ASX News LIVE | ASX Uncertain after Global Stock Rout; RBA Rates Decision Ahead

The Australian stock market recovered slightly today after days of intense selling sparked by recession concerns in the United States earlier in the week.

The ASX 200 climbed 0.4%, reaching 7,680.6 at the close. Seven out of eleven sectors finished in positive territory. The gains held steady following the Reserve Bank’s decision to maintain the cash rate at 4.35%.

As widely anticipated, the RBA kept the cash rate unchanged at a 12-year peak of 4.35%. The central bank noted that core inflation remained ‘excessively high.’

This decision follows Monday’s significant downturn in the local share market, its worst performance in over four years, prompted by disappointing employment data from the US, which stoked fears of an economic downturn.

Meanwhile, Japanese stocks surged, reclaiming some of the ground lost during Monday’s widespread sell-off that erased billions across global markets from New York to London. US stock futures are also indicating an upward trend tonight.

On the ASX, the energy sector lagged behind, declining by 2%. These losses mirrored a drop in commodity prices as global economic uncertainty dampened the outlook for industrial demand, prompting traders to sell profitable positions.

Oil has since slightly rebounded from a seven-month low, with Brent crude approaching US$78 per barrel after plummeting more than 5% over the previous three sessions.

Within the sector, Woodside Energy plummeted 5.1% to $25.12 after the oil and gas producer faced a cold response to its unexpected $3.7 billion acquisition of a low-carbon ammonia project under construction in the United States.

Winemaker Treasury Wine Estates saw a 1% increase to $11.70 after announcing plans to divest its lower-priced wine brands as part of a strategic overhaul for the Penfolds owner.

With the RBA keeping rates on hold at 4.35% today, economists and analysts have not begun discussing the holes in the Central Bank’s thinking.

In particular, the assumptions around labour productivity.

In the Statement on Monetary Policy, the RBA did admit that current trends were concerning, saying:

‘The central forecasts set out in the latest SMP are for inflation to return to the target range of 2–3 per cent late in 2025 and approach the midpoint in 2026. This represents a slightly slower return to target than forecast in May, based on estimates that the gap between aggregate demand and supply in the economy is larger than previously thought. In part, this reflects an increase in the forecast for domestic demand. But it also reflects a judgement that the economy’s capacity to meet that demand is somewhat weaker than previously thought, evidenced by the persistence of inflation and ongoing strength in the labour market.’

 

‘There is substantial uncertainty around these forecasts. Revisions to consumption and the saving rate in the most recent National Accounts, high unit labour costs and the persistence of inflation – particularly in the services sector – suggest there are upside risks to inflation. Wages growth appears to have peaked but is still above the level that can be sustained given trend productivity growth.’

Despite these concerns, it seems that the RBA’s projections of inflation returning to the 2-3% range in that time frame rely on productivity growth that is well beyond current trends.

Here are some thoughts from Callum Pickering, APAC’s Senior Economist, which echo other comments seen this afternoon.

Australia's productivity performance is pitiful to say the least.

Even ignoring the pandemic-related volatility, Australian productivity is basically unchanged since 2016.

The RBA is banking on a big improvement in this to get inflation back to target. Good luck! pic.twitter.com/l7v6u5s0PF

— Callam Pickering (@CallamPickering) August 6, 2024

 

The Reserve Bank of Australia (RBA) has maintained the cash rate at 4.35% and dampened hopes for imminent rate cuts.

The central bank cautioned that the economy remains overheated and inflation is not declining as rapidly as previously anticipated.

It noted that the Australian economy was performing more robustly than earlier projections despite investor concerns about a potential U.S. recession.

The RBA acknowledged that the ‘pace of disinflation has slowed’ in its latest Statement on Monetary Policy.

It now forecasts that underlying inflation won’t return to the midpoint of its 2 to 3% target range until December 2026, a six-month delay from its May prediction.

According to the RBA board, led by Governor Michele Bullock, this revised outlook partly stems from an increased forecast for domestic demand.

However, it also reflects an assessment that the economy’s capacity to meet that demand is somewhat weaker than previously thought.

This, they argued, was why Australia has seen persistent inflation and continued strength in the labour market.

The board maintained its previous stance of not ‘ruling anything in or out‘ regarding interest rates. It emphasised that policy would need to remain ‘sufficiently restrictive‘ until the board was confident inflation was ‘moving sustainably towards the target range.’

The RBA stressed that underlying inflation remains excessively high, and the latest projections indicate it will take considerable time before inflation is sustainably within the target range.

This stance effectively quashes any immediate prospects for rate cuts, signalling a continued period of tight monetary policy.

With all the volatility in the markets, I thought it might be worth listening to what investing legend Peter Lynch had to say about large market corrections.

Time to be bearish, or bullish?

Peter Lynch talking about pullbacks in the Stock Market

pic.twitter.com/rz1OOyDudP

— Evan (@StockMKTNewz) August 5, 2024

The Australian share market joined other Asian markets in gaining this morning, with buyers picking up sold-off stocks from yesterday.

