Source : THE AGE NEWS
By Stan Choe
The Australian sharemarket is set to snap its five-day winning streak after Wall Street continued its wild swings overnight as evidence builds that the US economy is buckling under the weight of Donald Trump’s trade war.
ASX futures were down 19 points, or 0.2 per cent, to 8123 as of 6.40am AEST after a mixed session on Wall Street. US stocks began trading with a thud after a report suggested the world’s largest economy may have shrunk at the start of the year. But the big losses soon evaporated in the latest bit of manic trading on Wall Street amid uncertainty about what damage the trade war will do.
The Australian dollar was 0.3 per cent higher at 64.02 US cents. The S&P/ASX 200 rose 0.7 per cent on Wednesday, shrugging off higher-than-expected local inflation numbers to gain for a fifth straight day as investors keep betting on another interest rate cut from the RBA next month.
It was another day of wild swings on the New York Stock Exchange.Credit: Bloomberg
Much like its wild month of April, a scary Wednesday for Wall Street found a gentler ending as US stocks stormed back from steep early losses to continue their manic swings. The S&P 500 ended 0.1 per cent higher, extending its winning streak to a seventh day. The Dow Jones Industrial Average added 0.3 per cent, while the Nasdaq composite edged down 0.1 per cent.
Investors had been on track for much worse losses, with the S&P 500 down as much as 2.3 per cent in early trade, after the report on the US economy showed a sharp turnaround from the economy’s solid growth at the end of last year. Importers rushed to bring products into the country before tariffs could raise their prices, which helped drag on the country’s overall gross domestic product.
Such data raises the threat of a worst-case scenario called “stagflation,” one where the economy stagnates yet inflation remains high. Economists fear it because the Federal Reserve has no good tools to fix both problems at the same time. If the Fed were to try to help one by adjusting interest rates, it would likely make the other problem worse.
“Even if today’s weak GDP may have partially reflected companies trying to get ahead of tariffs, it was still a stagflation warning shot over the bow of the economy,” according to Ellen Zentner, chief economic strategist for Morgan Stanley Wealth Management.
Investors got some better news later in the morning when a report said the measure of inflation that the Federal Reserve prefers to use slowed in March. Inflation decelerated to 2.3 per cent, closer to the Fed’s goal of 2 per cent, from February’s reading of 2.7 per cent. Stocks more than halved their losses after that report.
Still, much of Wednesday’s economic data added to worries that Trump’s trade war may drag the US economy into a recession. The president’s on-again-off-again rollout of tariffs has already created deep uncertainty about what’s to come, which could cause damage by itself.
“I’m not taking a credit or discredit for the stock market,” Trump said on Wednesday. “I’m just saying we inherited a mess.”
‘I’m not taking a credit or discredit for the stock market. I’m just saying we inherited a mess.’
Donald Trump
The uncertainty created severe and historic swings in financial markets, from stocks to bonds to the value of the US dollar, that battered investors through April. The S&P 500 at one point dropped nearly 20 per cent below its all-time high set earlier this year, with scary headlines at one point warning of the worst April since the Great Depression.
But the uncertainty has been two-sided, and hopes that Trump may relent on some of his tariffs and reach trade deals with other countries helped the S&P 500 claw back much of its losses.
“This month was like a classic V-shaped roller-coaster,” said Scott Ladner, chief investment officer at Horizon Investments.
After Trump’s “Liberation Day” tariff announcement on April 2, the S&P 500 plunged more than 12 per cent in four sessions. On April 9, Trump reversed himself, putting a 90-day pause on some of his most onerous levies, which sparked a 9.5 per cent leap, the biggest one-day rally in 17 years. Since then, the market has drifted higher, with the S&P ending the month down less than 1 per cent.
Still, April was the third straight losing month for the S&P 500. Stocks in the energy industry took some of the hardest hits, dropping over four times more than any of the other 11 sectors that make up the index. Halliburton, an oil services company, lost nearly 22 per cent last month as the price of crude slid on worries that tariffs will weaken the global economy.
However, some stronger-than-expected profit reports from big US companies have helped support the market, and Seagate Technology jumped 11.6 per cent for one of Wednesday’s biggest gains after the maker of data storage joined the parade.
But potentially discouraging trends within the artificial intelligence industry helped offset such gains for storage makers. AI stocks have been pulling back sharply on worries that their prices shot too high in prior years, when a frenzy around the industry drove them to breathtaking heights.
Super Micro Computer warned that some customers delayed purchases in the latest quarter, which caused the maker of servers used in AI and other computing to slash its forecast for sales and profit. Its stock tumbled 11.5 per cent for the largest loss in the S&P 500.
Starbucks sank 5.7 per cent after the coffee chain fell short of analysts’ forecasts for revenue and profit in the latest quarter.
There was better corporate news after the close of trading. Microsoft said its cloud computing and artificial intelligence business boosted profits by 18 per cent to $US25.8 billion in the March quarter, beating Wall Street expectations – a dose of relief for investors during a turbulent time for the tech sector and US economy. Its shares jumped 6.2 per cent in after-hours trading.
Instagram and Facebook parent Meta Platforms also posted better-than-expected results after the bell, thanks to strong advertising revenue on its social media platforms. The company earned $US16.64 billion in the January to March period, up 35 per cent from the same period a year earlier. Meta’s stock climbed 5.2 per cent in extended trading after the results came out.
In the bond market, Treasury yields held relatively steady. The yield on the 10-year Treasury eased to 4.18 per cent from 4.19 per cent late on Tuesday.
In other international stock markets, indexes finished mixed across Europe and Asia.
AP, Bloomberg
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