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ASX closes flat as oil price jumps, retail sales slow

Welcome to your five-minute recap of the trading day and overview of how experts saw it.

The numbers

The Australian sharemarket zigzagged to a flat finish on Thursday, bolstered by the energy sector after oil prices rose and following Wall Street’s anaemic lead.

The S&P/ASX 200 was down just 5.5 points, or 0.08 per cent, to 7024.8 at the close as all sectors except energy and mining traded in the red.

Wall Street’s September slump has continued.

Wall Street’s September slump has continued.Credit: AP

The lifters

Energy companies (up 3 per cent) led gains on the index with coal miners Whitehaven (up 6.1 per cent) and New Hope (up 3.2 per cent) among the biggest large-cap advancers. Heavyweights Santos (up 3.8 per cent) and Woodside (up 2.9 per cent) also climbed after Brent Crude oil prices increased 2.8 per cent overnight.

Resmed (up 4.8 per cent) climbed, recovering some of its losses over the past few days.

Lithium miners Pilbara Minerals (up 2.9 per cent), IGO (up 1.8 per cent) and Allkem (up 1.8 per cent) also advanced, bolstering the mining sector (up 0.3 per cent). Shares in iron ore heavyweights BHP (up 0.6 per cent), Fortescue (up 1.4 per cent) and Rio Tinto (up 1.2 per cent) were also stronger.

The laggards

Meanwhile, on the losing end, consumer staples (down 0.7 per cent) and consumer discretionary companies (down 1.2 per cent) were weaker after the latest ABS data showed retail turnover continued to drop, growing just 1.5 per cent in the year to August. It was the weakest retail turnover result since August 2021. Supermarket giants Coles (down 0.7 per cent) and Woolworths (down 0.9 per cent) dropped, along with IDP Education (down 3.5 per cent) and Aristocrat Leisure (down 1.9 per cent).

Investment company Washington H Soul Pattinson dropped 6 per cent after it reported a 9 per cent decrease in regular profit to $759.3 million for the full year and said it had reallocated about $1 billion away from equity investments over the past year. Gold miners Newcrest (down 5 per cent) and Evolution (down 2.4 per cent) were also weaker.

The lowdown

Shaw and Partners senior investment adviser Craig Sidney said the Australian sharemarket was relatively flat with weak turnover amid school holidays.

“There wasn’t much direction from the US overnight, and there’s not a lot of action going into public holidays for Victoria and NSW,” he said. “But there has been a bit of a sector rotation.”

Sidney said the gold sector was especially weak after gold prices fell overnight but that the iron majors, lithium miners and energy companies climbed, the latter on the back of stronger oil prices.

Consumer discretionary companies were weaker, Sidney said, amid continual concerns about inflation and interest rates, and an increase in bond yields.

Elsewhere, Wall Street yo-yoed to a mixed finish after rising oil prices and bond yields cranked up the pressure even higher on the stock market.

After taking several U-turns through the day, the S&P 500 inched up by less than 0.1 per cent and remains near its lowest level since June. The Dow Jones slipped 0.2 per cent after earlier bouncing between a gain of 112 points and a loss of 312. The Nasdaq composite rose 0.2 per cent.

September is on track to be the S&P 500’s worst month of the year as the stock market tries to absorb a leap by Treasury yields to heights unseen in more than a decade. High yields mean bonds are paying more in interest, which makes investors less willing to pay high prices for stocks and other riskier investments.

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The yield on the 10-year Treasury rose further Wednesday, to 4.61 per cent from 4.55 per cent. That’s up from about 3.50 per cent in May and from just 0.50 per cent early in the pandemic. It’s soared as Wall Street increasingly accepts a new normal where interest rates will stay high for longer.

After more than a decade where the Federal Reserve would quickly cut rates in order to help the economy, still-high inflation is now discouraging the Fed from lowering rates. Its main interest rate is already at its highest level since 2001, and the Fed indicated last week it will cut rates in 2024 by less than earlier expected.

Strategists at Bank of America say yields could keep rising. Even if the Fed is close to done with hiking its overnight interest rate, it could hold the rate there for a long time.

It’s all brought an end to the old era of investing, where the mantra was “There Is No Alternative” to stocks because bonds were paying such scant yields. With bonds now paying much more and providing real alternatives, stock prices could feel downward pressure for a while.

Even so, the “Fed won’t be overly reactive” to drops in stock prices because the overall economy remains solid, the strategists led by Mark Cabana wrote in a BofA Global Research report.

A report on Wednesday said orders for long-lasting manufactured goods were stronger last month than economists expected. It’s the latest signal that the overall economy remains solid despite much higher interest rates.

The upside of such strength means the economy has avoided a long-predicted recession. But it could also keep enough upward pressure on inflation to encourage the Fed to keep rates high.

Recent jumps in oil prices have likewise turned up the heat on inflation, and crude climbed further on Wednesday.

Benchmark US crude rallied $US3.29 to settle at $US93.68 per barrel, up from less than $US70 in June. It’s threatening to top $US100 again for the first time since the summer of 2022. Brent crude, the international standard, also rose.

Besides high interest rates, a long list of other worries are also tugging at financial markets. The most immediate is the threat of another US government shutdown as Capitol Hill threatens a stalemate that could shut off federal services across the country as soon as this weekend.

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Stock prices have managed through past shutdowns relatively well, but conditions may be a little different this time. Economists at Goldman Sachs expect all data reports from the federal government to be postponed during a shutdown. That could complicate things for the Federal Reserve, which has said repeatedly it will make its upcoming decisions on interest rates based on what reports say about inflation and the job market.

Several highly influential reports are supposed to come in the coming weeks. The next monthly jobs report is due on October 6, and two big inflation reports are due the following week.

Other threats looming over Wall Street include shaky economies around the world, a strike by US autoworkers that could put more upward pressure on inflation and a resumption of US student-loan repayments that could dent spending by households.

Stock markets in Asia gained ground, and markets in Europe slipped.

Indexes rose 0.8 per cent in Hong Kong and 0.2 per cent in Shanghai even though concerns remain high about a faltering economic recovery and troubles for Chinese property developers, including the heavily indebted Evergrande.

Tweet of the day

Quote of the day

“There is stress with utility prices, stress with food prices and with petrol prices … I don’t think the consumer can take this for very much longer,” said retail billionaire Solomon Lew, arguing that the Reserve Bank should not lift interest rates next week.

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AP

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