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Blue-chip retailers suffered bruising losses after a corporate profit scare pushed the ASX sharply lower.

Bunnings owner Wesfarmers, Woolworths and Coles spearheaded falls as the S&P/ASX 200 slumped 118 points or 1.65 per cent.

The decline erased three days of gains for the Australian market. The index fell as low as 7038 before paring its fall to 7064.5.

What moved the market

Investors dumped retailers after costs warnings from US giants Target and Walmart fuelled Wall Street’s worst night since 2020. The S&P 500 plunged 4.04 per cent. The Dow shed a breath-taking 1,164 points or 3.57 per cent (also the biggest loss since June 2020). The Nasdaq Composite plunged 4.73 per cent.  

The trigger was confirmation from two of main street America’s biggest chain stores that rising fuel and labour costs were eating profit margins at the same time as inflation dulled consumer demand.

Target reported a slowdown in discretionary purchases such as TVs, bicycles and kitchen appliances. Shareholders responded by sending the retailer’s share price down almost 25 per cent. The fall was the company’s heaviest since the Black Monday market crash of 1987.

Inflation may be milder in Australia, but investors were quick to extrapolate cost pressures to local retailers. Wesfarmers, Woolworths and Coles – normally three of the safest, slowest-moving stocks on the market – copped a hiding.

Retail conglomerate Wesfarmers slumped 7.83 per cent to its lowest since November 2020. Supermarkets Woolworths and Coles sagged 5.61 and 3.41 per cent, respectively. IGA operator Metcash lost 6.54 per cent.

JB Hi-Fi fell 6.63 per cent, Super Retail Group 6.03 per cent and Harvey Norman 5.46 per cent. Online clothing retailer City Chic Collective shed 4.3 per cent.

Clifford Bennett, chief economist at ACY Securities, said equity markets faced a tough long-term correction as the global economy slows.

“The hard truth is that global stock markets are only in the very early stages of pricing in a global economic slow-down that is already in full swing,” he said.

“There is in fact significant risk of a triple recession across the northern hemisphere of the world’s three largest economies, Europe, US and China.”

The selling was well underway before mid-morning news the unemployment rate fell last month to its lowest since 1974. The official jobless rate ticked down to 3.9 per cent from 4 per cent in March as the economy added 4,000 jobs..

The figures were broadly in line with expectations and did little to change expectations for a rate increase next month, according to City Index senior market analyst Matt Simpson.

“Ultimately, we do not think today’ report moves the needle much for the RBA,” Simpson said.  

“It is wage growth that now needs to excel to convince the RBA that inflation will remain ‘sustainable’ and force them to hike more aggressively. Yesterday’s wage data miss means they’re more likely to raise by 25 bps, and not the 40-bps traders had hoped for.”

Winners’ circle

Aristocrat Leisure rallied 6.74 per cent after announcing a record half-year profit and a share buyback. Normalised net profit increased 41 per cent to $580 million. The pokie-maker will buy back up to $500 million of its shares on-market.

The defensive healthcare sector attracted inflows from other sectors. CSL gained 0.33 per cent, Ramsay Health Care 0.23 per cent and Pro Medicus 1.32 per cent. Biotech Imugene climbed 17.65 per cent.

The gold sub-sector also produced winners. Evolution Mining firmed 2.04 per cent, Northern Star 1.63 per cent and Regis Resources 1.6 per cent.

Further signs of insider buying helped Polynovo. The medical device manufacturer climbed 3.24 per cent on news Chair David Williams spent another $430,361 to increase his stake in the company.

Webjet swung to a gain of 1.38 per cent after announcing it was profitable for the first time since the start of the pandemic. The travel agent said all of its businesses were profitable in April and continued to improve this month. Transaction values jumped 262 per cent in the second half.

Business software-maker Reckon was among the day’s best performers, rising 45.14 per cent after selling its Accountants Practice Management Group for $100 million. The majority of proceeds will be returned to shareholders via a special dividend.

Explorer Conico was the day’s other standout, surging 52.38 per cent on “nearology” buying following the drilling success of neighbour Galileo Mining.  

Doghouse

Today’s trading closely mirrored Wall Street, where tech was a close second to the bloodletting in consumer stocks. Novonix slid 6.36 per cent, EML Payments 4.79 per cent and Altium 4.33 per cent.

Flight Centre slumped 4.62 per cent as part of the retail sell-off. Other notable falls included crop protection firm Nufarm -8.58 per cent and lithium miner Liontown -6.13 per cent.

Beach Energy confirmed acting CEO Morne Engelbrecht as its new permanent chief executive. The share price fell 2.65 per cent during a rough session for resource stocks.

Among stocks trading ex-dividend, Westpac dropped 4.05 per cent and Pendal Group 7.1 per cent.

Other markets

Asian markets tracked Wall Street lower. The Asia Dow shed 2.1 per cent, China’s Shanghai Composite 0.31 per cent, Hong Kong’s Hang Seng 2.75 per cent and Japan’s Nikkei 1.95 per cent.

US futures pared a sharp early fall. S&P 500 futures were down five points or 0.13 per cent at the Australian close after earlier falling 0.5 per cent..

Oil recouped more than a third of its overnight loss. Brent crude firmed US$1.05 or 0.96 per cent to US$110.16 a barrel.

Gold faded US$3.80 or 0.2 per cent to US$1,812.10 an ounce.

The dollar bounced 0.6 per cent to 70.01 US cents after falling more than 1 per cent overnight.

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