The share market’s losing run extended into a third day as investors fretted about stagflation, a growth downgrade from the International Monetary Fund and risk events in the US tonight.
The S&P/ASX 200 traded both sides of break-even before closing eight points or 0.1 per cent lower. Buying interest was crimped by weak leads from the US and declines on Asian markets.
Uranium and infant formula stocks provided some excitement as the wider market marked time. Declines in the major miners and most of the banks offset gains in growth and defensive stocks.
What moved the market
Wall Street has been in a holding pattern this week ahead of a new corporate reporting season, September inflation data and the minutes from the last Federal Reserve meeting. All three are due tonight.
US futures implied lingering caution following overnight falls. S&P 500 futures eased four points or 0.1 per cent. Overnight, the S&P 500 faded 0.24 per cent to a third straight loss.
“Investors fear that the third-quarter earnings season will not be as robust as the second quarter, when companies reaped the rewards of pent-up demand and surge in commodity prices,” Kalkine Group CEO Kunal Sawhney said.
“Speculations are rife that the impending inflation data will exceed market expectations amid the surge in commodity prices and aggravating labour and supply shortages last month. This may prompt the Fed to taper its massive bond-buying program as soon as next month,” he added.
Overnight, the International Monetary Fund cut its growth outlook for Australia, citing the impact of lockdowns. The Fund downgraded its GDP forecast for this year to 3.5 per cent from 5.3 per cent, but raised its outlook for next year from 3 to 4.1 per cent.
The Fund also warned share markets looked vulnerable to a correction after 18 months of virtually unbroken gains. Asset valuations looked “stretched” and could drop “substantially in the event of a sudden reassessment of the economic outlook”.
Investor concerns about faltering economic growth and soaring inflation have crystallised around the buzzword “stagflation“.
“Stagflation – in which economic growth stagnates while inflation picks up – remains a ‘hot topic’ for investors with the pandemic recovery losing momentum into year-end,” CommSec senior economist Ryan Felsman said. “In fact, inflationary pressures have remained stubbornly high due to continued supply disruptions, labour shortages and soaring energy costs.”
A retreat in long-term interest rates from a six-month high pricked interest in equity alternatives to bonds, but undercut lenders. The yield on ten-year Australian government bonds dipped more than four basis points to 1.694 per cent.
Consumer sentiment waned this month but remained positive in the face of lockdowns. The Westpac-MI index dipped 1.5 per cent to 104.6 from a September reading of 106.2.
Job advertising increased 6 per cent last month as vacancies in NSW jumped 20.6 per cent ahead of reopening. Advertising in Victoria declined 2.6 per cent.
Growth stocks and bond surrogates were back in favour as bond yields retreated. Afterpay climbed 0.75 per cent, Goodman Group 2.21 per cent, Coles 0.81 per cent and Transurban 0.81 per cent. Newcrest gained 0.92 per cent after gold broke a three-session losing run.
Uranium stocks took flight after ten EU countries asked the European Union to recognise nuclear power as green energy. The Global X Uranium exchanged traded fund (URA) jumped 11.65 per cent in the US to its highest in almost four weeks.
Here, Bannerman Energy soared 31.15 per cent, GTI Resources 25 per cent and Peninsula Energy 23.91 per cent. Alligator Energy gained 22.95 per cent, Deep Yellow 18.68 per cent and Paladin Energy 18.37 per cent.
Signs of a turnaround in the Chinese infant formula market lit a fire under Bubs Australia and A2 Milk. Bubs jumped 38.89 per cent after reporting gross revenue almost doubled to $18.5 million last quarter. The firm’s China-facing business saw revenue increase 98 per cent quarter on quarter. A2 Milk, which also services the Chinese market, climbed 13.45 per cent.
Star Entertainment rose for the first time in three sessions after defending its anti-money laundering procedures. The casino group said it had adopted all of the recommendations made by auditor KPMG following a review in 2018. Shares that plunged more than 20 per cent on Monday bounced 6.54 per cent.
Health insurer nib rose 1.61 per cent on news of a new partnership with ING’s Australian banking subsidiary. The deal will allow ING Bank Australia to sell customers health insurance underwritten by nib under the ING Health brand.
A warning about pressure on margins helped pull Bank of Queensland down 4.32 per cent. The bank reported a 221 per cent jump in full-year statutory net profit to $369 million. Cash earnings improved 83 per cent to $412 million. The share price fell after the bank said it expects net interest margins to decline five-seven basis points this financial year “as competition continues and the low interest rate environment remains”.
Commonwealth Bank dropped 1.59 per cent after a virtual AGM shed little light on the bank’s prospects. CEO Matt Comyn said housing activity remained strong, but the bank was monitoring the market and was prepared to “adjust our lending settings appropriately”. He praised the government for stimulating the economy during lockdown.
ANZ shed 0.39 per cent and Westpac 1.29 per cent. NAB gained 0.28 per cent.
Iron ore producers fell following reports China asked steel mills in the north to reduce production. Rio Tinto dropped 3.19 per cent, Fortescue Metals 5.34 per cent and BHP 1.03 per cent.
Pact Group retreated 9.88 per cent after abandoning plans to sell its contract manufacturing business and warning of weak Q1 demand. The packaging group said “market uncertainty and supply chain disruption arising from COVID-19” meant expectations for the sale of the contract business had not been met. First-quarter trading in the company’s core businesses was “resilient”, but contract manufacturing was weaker than expected as increased costs dented margins.
Fund manager Challenger increased assets under management by 3 per cent last quarter to $113 billion. Funds under management increased 2 per cent following $1.4 billion in net flows. The share price closed unchanged.
A downbeat session on Asian markets saw the Asia Dow lose 0.24 per cent, China’s Shanghai Composite 0.35 per cent and Japan’s Nikkei 0.25 per cent.
Brent crude eased nine US cents or 0.1 per cent to US$83.33 a barrel.
Gold firmed US$3 or 0.17 per cent to US$1,762.30 an ounce.
The dollar inched up 0.08 per cent to 73.39 US cents.