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The share market fell to its lowest in a week after the threat of a 2023 recession dragged Wall Street to a fourth straight loss.
The S&P/ASX 200 declined 54 points or 0.75 per cent by mid-session. The fall added to losses yesterday after the Reserve Bank raised official rates and indicated more increases were likely.
Recession-sensitive tech, energy and banking stocks were the morning’s biggest drags. Materials was the only sector to resist the downtrend.
What’s driving the market
Wall Street has caught a chill since Friday’s unexpectedly strong November employment report reignited fears the Federal Reserve will raise interest rates so high that a recession becomes inevitable. In the face of conflicting recent messages about the economy, investors decided discretion was the better part of valour, sending the S&P 500 down 1.44 per cent overnight to a fourth consecutive decline.
“Investors couldn’t decide which they were more worried about: an impending recession, as implied by November declines for the ISM, Chicago PMI and Philly Fed, as well as housing data, or the threat of a more hawkish-leaning [Fed], as a result of stronger than expected employment data and factory orders,” Sam Stovall, chief investment strategist at CFRA Research, said.
“Stocks sold off across the board, as investors decided to take the profits generated by the last two monthly price gains, the first since August 2021.”
Adding to investor worries, the Australian economy slowed more than expected last quarter, according to ABS data this morning. Gross domestic product increased by 0.6 per cent in the September quarter, down from growth of 0.9 per cent the previous quarter. Annual growth of 5.9 per cent fell short of the consensus forecast from economists of 6.3 per cent year-on-year.
Tony Sycamore, market analyst at IG, said the result was “slightly weaker than expected”.
The savings-to-income ratio declined for a fourth quarter as increased household spending outweighed wages growth.
“In a nutshell, Australia remains on track for a slowdown in 2023 and household spending is expected to soften as consumers run out of buying power and fixed-rate mortgages get switched to variable. The bigger question going forward is how quickly inflation might come down (if it does at all) or whether it remains defiantly sticky,” Matt Simpson, senior market analyst at City Index, said.
The odds on a “Santa rally” this year have dimmed over the last few sessions amid doubts over the interest rate outlook next year. The Reserve Bank gave no sign yesterday that it was ready to pause after raising the cash rate target for the eighth time this year. In the US, the Federal Reserve has repeatedly warned the top in this rates cycle is still some way off.
“Last year, the ASX and Wall Street welcomed the Christmas and New Year festive season with some solid gains. Despite the spread of the COVID-19 Omicron variant, most governments had reiterated their positive stance of not allowing economic activity to suffer. This kept investor sentiments buoyant and did not let the Santa Claus rally dry in 2021,” Kunal Sawhney, CEO of research group Kalkine, said.
“This time, things are different. Inflation is showing signs of weakening in Australia and the US, but central banks seem to be waiting for even greater hints, especially some weakness in the labour market. And now, this RBA’s rate hike decision has hit sentiments but let us hope that the Fed takes some less hawkish approach, which can aid 2022’s Santa Claus rally.”
Going up
The morning’s best performers were coal miner Coronado +3.75 per cent, bauxite miner Alumina +2.35 per cent and ore miner Fortescue Metals +1.55 per cent..
The heavily-weighted bulk metal miners rose as the promise of China reopening helped them move past yesterday’s speed bump. Ore prices hit their highest since mid-June on Monday as more Chinese cities watered down Covid testing and quarantine rules.
Rio Tinto gained 0.23 per cent. BHP added 0.45 per cent. South32 tacked on 1.16 per cent.
Gold miners steadied with the metal price following back-to-back declines. Ramelius firmed 0.79 per cent, St Barbara 0.4 per cent and Newcrest 0.1 per cent.
Going down
Beach Energy slumped 6.46 per cent as the battle for control of Warrego Energy took another twist. Strike Energy announced it had increased its stake in Warrego to 19.9 per cent using share swap agreements. The swap arrangement makes Strike the largest shareholder in Warrego, complicating Beach’s bid to acquire the firm.
Strike started a bidding war for Warrego with an all-scrip bid, later topped by rival offers from Beach and Hancock Energy. Warrego shares firmed 0.79 per cent this morning. Strike gained 4.41 per cent.
Santos dropped 1.03 per cent in a tough market for energy producers after announcing it will double the size of a share buyback. The company will buy back an additional US$350 million of its shares on-market once an initial US$350 million buyback announced in August concludes.
Woodside lost 1.9 per cent after oil fell to its lowest since January 3. Brent crude settled US$3.33 or 4 per cent lower overnight at US$79.35 a barrel.
SkyCity Entertainment fell 2.12 per cent after AUSTRAC launched court proceedings alleging the company’s Adelaide casino failed to comply with anti-money laundering legislation. AUSTRAC Deputy CEO Peter Soros said investigations found systemic failures at the casino. SkyCity said it would consider the allegations before responding.
Growth stocks struggled amid concerns over the rising cost of borrowing. Megaport slumped 8.1 per cent, BrainChip 7.35 per cent and Technology One 4.89 per cent.
Other markets
A downbeat morning on Asian markets saw the Asia Dow lose 0.19 per cent, China’s Shanghai Composite 0.24 per cent, Hong Kong’s Hang Seng 0.31 per cent and Japan’s Nikkei 0.54 per cent.
S&P 500 futures inched up three points or 0.07 per cent.
The dollar held broadly steady this morning, off just 0.02 per cent at 66.96 US cents.
Gold was also little changed, ahead 30 US cents or 0.01 per cent to US$1,782.70 an ounce.
Brent crude crawled 17 US cents or 0.2 per cent off an 11-month low to US$79.52 a barrel.
