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TPG (down 4.1 per cent), Sonic Healthcare (down 3.2 per cent) and Evolution Mining (down 3.2 per cent) recorded the greatest declines among the large-cap stocks.
AMP was the largest decliner among mid-cap stocks, plunging 13.3 per cent after the financial services company downgraded its profit margin expectations.
The lowdown
AMP chief economist Shane Oliver said the local bourse was “surprisingly weak” despite the extended rally on Wall Street, and the ASX 200 hitting an eight-week-high on Wednesday.
“I suspect the local market is worried [Wednesday’s] rebound was faster than they had anticipated,” Oliver said.
“Investors are trying to work out whether we’ve seen the worst in terms of inflation and high interest rates. There are ongoing worries central banks might do more and there are worries of a bigger slowdown in growth next year which would hit profits.”
On Wednesday, the S&P 500 rose by 0.2 per cent. The Dow Jones gained 0.5 per cent and the Nasdaq composite edged up by 0.1 per cent.
Target helped lead the market with a 17.8 per cent jump after it reported much stronger profit for the latest quarter than analysts expected. But another big retailer, TJX, fell 3.3 per cent after the parent company of TJ Maxx and Marshalls gave a profit forecast for the upcoming holiday shopping season that fell short of analysts’ estimates.
Wall Street’s overall moves were more tentative coming off its best day since April, when an encouraging report on inflation boosted investors’ hopes that the Federal Reserve may finally be done with its hikes to interest rates. That in turn bolstered hopes the Fed can actually pull off the balancing act of getting high inflation under control without causing a painful recession.
Halfway through November, the S&P 50 has already jumped 7.4 per cent, which would make this its best month in a year if it does nothing else for two weeks.
Treasury yields rose on Wednesday, retracing a bit of the steep drops from the day before that had helped stocks to rally so much. The yield on the 10-year Treasury climbed to 4.53 per cent from 4.45 per cent late on Tuesday, adding some pressure onto financial markets.
Another report on inflation Wednesday came in lower than expected. Prices at the wholesale level were 1.3 per cent higher in October than a year earlier, and they surprisingly fell from September’s levels. That breathed more life into hopes that inflation is indeed cooling enough for the Fed to halt its barrage of rate hikes.
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The Fed has already yanked its main interest rate to its highest level since 2001, up from virtually zero early last year. It’s hoping to slow the economy and hurt investment prices just enough to drive high inflation lower, without overdoing it.
But a separate report on sales at US retailers released on Wednesday morning “complicates the picture,” according to Chris Larkin, managing director at E-Trade from Morgan Stanley.
Sales fell 0.1 per cent in October from September, holding up better than the 0.3 per cent drop forecast by economists. Stronger-than-expected sales at US retailers is an indicator of a healthier economy, which is important given worries still exist about a possible recession. But they could also feed into upward pressure on inflation, which could get the Fed nervous about interest rates.
The yield on the two-year Treasury, which tends to track expectations for the Fed, and other yields climbed immediately after the release of the retail sales data and other economic reports. The two-year yield rose to 4.91 per cent from 4.84 per cent late Tuesday.
The bond market has been at the centre of Wall Street’s sharp swings because higher rates and yields hurt prices for all kinds of investments.
That’s had investors anxiously waiting for when the Fed could stop its torrent of hikes to rates and, perhaps more importantly, begin cutting them. Such cuts can act like steroids for markets, goosing investment prices and providing more oxygen for the financial system.
Traders on Wall Street have built expectations that the Fed could begin cutting rates as soon as in mid-2024 following the recently encouraging data on inflation. That’s despite officials at the Fed saying that they will likely keep interest rates high for a while to ensure the battle is definitively won against inflation.
Strategists at Goldman Sachs are warning the market’s expectations for rate cuts by major central banks around the world are “too large and too early,” while adding that even if rates are heading lower, they will not be low like they were before.
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Quote of the day
“I find that [Qantas] saw the giving of the directions by [Theo] Seremetidis to cease work as a threat to the conduct of business, and in particular, a threat to the ability of [Qantas] to clean and service aircraft and get them back in the air,” Judge David Russell said after finding Qantas guilty of unlawfully standing down a safety representative at the onset of COVID-19 after he told workers to stop cleaning aircraft that had arrived from China if they felt unsafe doing so.
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