The Australian stock market recovered some of yesterday’s heavy losses, despite another slump in global markets on the possibility of more aggressive US and European interest rate hikes ahead.
The ASX 200 closed 0.5% higher at 6,998 points.
Energy stocks like Woodside Energy (+1.5%) and Santos (+1.5%) propelled the market higher.
They were boosted by a 4% rise in oil prices overnight – according to reports, the world’s biggest oil-producing countries, including Russia and Saudi Arabia, plan to cut production.
Meanwhile, Bubs Australia fell 5% despite the baby formula maker posting record revenues, while Healius climbed 3.5% after the health services company raised its dividend.
Shares of emerging uranium producer Paladin Energy jumped 5.8% on speculation that Japan could switch to more nuclear power.
On the other hand, Sandfire Resources (-3.6%), Kelsian Group (-1.7%), Lynas Rare Earths (-2.4%), Evolution Mining (-1.3%) and Downer EDI ( -2.5%). ) were among the worst performers today.
Building permits fall
As of 4:30 p.m. AEST, the Australian dollar had fallen slightly to 68.97 US cents, while the US greenback briefly hit a 20-year high.
Commonwealth Bank senior economist Kristina Clifton said the local currency was weighed down by “weaker than expected construction approval data”.
Building approvals fell 17.2% in July (much worse than the 3% decline economists expected).
This was mainly due to a 43.5% drop in multi-unit approvals, which fell to their lowest level since 2012.
“Building approvals are volatile month to month, but there is currently a downward trend,” Ms Clifton said.
“Rising interest rates and high construction costs are weighing on demand for new properties. Our Australian economy team expects residential construction to dampen the economy in 2023.”
Woodside triples its dividend
In corporate news, Woodside Energy tripled its interim dividend after the gas producer posted a five-fold increase in first-half profits on the back of soaring oil and gas prices.
Liquefied natural gas (LNG) prices soared as sanctions on Russia following its invasion of Ukraine compounded supply problems in an already tight market.
This has led buyers from Asia and Europe to look for other suppliers, benefiting producers in countries like Australia and Papua New Guinea.
Woodside, among the world’s top 10 independent oil and gas producers after its merger with the oil arm of BHP, announced an interim dividend of $1.09 per share, more than triple its payout of 30 US cents per share. action last year. .
It posted underlying net profit after tax, excluding one-time charges, of $1.82 billion, compared with profit of $354 million a year earlier.
Following the merger with BHP’s oil division, Woodside now owns 100% of the Scarborough gas project, valued at $5.6 billion.
Although Scarborough is the company’s biggest growth project, Woodside has been looking to sell a stake on and off for more than 18 months.
Chief executive Meg O’Neill said the company was in talks with potential “high-quality” partners, but in light of the strength of the LNG market, it would only sell if it got fair value from it. which is “an extraordinarily important asset for the future of Woodside”, which is expected to begin production in 2026.
“But again, we’re not going to sell this critical asset,” O’Neill told analysts on a conference call.
She did not say whether Woodside was still looking to sell up to 50% of Scarborough’s shares.
Woodside has begun a strategic review of all of the expanded company’s assets to define its next growth project, which could include new energy and Browse and Greater Sunrise gas in northwest Australia, it said. she stated.
‘Deeper recession’ with faster rate hikes
Investors, aware that rates would remain high even if the risks of recession increased, decided to sell their risky assets.
On Wall Street, the S&P 500 fell 0.7% to end at 4,030 points, while the Nasdaq Composite fell 1.1% to 12,012 and the Dow Jones index slid 0.6% to 32. 100.
This is on top of their steep losses on Friday, which saw the Dow, S&P and Nasdaq fall between 3 and 4% each.
The US market sell-off spread to Australia yesterday and sent the ASX 200 down 2%.
US Federal Reserve Chairman Jerome Powell said on Friday that the US economy will need tight monetary policy “for a while” before inflation is brought under control.
His hawkish comments were delivered at the Jackson Hole central bankers’ summit in Wyoming and dashed hopes that the Fed might turn to more moderate rate hikes after recent data suggested inflation could ease.
European Central Bank board member Isabel Schnabel added to market unease.
She warned on Saturday that central banks risk losing public confidence and must act forcefully to rein in inflation, even if it drags their economies into recession.
“Jackson Hole’s message was loud and clear and fell short of market expectations,” Nordea chief analyst Jan von Gerich said.
“Central banks need convincing evidence that inflation is falling. This is bad news for the economy and risk appetite and increases the risk of a deeper recession if we get price hikes. faster rates.”
Investors stepped up their bets on higher rates in the United States and the eurozone, with markets pricing in a greater likelihood of 0.75 percentage point hikes from the Fed and ECB in September.
Megacap technology and growth stocks like Apple and Microsoft fell more than 1% each and were among the biggest drags on the US stock market.
The CBOE Volatility Index (VIX), Wall Street’s fear gauge, hit a seven-week high of 27.67 points.
Signs of recession and “exaggerated” selling
“Friday’s selloff was frankly overdone,” said Randy Frederick, vice president of trading and derivatives at Charles Schwab in Austin, Texas.
“I say [Powell] said he was going to play hard with inflation, but honestly, that’s not that different from what he’s been saying for the past few weeks.
“He was a little more hawkish but I mean, damn, who’s surprised by that, really?
“I don’t see much upside or downside here in the short term. I see a lot of volatility and probably will at least until we get past September 21st. [US] rate hike.”
The two-year Treasury yield, which is particularly sensitive to interest rate expectations, briefly touched a 15-year high (at 3.45%).
They were also well above the yield on US 10-year bonds (at 3.13%).
Again, the yield curve remains firmly inverted, which means shorter-term bonds (two years) and offering higher yields than longer-term bonds (10 years).
This type of reversal is considered by many to be a reliable signal of an impending recession.
Oil prices soar
Gold prices reversed course to trade higher as the rally in the US dollar faltered.
“Gold sold off after Powell’s speech and right now the upside is due to pure bargain hunting as well as a pullback in the dollar,” said Bob Haberkorn, senior market strategist at RJO. Futures.
Mr. Haberkorn also said: “Gold will soon start trading in a small range until further cues from the Fed.”
Spot gold was flat at US$1,737 an ounce.
Oil prices soared on speculation that the world’s biggest oil-producing nations could cut production at their next meeting.
Saudi Arabia, the Organization of the Petroleum Exporting Countries (OPEC) top producer, last week raised the possibility of production cuts, which sources said could coincide with an increase in the supply of the Iran if it makes a nuclear deal with the West.
OPEC+, comprising OPEC, Russia and allied producers, meets to set policy on September 5.
Brent crude jumped 4.1% to US$105.09 a barrel, while US West Texas Intermediate (WTI) crude rose 4.2% to US$97.01.