per cent to $95.6 million in the past financial year. The fashion jewellery seller has opened 160 new stores, taking its global network to 1136 stores, but closed 43 underperforming locations.
On the downside, energy stocks weighed on the market, with Woodside down 3.3 per cent and Santos down 1.2 per cent after Brent crude fell 1.8 per cent to $US86.95 a barrel. The drop came even though tensions between the US and Iran seemed to ratchet higher after the Trump administration announced new sanctions to further hurt Iran’s economy. Brent’s price zigzagged between $US72 and $US102 last month as hopes rose and fell that the two nations could reach a deal that would allow oil tankers to freely exit the Persian Gulf again.
WiseTech Global and the spectre of rising borrowing costs sent the debt-heavy tech sector down. WiseTech shares plunged 10.1 per cent after saying its full-year net profit fell 11 per cent to $US178.7 million ($250 million), even as its revenues jumped 79 per cent to hit a record $US1.3 billion, as forecast by the company. Software maker Xero, the second-biggest tech stock, dropped 5.7 per cent, and TechnologyOne shed 2 per cent. AI data centre operator NEXTDC, however, rose 1.6 per cent.
Lynas Rare Earths lost 3.9 per cent after the biggest refiner of the critical minerals outside China missed estimates for full-year profit as costs climbed and challenges emerged in the ramp-up of new facilities. While strong demand for non-China material has sent prices rocketing, boosting Lynas’ full-year revenue by 76 per cent to $977.9 million, its operations in WA faced headwinds, including variations in ore quality that impacted downstream processing last quarter, Lynas said.
Travel agent Flight Centre slumped 7.4 per cent after revealing the conflict in the Middle East knocked $60 million out of its leisure profits in the fourth quarter. A spate of cancellations and a disruption of travel as the US-Israel war with Iran kicked on “offset corporate’s full-year profit uplift”, the company said. Underlying profit before tax fell to $278 million for the year to June, down 4 per cent from the $289 million the year before, it said.
Domino’s Pizza finished 6.4 per cent lower, having plummeted as much as 13.5 per cent after the struggling fast-food chain reported a net loss of $134.2 million for the past financial year, weighed down by writedowns for its business in Taiwan and France and underperforming stores. Sales fell 11.2 per cent to $2.05 billion in the year. The pizza chain is closing up to 60 stores across Europe, Australia, New Zealand and Asia to return to profitability.
On Wall Street overnight the S&P 500 rose 0.3 per cent and edged closer to its all-time high set earlier this month. The Dow Jones Industrial Average added 0.3 per cent, and the Nasdaq composite climbed 0.7 per cent.
The retreat in oil prices offered some relief after persistent inflation and elevated yields weighed on risk appetite. Key events may shape trading this week – Nvidia’s results on Wednesday (early Thursday AEST) for clues on whether the AI rally can regain momentum, and Federal Reserve Chair Kevin Warsh’s Jackson Hole speech on Friday for signals on the path of interest rates.
“Although the mountain of event risk is casting a slight shadow over the markets, the easing of geopolitical risks and subsequently lower oil price has been enough to offset the trepidation,” wrote Kyle Rodda, a senior analyst at Capital.com.
A delegation from Pakistan left Iran after talks with Iran’s president and other senior officials on reopening the Strait of Hormuz and reviving negotiations to end the Iran-US conflict, the Pakistani military said. Pakistan Interior Minister Mohsin Naqvi said a meeting with Iran’s President Masoud Pezeshkian had been “very positive and productive”.
The drop in oil prices tempered the worries about high inflation that helped drive US Treasury yields in the bond market higher through the summer. Yields had got so high that the US Treasury Department announced a surprise move last week to increase its repurchases of longer-term Treasury notes and bonds.
High yields make borrowing more expensive for everyone, and can slow the economy’s growth, while undercutting prices for stocks, cryptocurrencies and other investments. The yield on the 10-year Treasury fell to 4.64 per cent from 4.70 per cent late Monday, and from 4.74 per cent at the end of last week.
On Wall Street, Nvidia and other winners of the boom in artificial-intelligence technology helped lead the way. Nvidia rose 2.2 per cent, a day after its drop of 2.9 per cent was the heaviest weight on the S&P 500.
AI stocks have veered up and down through the American summer on worries that their prices shot too high and that the AI boom may not be sustainable if it doesn’t produce enough profits for companies. Nvidia’s quarterly results could help steer the next move for AI-related stocks.
