by Peter Milios
All sectors, besides Energy and Materials are lower. The he S&P/ASX 200 is 0.66 per cent or 48 points lower at 7,157.00.
This fall comes after last night’s news in the US that retail sales fell more than expected in November, which has raised some concerns that the Federal Reserve’s continuous interest rate hikes have tipped the economy into a recession.
The SPI futures are pointing to a fall of 54 points.
Best and worst performers
The best-performing sector is S&P/ASX 200 Energy, up 0.09 per cent. The worst-performing sector is S&P/ASX 200 Info Tech, down 1.79 per cent.
The best-performing large cap is Aurizon Holdings (ASX:AZJ), trading 3.90 per cent higher at $3.865. It is followed by shares in New Hope Corporation (ASX:NHC) and Ampol (ASX:ALD).
The worst-performing large cap is Newcrest Mining (ASX:NCM), trading 2.42 per cent lower at $20.365. It is followed by shares in Northern Star Resources (ASX:NST) and Xero (ASX:XRO).
Asian news
Asia-Pacific markets traded lower as recession fears grew.
The Nikkei 225 fell 1.44 per cent, leading losses in the region, while the Topix lost 73 per cent. The Kospi in South Korea also fell 0.69 per cent.
Fed worries blamed for Thursday risk off
Risk off chalked up to hawkish Fed takeaways, even though nothing particularly surprising in the dot plot or from Powell given Fed’s unrelenting higher for longer messaging. Some concerns about a policy mistake as the Fed remains focused on employment, which is a lagging indicator, while inflation dynamics continue to improve. Policy mistake (now flagged as biggest tail risk) and related growth concerns underpinned by deep curve inversion and Fed’s own forecast for a cumulative 1.1pp increase in the unemployment rate. Growth fears also play into an earnings risk theme increasingly flagged as the next shoe to drop for stocks. Flurry of global rate hikes set for today, including some hawkish messaging from the ECB. Economic calendar another overhang with lower claims print playing into tight labour market narrative and November retail sales and December regional Fed manufacturing data softer. Elsewhere, the narrative surrounding China zero Covid pivot has shifted a bit with near-term growth/reopening headwinds from virus spread/fears.
Flurry of economic data sees weaker retail sales, regional manufacturing reports
November retail sales down 0.6 per cent m/m vs consensus for a 0.2 per cent drop and a reversal from October’s 1.3 per cent increase. Still up 6.5 per cent y/y. Sales ex-autos down 0.2 per cent m/m vs consensus for 0.2 per cent rise and October’s downwardly revised 1.2 per cent (was up 1.3 per cent m/m). Control-group sales down 0.2 per cent m/m against forecasts for little change and prior month’s 0.7 per cent rise. Notable declines for vehicles, furniture, building materials, department stores. Elsewhere, NY Fed’s December Empire manufacturing survey came in at (11.2), well below consensus for (1.0) and November’s 4.5 level. Release noted new orders ticked down while prices paid remained steady. Philadelphia Fed’s manufacturing survey printed at (13.8) in December against (12.0) forecast and prior month’s (19.4). New orders at lowest mark since April 2020, though prices paid/received both declined. Initial jobless claims printed at 211K for the latest week, below 234K consensus and prior week’s upwardly revised 231K (was 230K). Continuing claims came in at 1671K, below 1680K forecast and little changed from prior 1670K (revised down from 1670K).
FOMC downshifts to 50bp but raises peak-rate forecasts
FOMC raises rates by 50bp Wednesday in unanimous decision, downshifting as expected from its recent 75bp pace. Meeting statement nearly unchanged from November, with no change to language saying “ongoing” rate increases may be appropriate (vs expectations for some softening). More attention on new Summary of Economic Projections (SEP), which showed median policymaker projection for 2023 rates up 0.6pp to ~5.1 per cent from September’s edition, higher than some analysts’ forecasts for ~4.9 per cent. The 2024 and 2025 rate forecasts were raised as well. SEP also showed lower forecasts for 2023 GDP and higher PCE inflation expectations. Early forecasts suggest a soft landing, though with narrower margins. In a post-meeting press conference, Powell reiterated policy still isn’t sufficiently restrictive, though policy decisions will be made on a meeting-by-meeting basis, dependent on incoming data. Despite Powell playing down the idea of rate cuts in 2023 (repeatedly citing the new SEP), CME’s FedWatch tool shows market still pricing in two cuts in 2H-23 after hitting a peak of 4.75-5.0 per cent by March.
Company news
VRX Silica (ASX:VRX) Arrowsmith North and Muchea Silica Sand projects have been included in the Australian Critical Minerals Prospectus for 2022 published by Austrade. VRX Silica Managing Director Bruce Maluish said: “We are pleased that the Australian Government has recognised that silicon and silica sand are a critical mineral and that VRX has significant potential to address anticipated production shortfalls and build supply chain security as we progress to a carbon netzero future. Sharea are flat at 13 cents.
Mineral Resources (ASX:MIN) intends to make an off-market takeover bid to acquire every issued fully paid ordinary share in Norwest Energy NL (ASX: NWE) that it does not already own. The Offer implies an offer price of $0.06 per Norwest Share. In response, MinRes Managing Director Chris Ellison said: ““This Offer presents a compelling and unique opportunity for Norwest Shareholders to join the MinRes family and be part of the next chapter in our significant value creation.” Shares are trading 0.7 per cent higher at $82.61.
Meteoric Resources (ASX:MEI) has entered into a binding agreement to acquire a world class Ionic Clay Rare Earth Element (REE) project in Brazil. Company Director Dr. Andrew Tunks said, “The Caldeira Project is a fifteen-kilometre scale, ultra-high-grade ionic clay deposit which is completely open at depth and it has the potential to host large, high grade rare-earth element-ionic clays and represents an enormous opportunity for Meteoric.” Shares are trading 93.8 per cent higher at 3.1 cents.
Commodities and the dollar
Gold is trading at US$1817.30 an ounce.
Iron ore is 0.5 per cent lower at US$109.75 a tonne.
Iron ore futures are pointing to a 1.6 per cent gain.
One Australian dollar is buying 68.65 US cents.
