Source : the age
The Australian sharemarket had its biggest slump in 12 weeks as bets firmed for another interest rate rise as early as next month and investors digested another flood of results from companies including Qantas and Wesfarmers.
The S&P/ASX 200 fell 89.60 points, or 1 per cent, to 9038.20 on Thursday, with all 11 sectors in the red bar healthcare and industrials. The losses came after the bourse fell 0.4 per cent on Wednesday as shock inflation figures put another rate hike on the table. Wall Street drifted through a quiet session overnight after a report showed US inflation was also worse than expected.
Expectations of another rate rise by the Reserve Bank firmed after the Australian Bureau of Statistics said on Wednesday underlying inflation in July had unexpectedly risen by 0.5 per cent. The gauge most watched by the RBA had been forecast to ease, but instead remained steady at 3.6 per cent.
The hot inflation data spurred economists from Goldman Sachs to Commonwealth Bank to predict another rate increase as early as next month, abandoning calls of no change for the remainder of the year. CBA, the nation’s biggest lender, said this morning the inflation data would cause the RBA to “lose patience” and predicted a quarter-point hike to 4.6 per cent – the highest level in 15 years – in November, with the risk of a move at next month’s meeting.
Deutsche Bank’s Phil O’Donaghoe, who was first to change his call after the data, went further and forecast a hike at the September meeting, saying underlying inflation is “intolerably high”. National Australia Bank’s Sally Auld also switched to calling a September hike, with the risk “biased towards an additional hike in November, especially if activity data shows resilience in coming months”.
Rising interest increases borrowing costs for consumers and companies, weighing on company profits and share prices. Sectors dependent on consumer demand and tech companies borrowing heavily to grow are among those vulnerable to rate hikes, while banks – while often seeing a short-term boost to profit margins – can be hit by a rise in loan defaults and bad debts.
Financial stocks finished the session lower, with CBA down 0.3 per cent, NAB down 0.7 per cent, Westpac up 0.4 per cent and ANZ Bank down 1.3 per cent. Tech stocks also pulled lower, with software makers Xero and WiseTech down 2.6 per cent and 3.3 per cent respectively, and AI data centre operator NEXTDC down 1.6 per cent. Real estate investment trusts struggled, too, with Goodman Group losing 0.7 per cent, Westfield shopping centre landlord Scentre falling 1.4 per cent and property developer Stockland slumping 3.7 per cent.
Gold producers weighed on mining stocks as gold prices eased over the spectre of rising rates, which typically reduce the appeal of non-yielding gold as an investment. Evolution Mining lost 1.4 per cent and Newmont shed 1.9 per cent. Iron ore and copper giants BHP and Rio Tinto dropped 1.5 per cent and 0.5 per cent. Consumer staples also declined, with Woolworths (down 1.6 per cent) and Coles (down 1.2 per cent) giving back some of their gains from the past session.
On the corporate earnings front, Qantas climbed 4.8 per cent after flagging revenue growth of 8 to 10 per cent for the current year, helped by higher fares. Its profit in the past financial year took a hit as rising fuel costs from the war in the Middle East outpaced the benefit of sustained demand for international travel. The airline posted a 13.8 per cent fall in underlying pre-tax profit to $2.06 billion in the year to June, in line with analyst estimates, as its fuel bill jumped by more than $600 million.
Rival Virgin Australia benefited from Qantas’ tailwind, lifting 6 per cent.
Wesfarmers fell 4.6 per cent after posting a 1.8 per cent fall in net profit to $2.87 billion. The retail conglomerate’s sales rose 3.4 per cent to $47.3 billion, and profits excluding significant items grow by 8.3 per cent to $2.9 billion. The company said Bunnings boss Mike Schneider would retire in February, with chief customer officer Rachel McVitty to take the helm.
Healthcare giant Sigma slumped 7.8 per cent, with investors underwhelmed by its first result since taking over Chemist Warehouse. Sales jumped 15.5 per cent to $10.8 billion and profits climbed 22.3 per cent to $732.2 million. Sales at Chemist Warehouse were boosted by demand for weight-loss drugs, which will help lift revenue by double digits again in the current financial year, Sigma said.
Mayne Pharma shares lost 1.6 per cent after saying its underlying full-year earnings slumped 27 per cent to $34.2 million as management was distracted by the $672 million takeover bid by US private-equity backed drugmaker Cosette, which was eventually blocked by Treasurer Jim Chalmers on national interest grounds. “The Cosette transaction process and subsequent legal matters placed real demands on management focus and caused general disruption,” CEO Aaron Gray said.
Ramsay Health rallied 13.7 per cent after the hospital operator said its net profit jumped 19.3 per cent to $364.1 million, helped by tighter cost management, a focus on therapeutic areas such as cardiology, orthopaedics and cancer care, and growth in hospital admissions.
On Wall Street overnight, yields in the bond market, the focus of Wall Street’s biggest recent worries, edged higher following America’s inflation data, weighing on sentiment.
The S&P 500 edged down by less than 0.1 per cent and remains near its all-time high set this month. The Dow Jones Industrial Average dipped 113 points, or 0.2 per cent, and the Nasdaq composite slipped 0.1 per cent.
Nvidia, the chipmaker at the heart of the artificial intelligence boom, delivered a sales forecast that met expectations. Its shares were up 4.3 per cent in after-hours trade.
Revenue in the current period will be $US108 billion, plus or minus 2 per cent, the company said in a statement. Though analysts had forecast $US105.2 billion on average, some projections exceeded $US110 billion, according to data compiled by Bloomberg.
Strong profit growth across US companies broadly has been the main reason the US stock market has run to records this year.
Abercrombie & Fitch leaped 35.7 per cent after reporting a stronger profit for the latest quarter than analysts expected. The retailer also raised its forecast for earnings over the full year and for how much cash it will send to investors by buying back shares of its own stock.
Outside of earnings reports, Meta Platforms added 1.1 per cent after agreeing to pay up to $US18 billion ($24 billion) and to add child-safety measures to Facebook and Instagram to end a landmark trial over teen social media addiction and settle claims filed by states across the country.
In the bond market, US Treasury yields ticked higher to 4.65 per cent from 4.64 per cent late on Tuesday following updates on inflation and economic growth. Yields had shot upward through the American summer on worries about high inflation and the US government’s gargantuan debt, among other factors. They got so high that the US Treasury Department made a surprise announcement last week to intervene in the bond market, though analysts say its effect could be limited.
The latest update on inflation released overnight said that the measure the Federal Reserve has historically preferred to use sat at 3.7 per cent last month. That was the same rate of inflation as in June and slightly worse than the 3.6 per cent that economists expected, according to FactSet. It remains far worse than the 2 per cent goal the Fed has set.
Traders are betting on a nearly three-in-four chance the Fed will hike the federal funds rate at least once by the end of the year, according to data from CME Group.
One of the factors that’s worsened inflation this year is higher oil prices, though they’ve come down recently.
The price for a barrel of Brent crude, the international standard, continued to swing on uncertainty about when the war with Iran will allow oil tankers to freely exit the Persian Gulf again. It was trading at $US86.63 in late afternoon – down from $US94 at the end of last week.
With AP, Bloomberg
The Market Recap newsletter is a wrap of the day’s trading. Get it each weekday afternoon.
