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Aussie shares closed at a five-week low despite paring losses as a smaller-than-expected increase in wages eased pressure on the Reserve Bank to keep hiking interest rates to restrain inflation.
The S&P/ASX 200 more than halved its opening fall but still finished almost 22 points or 0.3 per cent in the red. The market has now given back nearly half its gains since the start of the year.
Well-received trading updates from Santos, WiseTech and Westfield landlord Scentre Group helped offset disappointments from Domino’s Pizza, Coronado and EML Payments.
What moved the market
Traders breathed a sigh of relief as wages data released mid-morning helped soften heavy down-pressure at today’s market open following Wall Street’s worst night of the year.
The Wage Price Index grew 0.8 per cent in the December quarter, missing expectations for an increase of 1 per cent. Annual growth of 3.3 per cent was below the RBA’s forecast of 3.5 per cent.
Interbank futures adjusted to reflect a lower top to this rates cycle. The implied terminal rate eased to 4.2 per cent from 4.3 per cent before the data dropped.
The dollar eased 0.34 per cent to 68.4 US cents. The Australian ten-year yield backed down to 3.86 per cent from a seven-week high of 3.973 per cent.
“The RBA’s hawkishness will be challenged by today’s wages data and we expect that the RBA is closer to a pause in its tightening cycle than the market is predicting. We see one more rate rise in March, taking the cash rate to a restrictive level of 3.6 per cent,” AMP senior economist Diana Mousina said.
Market pricing on US rates moved in the opposite direction overnight after business activity unexpectedly expanded for the first time in eight months. S&P Global’s flash US Composite Output Index rose to 50.2 this month from a January reading of 46.8. Readings above 50 signify expanding activity.
Futures trading implied a peak or terminal rate of 5.36 per cent, up from 5 per cent just a few weeks ago.
“For the first time, the market fully prices in three full 25bps hikes from the Fed over coming meetings with a peak in the terminal rate now seen at 5.36% by the July 26Th meeting,” Rodrigo Catril, currency strategist at NAB, said.
Bond yields rallied to three-month highs. Stocks sank. The rate-sensitive Nasdaq dropped 2.5 per cent. The S&P 500 and Dow both lost around 2 per cent.
Interest rates will remain front and centre tonight when the Federal Reserve releases the minutes from this month’s policy meeting.
“Wall Street is already showing signs of weaknesses in February, with any sporadic gains only attributable to stock-specific fundamentals. The broader sentiment is barely optimistic, especially after elevated January monthly inflation growth data,” Kunal Sawhney, Chief Executive at research group Kalkine, said.
“But there is also a possibility that the market is already expecting not-so-encouraging Fed minutes, and these expectations were factored into Wall Street’s Tuesday trading.”
Winners’ circle
Origin Energy bounced 12.7 per cent to $7.90 after its North American suitors firmed up a takeover proposal following due diligence. A consortium including Brookfield Asset Management and MidOcean Energy presented a revised conditional proposal to acquire Origin at $8.90 per share for holdings up to 100,000 shares.
The revised price is a discount to the initial of $9, but a significant premium to yesterday’s closing price of $7.01. The share price had retreated amid growing fears of a hefty cut to the offer price. Origin said the revised offer “had the potential to deliver significant value to shareholders”.
Santos shareholders welcomed a record full-year profit following the acquisition of Oil Search by lifting the stock price 3.08 per cent. The energy giant’s underlying profit jumped 160 per cent to US$2.461 billion, aided by advances in oil and gas prices. The balance sheet was boosted by US$122 million in merger integration synergies.
A 20.6 per cent increase in full-year funds from operations lifted Westfield shopping centre landlord Scentre Group 3.46 per cent. Occupancy at the firm’s 42 Westfield malls climbed to 98.9 per cent from 98.7 per cent in 2021.
WiseTech gained 4.34 per cent after reporting a 32 per cent first-half revenue increase. Earnings improved 36 per cent.
Woolworths climbed 1.99 per cent to a six-month high after a strong start to the year. Supermarket food sales increased 6.5 per cent through the first seven weeks. Big W saw sales rise 9.7 per cent. The supermarket group reported a first-half profit of $907 million, a 14 per cent increase from 1H22.
Among other companies reporting today, AUB Group tacked on 2.62 per cent and SiteMinder added 5.97 per cent.
Doghouse
Domino’s Pizza was dragged to the dumpster after a 4 per cent decline in first-half sales. Underlying net profit declined 21.5 per cent as earnings fell 21.3 per cent. Shares in the fast-food chance were smashed down 23.81 per cent.
News Corp skidded 8.94 per cent after negotiations to sell its Move digital real estate services business to CoStar Group fell over. The media group said discussions had ended.
EML Payments sagged 9.38 per cent after one-off impairments of $121.3 million contributed to a half-year loss of $129.9 million. Underlying earnings wilted 50 per cent.
Coal miner Coronado shed 6.81 per cent after a weather-affected decline in full-year production took some of the shine off record revenues and earnings. Adverse weather in Queensland clipped 7.2 per cent off production volumes. The miner expects output to recover this year.
Other drags among companies reporting included Flight Centre -0.65 per cent, OZ Minerals -0.04 per cent, Lovisa -0.87 per cent, St Barbara -10.94 per cent, Australian Ethical -0.73 per cent, Reece Group -2.07 per cent, Spark New Zealand -4.62 per cent, Silver Lake Resources -1.38 per cent, Qualitas -0.72 per cent and Worley -0.45 per cent.
Other markets
Asian markets mostly tracked falls on Wall Street. The Asia Dow shed 0.84 per cent, China’s Shanghai Composite 0.25 per cent and Japan’s Nikkei 1.29 per cent. Hong Kong’s Hang Seng inched up 0.03 per cent.
S&P 500 futures rebounded eight points or 0.2 per cent.
Oil added to last night’s 1.2 per cent decline. Brent crude eased 23 US cents or 0.3 per cent to US$82.54 a barrel.
Gold bounced US$1.80 or 0.1 per cent to US$1,844.30 an ounce.
