ASX futures were down 126 points or 1.7% at 7047 at 8.00am on Thursday, suggesting a steep drop that would undo Wednesday’s rally.
The Dow Jones Industrial Average fell 3.5 percent, to its lowest closing level since March 2021. The S&P 500 fell 4% in a widespread tumble. The tech-heavy Nasdaq Composite tumbled 4.7%, hurt by falls at tech in excess of 5% at giants Apple, Amazon and Nvidia. The Dow and S&P suffered their worst percentage declines since June 11, 2020. The moves represented a U-turn from a day before, when shares of technology saw the lead in a rebound in markets.
Big U.S. retailers were among the biggest losers after profit was hurt by higher costs, sluggish sales and supply-chain disruptions. Shares of Target plummeted 25 percent, or $53.67, to $161.61 after the company reported quarterly earnings that fell short of analysts’ expectations, its biggest one-day drop since Black Monday in 1987. Shares of Dollar Tree and Dollar General, as well as Costco Wholesale, had their biggest single-day percentage declines in years, with Costco’s being the largest since 2003.
“Inflation is affecting everything in an earnings report, from the transportation side to the supply-chain disruption,” said Nick Giacoumakis, president and founder of NEIRG Wealth Management. “Customers aren’t purchasing the higher-priced items that they would normally buy.” “Everybody is trying to interpret this, and it all flows through to an earnings report.”
Back home, the S&P/ASX 200 finished 1.0% stronger at 7182.7, marking a fourth straight rise and led by gains from mining and tech stocks.
The benchmark index added to momentum from positive US session, opening higher and holding most of its gains.
The materials sector topped movers with iron ore miners Fortescue Metals, Rio Tinto and BHP up between 2.0% and 3.2%.
Billionaire mining magnate Andrew Forrest will take the reins of the company he founded nearly two decades ago after a wide-ranging global search for a new leader found no better alternative.
South32 rose 5.15% after Macquarie analysts reiterated their view that the diversified miner was in a position to funnel more cash into its buyback programme.
Tech shares continued to recover from recent heavy selling, with WiseTech, Block, Life360 and Megaport up between 3.1% and 4.1%.
The major banks were largely in the red, with NAB tumbling 0.6% to $31.28 and CBA down 0.3% to $104.80. Westpac lost two cents in value to $24.44 while ANZ gained 0.9 per cent to $25.84.
Across commodity markets, Brent crude oil was down 2.5% at US$109.11 a barrel. Iron ore retreated 3% to US$124.30. Gold fell $1.30 to US$1814.60.
In local bond markets the Australian 2 Year government bond yield rose to 2.57% and the 10 Year to 3.45%. Overseas, bonds rose as investors sought refuge from the equity sell-off. US Treasury 2 Years yield fell to 2.67% and 10 Year to 2.88%.
The Australian dollar slipped back under 70 cents overnight, buying 69.50 US cents at 7.00 am on Thursday, slipping from a close of 70.26 US cents. The Wall Street Journal Dollar Index, which measures the US dollar against 16 other currencies rose as high as 96.18.
Asia
China stocks rose and fell and the session ended mixed as the market continued with this week’s bear market of trading. The benchmark Shanghai Composite Index declined 0.2% to close at 3085.98, while the Shenzhen Composite Index notched a 0.1% increase to finish at 1941.54. The technology-oriented ChiNext Price Index slid 0.2% to 2365.38.
Auto-related companies like car makers and after-sales services providers were some of the best-performing stocks in the market as officials kept signaling more supportive policy steps for buying cars, especially in rural areas. But that momentum was countered by weakness in restaurant and hotel operators, which continue to feel the pressure of the resurgent Covid-19 in China.
Hong Kong’s Hang Seng Index ended 0.2% higher at 20644.28. Winners included Techtronic Industries, which ended up 5.8%, and Xinyi Solar, which gained 3.9%. Among decliners was Wuxi Biologics, down 2.5%.
Investors are probably concentrating on quarterly earnings reports due later in the week, KGI Securities analyst Chua Hit Tong said in a note. Investor sentiment could be brightening due to Chinese Vice Premier Liu He’s expression of support for the technology sector’s development and Shanghai’s plan for a gradual easing of its lockdown, he said.
Japanese shares finished higher, bolstered by advances in tech and auto shares on signs of US economic resilience and expectations of further easing of Covid-19 lockdowns in China. Fujitsu Ltd. rose 4.4% and Nissan Motor gained 3.7%. Renesas Electronics added 3.7% after news of its Y90 billion capex plan to increase the manufacturing of power semiconductors for electric vehicles.
The Nikkei Stock Average gained 0.9% to 26911.20. Investors are watching the yen, crude oil and news about lockdowns in China.
Europe
European shares edged lower on Wednesday, tracking a downbeat open on Wall Street as jitters over economic growth grew. The pan-European Stoxx Europe 600, French CAC 40 and German DAX were all more than 1 percent lower as investors worry about inflation and recession in some parts of the global economy.
