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The ASX 200 closed below 7000 for the first time in eight months following a volatile night on Wall Street and as a spike in inflation sharpened the case for higher rates.
The Australian benchmark skidded 178 points or 2.49 per cent during a horror session for local investors. The index fell as low as 6921 before closing at 6961.6, a level last seen in mid-May 2021.
All 11 sectors lost at least 1 per cent. Energy stocks slumped 4.1 per cent. The speculative end of the market plunged 5 per cent.
What moved the market
A late recovery on Wall Street failed to convince local traders to retain their holdings across the Australia Day market holiday. With Wall Street set to trade twice and US futures once again in retreat, the market hit its low late morning and never looked like recovering.
The decline dragged the market close to a technical correction. Today’s finish was 8.7 per cent below the ASX 200’s August peak. A technical correction is defined as a decline of more than 10 per cent from a recent top.
An extraordinary capitulation session overnight saw the Nasdaq Composite dive almost 5 per cent before recouping all of its losses, plus more. The tech index ended the session 0.63 per cent ahead. The Dow flipped a 1,100+ point dive into a gain of 99 points or 0.29 per cent. The S&P 500 reversed a near 4 per cent fall into a final advance of 0.28 per cent.
Any optimism that last night’s reversal marked an end to the 2022 market rout was swiftly doused by a collapse in US equity futures. S&P 500 futures fell 60 points or almost 1.4 per cent during the Asian session. Nasdaq futures crumbled 1.9 per cent.
Overseas volatility was compounded by a day of market-negative economic data. The scale of the Omicron slowdown was underlined by the third-largest slump in business confidence on record. NAB’s confidence index dived to a 19-month low.
“Confidence was down in every state,” CommSec senior economist Ryan Felsman said. “And confidence fell in all industries except mining,” he added.
A spike in inflation added to pressure on the RBA to pivot from quantitative easing into a new cycle of rate increases. Underlying inflation increased 1 per cent last quarter and by 2.6 per cent year on year, well within the central bank’s 2-3 per cent target range. While the bank has said it needs to see inflation “sustainably” within this band, delays increase the likelihood of inflationary pressures gaining momentum.
“Core inflation is now above the mid-point of the RBA’s inflation target, not something the RBA was expecting in its forecast profile this early nor of this magnitude,” Westpac senior economist Justin Smirk said
Winners’ circle
The prospect of consolidation in the BNPL sector briefly lit a fuse under the share prices of Zip Co and Sezzle. Zip Co confirmed it was in acquisitions talks with its US-focussed rival. Sezzle said discussions about a possible merger were still “preliminary” and there was no certainty a transaction would occur.
Sezzle shares bounced 9.81 per cent off a 19-month low. Zip Co faded to a loss of 2.13 per cent as the wider market declined.
Tech firm Codan was the day’s standout, climbing 16.85 per cent after a record first half. The communications and metal detector manufacturer said unaudited first-half sales increased by 32 per cent over the prior corresponding period to $257 million. Net profit was expected to rise 21 per cent to around $50 million.
Just eight stocks besides Codan advanced on the ASX 200. A2 Milk Company bounced 7.07 per cent off yesterday’s four-year low. The best of the day’s other gains were Life360 +3.11 per cent and Eagers Automotive +1.15 per cent.
A 12.3 per cent increase in total sales across the last five months of 2021 lifted Myer 6.76 per cent. The department store said pre-Christmas sales were particularly strong.
At the speculative end of the market, a gas resource upgrade lifted Blue Energy 4.17 per cent.
Doghouse
Woodside and the heavyweight banks led the retreat. Woodside lost 3.98 per cent. NAB shed 2.91 per cent, ANZ 3.6 per cent, CBA 2.04 per cent and Westpac 2.84 per cent.
US payments giant Block fell 4.21 per cent to its lowest since completing its acquisition of Afterpay. Other notable tech falls included Appen -7.37 per cent and WiseTech -6.59 per cent.
Fortescue Metals slid 4.97 per cent after reporting record half-year iron ore shipments. The Pilbara miner shipped 47.5 million tonnes last quarter for a half-year tally of 93.1 million tonnes, an increase of 3 per cent over 1H21.
A 7 per cent decline in quarterly production dragged Beach Energy down 7.77 per cent. The oil company attributed the decrease to natural field decline, maintenance and unplanned downtime.
A 3.4 per cent dip in like-for-like sales at the end of 2021 helped pull shoe retailer Accent Group down 4.27 per cent.
The S&P/ASX Emerging Companies Index swooned 5.03 per cent. The index of speculative companies has fallen almost 12 per cent in three brutal sessions.
Lithium and nickel juniors were particularly ill-treated. Morella Corporation shed 20.59 per cent, Arizona Lithium 18.75 per cent and Winsome Resources 19.57 per cent.
Other markets
In Asia, the Asia Dow gave up 2.25 per cent, China’s Shanghai Composite 1.12 per cent, Hong Kong’s Hang Seng 1.24 per cent and Japan’s Nikkei 2.22 per cent.
Oil rebounded from its lowest in more than a week. Brent crude bounced 52 US cents or 0.6 per cent to US$86.79 a barrel.
Gold edged up 10 US cents or 0.01 per cent to US$1,841.80 an ounce.
The dollar faded 0.32 per cent to 71.32 US cents.