The major move traders are watching this morning is in Japan. Yesterday, the Nikkei had its worst day of trading since the 1987 crash.

Today, however, It is up by around 9% on its best day of trading since the financial crisis.

Liquidity is still very iffy in this market, so investors should still be on alert for any signs of trouble, as volatility like this shouldn’t be ignored.

The ASX 200 is up by +0.42%, trading at 7,681.7 around noon as discretionary stocks and real estate lead the recovery so far today.

While it’s still too early to say the ‘coast is clear’, the market certainly seems less fearful than the past few sessions, with 103 stocks of the ASX 200 gaining this morning.

Stand-out losses were seen by Woodside Energy, which has fallen by -5.33% to $25.07 amid weak oil prices and further capex spending on a new clean ammonia project.

Oil has begun to rise, with Crude WTI gaining +1.74% to US$74.17 through the session today, but it’s still close to a seven-month low.

Similarly, Iron ore is up by +1.2% to US$104 after recently bouncing off sub US$100 levels.

Lithium producer Liontown Resources [ASX:LTR] is up by +5.75% this morning, trading at 92 cents per share after hitting production milestones at its Kathleen Valley Project.

The company presented at the Diggers and Dealers Mining Forum this morning, showing the first production and dispatch of 145 tonnes of spodumene concentrate from Kathleen Valley to Port Geraldton.

Liontown’s Managing Director and CEO, Tony Ottaviano, said:

‘Just a week after achieving first production, the first truckload of spodumene concentrate has been successfully dispatched to Geraldton Port. This rapid progression underscores the momentum we are building as we transition from construction to production.’

 

“Additionally, hitting our first development ore milestone at Mt Mann demonstrates our continued operational success, and strengthens our position as a leading emerging global supplier of battery minerals.’

In addition to the production goals, Liontown said mining conditions had ‘exceeded expectations’ at its Mt Mann site and around 4,000 meters of underground mines have been developed.

Woodside Energy [ASX:WDS] is the loss leader amongst the large caps this morning as it sheds 4.4% to trade at $25.35 per share.

The drop comes as oil prices remain at a low of US$74.39 per barrel for WTI Crude.

Prices have stabilised from there more recent lows due to ratcheting tensions in the Middle East, however the wider concern of the global economy and demand have so far kept oil at unusually low prices.

Rumours that Iran is considering a retaliatory attack on Israel could push the value higher as Middle East oil supply concerns outweigh other risks; however, it’s still too early to tell.

Woodside announced yesterday that it was to acquire the OCI’s Clean Ammonia Project for $2.35 billion. The project is under construction and is expected to begin production in 2025.

Woodside CEO Meg O’Neill said the acquisition supports Woodside’s strategy to thrive through the energy transition.

‘This transaction positions Woodside in the growing lower carbon ammonia market. The potential applications for lower carbon ammonia are in power generation, marine fuels and as an industrial feedstock, as it displaces higher-emitting fuels.’

For Woodside, the fall puts its 12-month return at -33.7%.

Good morning. Charlie here.

The Australian share market opened slightly higher this morning, up +0.12% to 7,658.6 but volatility is expected ahead in another closely watched session on the markets after yesterday’s stock market rout.

The ASX 200 dropped over 5% in the last two sessions, one of its worst two-day sessions in years. Last night, the S&P 500 posted its worst day since the pandemic, while the VIX volatility index also hit COVID levels of panic.

The Magnificent 7 US tech stocks lost $900 billion in market value overnight as traders sold out of profit positions and retail trading platforms crashed under the weight of traders logging on to exit positions.

The wider global stock market also experienced a significant downturn, with Japan’s Nikkei 225 falling 12.4% in one day, its worst day on record in yen value.

The primary cause was the perception that the US Federal Reserve failed to cut interest rates at the recent FOMC meeting, coupled with weak employment data. This led to fears of a recession and a widening gap between market interest rates and the federal funds rate.

The Federal Reserve now faces difficult options: it either waits until September to cut rates or makes an earlier, potentially panic-inducing cut.

A ‘September fifty‘ basis point cut looks to be the best option, but between now and September we may experience more volatile days as markets are now on alert for any signs of weakness.

The market selloff was also driven by the so-called ‘Japanese Carry Trade‘ of high-tech sector investments and changes in Japanese interest rates.

In Japan, the strengthening yen and unwinding of carry trades are still unknown. This is a global trade, and we are unsure how much capital is deployed in this space or how far the yen could move versus the dollar.

Many are expecting the Bank of Japan to step in here to try and stabilise the situation, but so far, nothing has been heard.

The downturn’s trigger was weak US jobs data released on Friday, which showed new job numbers falling short of estimates and unemployment rising faster than anticipated.

These figures stoked fears of an impending recession, with Goldman Sachs raising its recession probability indicator from 15 to 25%.

Meanwhile, for the Australian market, we have the RBA’s next Interest rate decision today.

With the latest market shakeup, it will be interesting to see what the RBA does next. The RBA Rate Tracker has a 20% chance of a rate cut by the central bank today, up from a 0% chance just six days ago.