by Paul Sanger
Shares on the ASX plunged lower on Monday following Fed Chairman Jerome Powell’s speech at Jackson Hole on Friday. He warned that rising interest rates will cause “some pain” to the US economy, saying higher interest rates likely will persist “for some time”.
All sectors closed in the red, leaving no safe havens for investors to hide.
Rate-sensitive technology stocks in Australia led the retreat on the benchmark, falling about 4 per cent, with shares of Block down 7.5 per cent at $97.50.
At the closing bell, the S&P/ASX 200 was 1.95 per cent or 138.60 points lower at 6965.50.
Futures
The Dow Jones futures are pointing to a fall of 249 points.
The S&P 500 futures are pointing to a fall of 40.75 points.
The Nasdaq futures are pointing to a fall of 173.50 points.
The SPI futures are pointing to a fall of 153 points when the market next opens.
Best and worst performers
All sectors closed in the red. The sector with the fewest losses was Utilities, down 0.37 per cent. The worst-performing sector was Information Technology, down 4.38 per cent.
The best-performing stock in the S&P/ASX 200 was The A2 Milk Company (ASX:A2M), closing 9.98 per cent higher at $5.40. It was followed by shares in Adbri (ASX:ABC) and APA Group (ASX:APA).
The worst-performing stock in the S&P/ASX 200 was Lake Resources (ASX:LKE), closing 10.13 per cent lower at $1.06. It was followed by shares in Coronado Global Resources (ASX:CRN) and Chalice Mining (ASX:CHN).
Asian markets
The Nikkei 225 in Japan has slipped 2.58 per cent and the Topix index has declined 1.7 per cent. South Korea’s Kospi has fallen 2.10 per cent, and the Kosdaq index has dropped 2.54 per cent.
Mainland China’s Shanghai Composite has dipped 0.11 per cent after recovering slightly, and the Shenzhen Component has lost 0.49 per cent.
Hong Kong’s Hang Seng index has shed 0.6 per cent and the Hang Seng Tech index has dropped 1.01 per cent.
MSCI’s broadest index of Asia-Pacific shares outside Japan has dropped 1.93 per cent, while the Japanese yen is trading at 138.84 yen per dollar.
Aus retail jump indicates household resilience, but full impact of rate hikes yet to come
Australian retail sales unexpectedly rose 1.3 per cent m/m in July, higher than consensus. This marked the biggest monthly increase in four months and is seen as an indication of Australian household resilience in the face of rising interest rates and inflation. The data contrasted with recent surveys that showed consumer confidence at depressed levels and seemed to fit with the RBA’s view that strong financial buffers and low unemployment are supporting consumption. Spending was strongest in discretionary categories, with department stores, clothing, footwear, and accessories seeing the biggest increases in retail sales. However, household goods retailing fell again, reflecting a broader weakness in spending on big ticket items. Economists also noted that the RBA rate hikes have yet to properly flow through to higher mortgage repayments given an average three-month lag.
Central bankers emphasise need to tame inflation, even if it means economic pain
Central bankers at Jackson Hole emphasised the message that they will maintain an aggressive pace of tightening even in a slowing economic environment. Fed Chair Powell and ECB policymakers acknowledged that tightening will hurt households and businesses, but said that a larger sacrifice will be needed to tame inflation, requiring policy to remain restrictive for an extended time (FT, Bloomberg). Officials warned monetary policy will be a more challenging task over coming years, necessitating costly trade-offs in an environment where supply shocks will be more volatile. Attendees discussed the possibility that inflation will remain structurally higher and be more difficult to manage, which may require central banks to eventually reconsider their inflation mandates in order to avoid imposing unnecessary pain on economies.
US and China reach audit deal
Consistent with prior press leaks, Reuters reported that SEC chair Gensler announced Friday that the US and China had signed a pact to allow US regulators to vet accounting firms in China and Hong Kong. The article noted that this deal marks a partial thaw in US-China relations amid tensions over Taiwan and will come as a relief for hundreds of Chinese companies, which faced the risk of delisting from US exchanges. Gensler cautioned that it was just a first step and that the view on China’s compliance would be determined by whether inspections could be conducted unobstructed, as the deal promises. Still, PCAOB acknowledged it was the most detailed agreement the the regulator has ever reached with China. US officials said they had notified the selected companies on Friday morning and expected to land in Hong Kong, where the inspections will take place, by mid-September. Officials said PCAOB and SEC expect to make a determination on China’s compliance by the end of the year.
China GDP growth expectations continue to weaken
Consensus now looks for Chinese GDP growth of 3.5 per cent in 2022, down from 3.9 per cent. Quarterly projections through 3Q next year are shaved though 2023, though the median remained unchanged at 5.2 per cent. Forecasts are downgraded despite Beijing’s recent stimulus measures, indicating scepticism about its effectiveness amid adverse impacts from Covid-related restrictions and property sector weakness. More recently, record high temperatures and drought have led to power shortages and some factory shutdowns. Recall that the government has been downplaying its official growth target of around 5.5 per cent, and Beijing hasn’t missed its GDP target by such a large magnitude before. Economists also cited structural challenges in the longer term (demographics), steering perceptions of potential growth lower.
Company news
Galileo Mining (ASX:GAL) today provided a drilling update from the Callisto palladium discovery, which has intersected massive sulphide mineralisation. This displays the potential for high-grade zones within the mineralised system. Galileo’s Managing Director Brad Underwood commented; “Intersecting massive sulphides at the shallow depth of 190 metres downhole is an exceptional result from our first program of diamond drilling at Callisto. It demonstrates how much there is to learn about the larger mineralised system and the up-side opportunities that may present themselves as we continue with our extensive drill campaigns.” Shares closed 26.26 per cent higher at $1.25.
Petratherm (ASX:PTR) has reported Batch 2 rare earth drill results from the Comet Project located in the Northern Gawler Craton of South Australia. Drilling has defined a major REE occurrence (the Meteor Prospect). Commenting on these results, PTR’s Exploration Manager Mr Peter Reid said: “These are encouraging results with a significant rare earth zone found with high grades. We see compelling evidence that the Northern Gawler Craton of South Australia is shaping up as a major new province for rare earths.” Shares closed 8.1 per cent higher at 8 cents.
Commodities and the dollar
Gold is trading at US$1722.73 an ounce.
Iron ore is 3.5 per cent higher at US$105.80 a tonne.
Iron ore futures are pointing to a fall of 2.4 per cent.
Light crude is trading $0.54 higher at US$93.60 a barrel.
One Australian dollar is buying 68.55 US cents.
