ASX trading flat as Wall Street drifts; Tech companies slip

The Australian sharemarket is treading water on Wednesday following weak leads from Wall Street overnight after US President Donald Trump’s latest tariff escalation and the head of the US Federal Reserve hinting interest rates are unlikely to change.

The S&P/ASX200 dropped 0.2 points to 8486.7 points as at 11.30 am AEDT, with six of the industry sectors retreating. On the upside, utilities, industrials, and energy were the biggest winners with an increase of 1 per cent, 1.2 per cent, and 0.7 per cent for the sectors respectively.

Wall Street dipped lower on Tuesday.Credit: Bloomberg

Index bellwether Commonwealth Bank rose (up 0.5 per cent) after reporting higher than expected half-year profits on Wednesday. The nation’s largest bank posted a cash profit of $5.13 billion in the six months to December 31, up 2 per cent on the same time last year and up 7 per cent on the second half of the 2024 financial year. CBA also raised its interim dividend to $2.25 per share. ANZ saw losses of 0.5 per cent, while Westpac and NAB recorded minor gains of 0.6 per cent respectively.

The Australian dollar saw marginal gains, and was valued at 63 US cents as at 11.32 am.

Early gains in the energy sector were buoyed by oil and gas company Woodside Energy (up 0.9 per cent), Santos Energy (up 0.3 per cent), and Yancoal (up 0.7 per cent) as some investors switched into defensive stocks in a search for safe haven investments following Trump’s latest escalation to place a 25 per cent tariff on all steel and aluminium imports.

This also saw mining companies’ stocks slip, down 0.6 per cent for the sector. BHP and Rio Tinto dropped by 0.3 per cent and 1.3 per cent respectively, while gold miner Evolution Mining added 0.3 per cent as gold rose to a new all-time high after Trump flagged the new tariffs on the weekend.

Automotive parts supplier Amotiv was at the bottom of the index in early trade after reporting lagging growth in its interim financial results, shedding 9.6 per cent.

Information technology was the worst performing sector, dropping 1.1 per cent, dragged by losses from WiseTech Global (down 0.4 per cent), while accounting software company Xero (down 1.2 per cent), NextDC (down 2.1 per cent) and TechnologyOne (down 1 per cent) also slipped.

In the US, the S&P 500 closed virtually unchanged in the market’s first trading since Trump announced 25 per cent tariffs on all foreign steel and aluminium coming into the US. The Dow Jones was edging up by 0.3 per cent, and the Nasdaq composite was 0.4 per cent lower.

“The stock market has been stuck in a sideways range,” said Matt Maley at Miller Tabak. “Despite the narrative on Wall Street, the market is not broadening out to the degree that some people are trying to portray. So, until we break out of this range, investors will want to remain nimble.”

The moves were modest not only in the US stock market but also in the bond market, where US Treasury yields rose by only a bit.

The threat of a possible trade war is very real, of course, with high potential stakes for investors. Most of Wall Street agrees that substantial and sustained tariffs would push up prices for US households and ultimately lead to big pain for financial markets.

But Trump has shown he can be quick to pull back on such threats, like he did with 25 per cent tariffs he had announced for all imports from Canada and Mexico, suggesting they may be merely a negotiating chip rather than a true long-term policy. That has much of Wall Street hoping the worst-case scenario may not happen and waiting to see justification for that hope.

“The metal tariffs may serve as negotiating leverage,” according to Solita Marcelli, chief investment officer, Americas, at UBS Global Wealth Management.

Trump signalled to Prime Minister Anthony Albanese on Tuesday that he was considering an exemption of the new steel and aluminium tariffs for Australia. However, his top trade adviser Peter Navarro subsequently said Australia was “killing” the US aluminium market, clouding Canberra’s hopes.

In the meantime, much of Wall Street’s focus on Wednesday swung to a different part of Washington. Just a day ahead of a key inflation reading, Fed chair Jerome Powell said again in testimony on Capitol Hill that the US central bank is in no hurry to cut interest rates any further. He also told Congress it was unwise to speculate on tariff policy at this time. Powell is due to testify before the House Financial Services Committee on Wednesday (US time).

Powell said the US economy is in a “pretty good place” in testimony before the Senate. Credit: Bloomberg

The Fed had cut its main interest rate sharply through the end of last year, hoping to give a boost to the job market and the overall economy. But worries about inflation potentially staying stubbornly high have helped force the Fed and traders alike to cut back expectations for how many cuts to rates may arrive in 2025. Some traders are even betting on the possibility of zero, in part because of worries about the effects of tariffs.

“We’re in a pretty good place,” Powell said about where the economy and interest rates are. He said again he’s aware that going too slowly on rate cuts could damage the US economy, while moving too quickly could fan inflation higher.

Higher rates tend to put pressure on share prices and other investments, while tapping the brake on the economy by making borrowing more expensive. That could be risky for a US stock market that critics say already looks too expensive.

One way companies can offset such pressure is to deliver stronger profits. And big US companies have mostly been doing so this earnings reporting season, as they show how much profit they made during the last three months of 2024. That, though, hasn’t always been enough.

Tesla shares were 6.3 per cent lower in late trade a day after a consortium led by CEO Elon Musk offered $US97 billion ($155 billion) to buy the nonprofit that controls artificial intelligence startup OpenAI.

Marriott International fell 5.4 per cent even though it reported a better profit for the latest quarter than analysts expected. Investors focused instead on its forecasted range for an important underlying measure of profit this upcoming year, which fell short of what analysts were expecting.

Helping to offset such losses was DuPont, which climbed 6.8 per cent after the chemical company reported better profit than Wall Street expected. The Delaware company said its results were helped by strong demand in its electronics business, which it is spinning off later this year.

Coca-Cola rose 4.7 per cent after reporting stronger profit and revenue than analysts expected. Growth in China, Brazil and the United States helped lead the way.

With AP, Bloomberg

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