“Growth fears are back it seems, pushing equities and oil prices lower this afternoon,” IG analyst Chris Beauchamp writes. “That stocks can’t even muster a decent snapback after their vicious losses should be a signal to investors that we are no longer in the bull market of 2021.
London’s FTSE 100 dipped 1.1 percent on Wednesday after the rally lost steam after comments from Federal Reserve chairman Jerome Powell that the U.S. central bank is committed to getting back in the driver’s seat when it comes to tackling inflation. Nor is a record high print for UK inflation having any beneficial effect, according to CMC Markets UK chief market analyst Michael Hewson.
Retailers are reaping the worst hit from the 9% inflation print, which has sent Ocado, JD Sports, Tesco and B&M European Retail all sliding back, according to Hewson. On the other side of the ledger, shares of Rolls-Royce (LON: RR) had the biggest gain of the day, climbing 4.4% on a work analyst upgrade. Having fallen to 18-month lows earlier in the month, Rolls-Royce is now pushing towards the highest it has been this month.
North America
US stocks dropped sharply, with two of the major indexes logging their worst day since 2020, as the latest round of disappointing earnings from big-name retailers raised investors’ worries about a recession.
The Dow Jones Industrial Average finished Wednesday down 3.6%, at its lowest closing level since March 2021. The S&P 500 fell 4% in a broad-based decline. The tech-focused Nasdaq Composite fell 4.7%, weighed down by declines at tech giants Apple, Amazon and Nvidia of more than 5%. The Dow and S&P both had their worst percentage declines since June 11, 2020. The moves represented a U-turn from a day earlier, when technology shares led a recovery in markets.
Major retailers said their profits were challenged by rising costs, sluggish sales and supply-chain disruptions. Those companies look like they’ll need some help, a bad sign for the economy, and shares of Target plunged 25 percent today, or $53.67, to $161.61 after the company reported quarterly earnings that disappointed analysts, the worst one-day performance for Target since Black Monday in 1987. Shares of Dollar Tree, Dollar General and Costco Wholesale saw their biggest percentage drop in a single day in years—in Costco’s case, since 2003.
The results are forcing Wall Street to rethink, once again, the idea that the global economy may be heading into recession. That debate is by no means settled, but it has played havoc with stocks and other risky assets all year, and the latest data shows the extent to which inflation has gripped US consumers so far.
“Inflation is impacting every corner of an earnings report, whether it’s the transportation side or supply-chain disruption,” said Nick Giacoumakis, president and founder of NEIRG Wealth Management. “Consumers are not purchasing the high-ticket items that they’d normally purchase. This all trickles through to an earnings report.”
Brent crude, the international oil benchmark, declined $2.82, or 2.5 percent, to $109.11 a barrel, another sign of investor concern about economic growth. Oil prices have been extremely sensitive in recent months to both the war in Ukraine, which is a potential disruptor of supplies, and to lockdowns in cities across China that crimp demand. Shanghai’s government is starting to prepare the city for an eventual reopening.
What is weighing furthest on investors’ minds is decades-high US inflation, how much policy makers are prepared to do to bring it down, and what adjustments to monetary policy translate to economic growth. Federal Reserve Chairman Jerome Powell said Tuesday that no one should have any doubt about the central bank’s resolve in fighting inflation, even if the measures needed send unemployment higher.
Walmart stock dropped 6.8 percent, or $8.92, to $122.43, building on declines from Tuesday, when the retailer warned that it was being squeezed by rising food costs and other increases in costs. Lowe’s lost 5.3%, or $10.21, to $183.82 after the home-improvement retailer reported a decline in first-quarter sales Wednesday.
“We’re witnessing a continued transition in consumption composition, away from goods and back toward services,” said Garrett Melson, a portfolio strategist at Natixis Investment Managers. “Of course that’s going to be a drag on these goods retailers.”
Consumer discretionary and consumer staples were the bottom two sectors in the S&P 500 on Wednesday. Both posted their biggest single-day percentage declines since March 2020.
Markets have also been shaken up by the war in Ukraine and China’s zero-Covid strategy. Declines have been broad-based. Bonds, usually a safe haven, have been dropping along with stocks.
“We ultimately expect growth to start slowing down in the coming months,” said Salman Ahmed, global head of macro at Fidelity International, who added he expects the Fed’s action will dampen inflation. “The next thing for the Fed to do then will be to focus on the growth shock.”
The confluence of worries battering markets has prompted Mr. Ahmed to take a more conservative approach to investing in recent weeks, he said.
If Russia’s war against Ukraine could further fuel geopolitical tension is also being watched by investors. Finland and Sweden formally applied on Wednesday for membership in NATO, in a step if approved that would radically reshape the security architecture of Northern Europe.
The yield on the benchmark 10-year Treasury note fell to 2.884% from 2.969% on Tuesday. Yield and price have an inverse relationship.
