ASX Close: Investors turn defensive as US futures sink

A jittery share market eked out a slender gain as investors bought defensive havens in the face of falling US equity futures and commodity prices.  

The S&P/ASX 200 clung on to a gain of four points or 0.06 per cent after earlier rising as much as 47.5 points.

Early optimism curdled as US futures tracked Asian markets lower. Traders bought supermarkets, healthcare providers and other pockets of the market seen as most resilient to external pressures. Declines in iron ore and crude oil weighed on resource stocks.

What moved the market

Risk appetite was scarce heading deeper into a week that includes US inflation data, Australian jobs figures and a new US corporate reporting season. Today’s advance was secured by some of the safest, slowest-moving companies on the index.

The speculative end of the market sank 1.6 per cent. The Small Ords dropped 1.3 per cent.

Traders are nervous heading into a US reporting season that will give a foretaste of what next month’s full-year Australian earnings season may bring.

“Companies are getting squeezed at all sides, they’re getting squeezed on cost of goods and the wages and all things that go into input from our manufacturing goals or services. And on the other end, we think revenues are starting to flatten before turning down at a time when interest cost is going up… That’s a lot of downgrades, a lot of potential defaults coming from the system as a result of higher charges,” Bruce Richards, CEO and chairman of Marathon Asset Management, told CNBC.

Richards was discussing the outlook for the US, but his observations also apply here. Declines in domestic consumer and business confidence underlined the challenges facing the economy. If the consumer is the engine room of the economy, the latest monthly update was troubling.

Consumer sentiment declined for a seventh straight month, continuing a pattern only seen in periods of extreme economic disruption. The Westpac-Melbourne Institute index fell 3 per cent to 83.8.

“The Index has now fallen 19.7% since December 2021, a precipitous tumble comparable to the two–month plunge during COVID (–20.8%); and the six–monthly declines seen heading into the Global Financial Crisis (–29.7%); the early 1990s recession (–20.5%); the mid–1980s downturn (–23.8%); and early 1980s recession (–18.8%),” Westpac chief economist Bill Evans said.

Business confidence also declined. NAB’s confidence index fell to a below-average +1 point. However, business conditions remained strong, easing two points to +13.

Today’s ASX rally lost momentum as a decline in Asian markets dragged on US futures. The Asia Dow declined 1.05 per cent after China ramped up Covid restrictions to contain fresh outbreaks.

Shanghai and Guangzhou reintroduced mass screening in several districts this week. Six million people in three other cities faced temporary restrictions. A town in Henan province locked down 700,000 residents.

The Shanghai Composite dipped 0.68 per cent. Hong Kong’s Hang Seng gave up 1.18 per cent. Japan’s Nikkei shed 1.76 per cent.

S&P 500 futures eased 22.5 points or 0.58 per cent. The US benchmark dropped 1.15 per cent overnight.

Winners’ circle

Bond proxies outperformed as a three-session bounce in bond yields unwound. The yield on Australian ten-year government bonds fell ten basis points. Bond proxies gain in institutional appeal when yields weaken.

CSL climbed 1.63 per cent. ResMed advanced 2.08 per cent. Supermarkets Coles and Woolworths firmed 2.03 and 1.86 per cent, respectively.

In the utilities space, APA Group put on 2.54 per cent. AGL Energy rose 1.57 per cent.

Coal miners continued their strong run since trade data last week showed coal surpassed iron ore as the nation’s biggest export. New Hope climbed 3.45 per cent, Whitehaven 1.78 per cent and Coronado 1.98 per cent.

Viva Energy rose 2.55 per cent on news first-half earnings were expected to be more than double the same period last year. Unaudited underlying earnings were forecast to be $614 million, an improvement of 140 per cent.

A profit upgrade lifted car dealership Eagers Automotive 3.31 per cent. The firm expects half-year statutory net profit to be $246 million, ahead of previous guidance of $225-$240 million. The improved outlook reflects record orders for new cars, as well as productivity and cost-out programs.

Doghouse

Sezzle plunged 38.55 per cent after scrapping a plan to merge with Zip Co. The BNPL companies agreed to abandon the merger “in light of current macroeconomic and market conditions”. Sezzle said it was well-positioned with US$71 million in cash on hand. Zip Co shares bounced 6 per cent.

Link Administration fell 3.47 per cent on reports suitor Dye & Durham was considering walking away from a proposal to acquire the firm. Bloomberg reported the Canadian software firm was reviewing its options after the Link board failed to support its latest takeover bid.

Costa Group eased 1.89 per cent despite reiterating it does not expect first-half earnings to surprise the market. The fruit and veg grower’s shares skidded 8 per cent yesterday after Credit Suisse downgraded its rating, citing a poor citrus crop.  

BHP was the biggest drag on the index as iron ore declined. Ore prices fell 4 per cent in China this afternoon. The Big Australian dropped 1.42 per cent. Santos shed 0.85 per cent, Telstra 0.77 per cent and James Hardie 0.47 per cent.

Lithium miners were notably weak. Core Lithium shed 7.07 per cent, Liontown 5.56 per cent and Allkem 4.8 per cent. Other substantial falls included Life360 -12.19 per cent and BrainChip -7.47 per cent.

Lake Resources placed its shares in a trading halt to prepare a response to an online attack from a short seller. The report from J Capital Research accused the miner of relying on “unproven” lithium extraction technology and of granting options to institutions that published favourable coverage.   

Other markets

Gold faded US$5.70 or 0.3 per cent to US$1,726 an ounce as the US dollar pushed higher.

The Australian dollar eased 0.3 per cent to 67.2 US cents, close to its lowest level since May 2020.

Brent crude declined US$1.89 or almost 1.8 per cent to US$105.21 a barrel.