By Millie Muroi
Welcome to your five-minute recap of the trading day, and how experts saw it.
Information technology and mining companies dragged the Australian sharemarket down on Wednesday following a negative lead from Wall Street and concerns about the global economy following weak economic data from the world’s second-largest economy.
The S&P/ASX 200 was down 109.8 points, or 1.5 per cent, to 7195.2 at the close as all sectors traded in the red.
The Australian dollar, which tends to perform better when investors are optimistic about the global economy and the world’s demand for the country’s resources, continued to fall. It was fetching 64.54 US cents at about 4.15pm AEST.
REITs (up 0.2 per cent) were the strongest performers as Mirvac added 5.3 per cent despite posting a $165 million loss and warning its earnings would fall further in its most recent full-year report. Vicinity Centres climbed 2.4 per cent despite posting a lower net profit compared with last financial year, and Stockland also gained, lifting 2.2 per cent.
EBOS Group (up 0.5 per cent) bolstered the healthcare sector (down 0.5 per cent) along with Resmed (up 0.1 per cent) while consumer staples (down 0.6 per cent) also remained relatively resilient as investors stayed with defensive stocks including supermarket giant Coles which added 0.1 per cent.
Aurizon Holdings (up 1.4 per cent), Bendigo and Adelaide Bank (up 1.3 per cent) and coal miners Whitehaven and Yancoal which gained 0.8 per cent each were the biggest large-cap advancers.
Iron ore heavyweights BHP (down 3.4 per cent), Fortescue (down 3 per cent) and Rio Tinto (down 2.3 per cent) all declined despite a 0.6 per cent increase in iron ore prices overnight, dragging down the broader mining sector which lost 2.6 per cent.
Meanwhile, the country’s biggest bank, CBA, shed 3.6 per cent amid a 1.7 per cent decline in the broader financials sector. All four big banks traded lower, including NAB (down 1.1 per cent), Westpac (down 0.9 per cent) and ANZ (down 1 per cent).
Information technology (down 2.9 per cent) was the weakest sector on the local bourse as WiseTech dropped 3.7 per cent, NEXTDC lost 2 per cent and Xero fell 2.6 per cent.
Dan Murphy’s owner Endeavour fell 4.2 per cent after the company didn’t provide earnings guidance for the 2024 financial year and both its earnings and profits for the 2023 fiscal year fell short of consensus.
Bell direct market analyst Grady Wulff said the Australian sharemarket was weaker on the back of Wall Street’s performance overnight as well as weaker data out of China.
“Fitch issued a downgrade warning for US banks so investors took that as a sign of instability in the banking world in US and European markets,” she said, affecting Australian banks which closed lower on Wednesday. “Retail sales data and manufacturing output data were also weaker than expected from China, showing the Chinese economy is very sluggish.”
Wulff said the weakness from China and lack of a stimulus package from the Chinese government weighed on commodity prices and the Australian mining sector.
Meanwhile, Wulff said healthcare companies performed relatively better than most other sectors because they were trading at a discount. “Investors are seeing an opportunity because the sector has outperformed over the past 10 years and there’s an opportunity to buy into healthcare at the moment,” she said.
A sharp drop for Wall Street capped a day of declines around the world after discouraging data on China raised worries about the global economy.
The S&P 500 slumped 1.2 per cent for one of its worst drops this year after data showed a deepening slump for the world’s second-largest economy. The Dow Jones tumbled 361 points, or 1 per cent, and the Nasdaq Composite sank 1.1 per cent.
Coming into this year, the expectation was that China’s economy would grow enough after the government removed anti-COVID restrictions to prop up a global economy weakened by high inflation. But China’s recovery has faltered so much that it unexpectedly cut a key interest rate on Tuesday and skipped publishing a report on how many of its younger workers are unemployed.
Worries about the knock-on effects for the rest of the global economy are weighing on Wall Street, where stocks have already been weakening in August. The pullback follows a gangbusters first seven months of the year that critics called overdone.
In the US, the economy has remained more resilient than expected despite higher interest rates. A report on Tuesday showed growth for sales at US retailers accelerated by more in July than economists expected.
The strong retail sales report raises hopes that the US economy can keep growing and avoid a long-predicted recession. But on the downside for markets, it could also raise the Federal Reserve’s resolve to keep interest rates high in order to fully grind down inflation.
The Fed has already raised its key interest rate to the highest level in more than two decades. High rates work by bluntly dragging on the entire economy and hurting prices for investments.
A faltering Chinese economy could mean less demand for oil and other commodities.
The price for a barrel of US crude oil dropped $US1.52 to $US80.99. Prices also fell for Brent Crude, the international standard, and for copper.
The declines meant stocks of energy producers were among the biggest losers in the S&P 500. Exxon Mobil’s 2.6 per cent drop was one of the heavier weights on the index.
Banks also sank, continuing a rocky run since the high-profile failures of several during the spring that were caused in part by high interest rates.
In stock markets abroad, indexes slumped in Europe after falling 1 per cent in Hong Kong and 0.1 per cent in Shanghai.
Pressures are appearing worldwide. Also on Tuesday, Russia’s central bank raised its main lending rate in an emergency move to strengthen the rouble after the currency reached its lowest value since early in the war with Ukraine. In the UK, data showed wages for workers are growing at a strong pace, which threatens to add upward pressure on its already high inflation.
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“Construction was the first industry to be affected, unable to pass on rising costs due to fixed-price contracts. We are now seeing other industries affected, like retail impacted by increased cost of living and reduced consumer spending,” said James Wagg, KordaMentha executive director of performance improvement, as Australia is expected to tip into recession in the next 12 months.
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Consulting giant KPMG Australia boss Andrew Yates has taken a hit to his pay packet in the past financial year, with his remuneration cut by $600,000 as a softer local economy took its toll on available consulting work.
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