ASX retreats, Wall Street rebounds after Powell speech

Welcome to your five-minute recap of the trading day.

The numbers

The Australian sharemarket was dragged lower on Tuesday by the big miners, despite a strong showing overnight from Wall Street, which closed its latest winning month and quarter with more records on Monday.

The S&P/ASX 200 finished Tuesday 60.9 points, or 0.7 per cent, lower to 8208.9 points, with the mining giants weighing on the bourse.

Wall Street initially fell before rebounding after Fed chief Jerome Powell hosed down talk of more monster rate cuts. Credit: AP

The laggards

Star Entertainment finished the day at the bottom of the index with losses of 6.8 per cent, extending its spectacular losses of 44 per cent when it resumed trading on Friday after emerging from a month-long halt and finally reporting a full-year loss of $1.7 billion.

Tabcorp Holdings retreated 5 per cent and Strike Energy closed 4.6 per cent lower.

BHP sank 2.9 per cent, while Rio Tinto shed 2.6 per cent. Fortescue declined 3.5 per cent.

The lifters

REA Group stayed at the top of the bourse all day to close 4.9 per cent higher after telling the market it was walking away from its attempt to acquire UK online property group Rightmove – REA’s fourth takeover attempt was knocked back.

“We were disappointed with the limited engagement from Rightmove that impeded our ability to make a firm offer within the timetable available. They had nothing to lose by engaging with us,” said REA chief Owen Wilson.

Fletcher Building traded 4.2 per cent higher and Boss Energy lifted 4 per cent.

The lowdown

August retail sales rose by just 0.7 per cent, with warmer weather triggering increased spending in discretionary categories such as department stores (up 1.6 per cent), clothing, footwear and accessories (up 1.5 per cent), other retail (up 1.3 per cent) and cafes, restaurants and takeaway (up 1 per cent).

RBC Capital Markets chief economist Su-Lin Ong said the consumer outlook was key in the Reserve Bank’s decision-making.

“Consumption may be a little softer than [the RBA’s] current forecasts and that could have implications for the activity and inflation outlook. RBA communication continues to highlight the uncertainty over the consumer outlook for which we have sympathy,” Ong wrote.

“[We] remain comfortable with our base case for 75bp of easing to commence in February 2025.”

AMP economist My Bui said the 0.7 per cent lift was higher than economist forecasts of 0.4 per cent, but warned the overall picture for household remained “somewhat fragile”.

“Consumer spending still faces downside risks, absent a rate cut from the Reserve Bank. The RBA also highlighted household consumption as a major risk in their latest communication,” Bui wrote in a note. “For now we continue to see a rate cut coming in early 2025 when the labour market materially weakens versus forecasts.”

After the session closed for the day, Collins Foods – an operator of KFC in Australia – announced it was appointing a new chief executive, Xavier Simonet. He is the current chief executive of Austrade and a former CEO of Kathmandu, and will start in his new role on November 4.

Federal Reserve chair Jerome Powell said the central bank would lower interest rates over time.Credit: Bloomberg

Overnight, Powell signalled more interest rate cuts were in the pipeline but suggested they would occur at a measured pace intended to support a still-healthy economy.

The broad S&P 500 stock index initially fell 0.6 per cent after his remarks, but recovered afterwards to close about 0.4 per cent higher, clinching its fifth straight winning month and fourth straight winning quarter. The Dow Jones added 17 points, or less than 0.1 per cent, to its record set on Friday. The Nasdaq composite rose 0.4 per cent.

Powell’s comments, at a conference of the National Association for Business Economics in Nashville, Tennessee, disappointed the hopes of many investors that the Fed would implement another steep half-point reduction in its key rate before the end of the year. The Fed cut its rate by a larger-than-usual half point earlier this month as it has moved past its inflation fight and pivoted toward supporting the job market.

Wall Street has catapulted to records on hopes the slowing US economy can keep growing while the Federal Reserve cuts interest rates to offer it more juice. A big test will arrive on Friday, when the US government offers its latest monthly update on the job market.

An overriding worry on Wall Street is whether the economy may already be heading for a recession. Even though the Fed cut rates earlier this month and has indicated more relief is on the way, US employers have already begun paring back on their hiring. Before this month, the Fed had kept interest rates at a two-decade high in hopes of slowing the economy enough to stamp out high inflation.

“Payrolls remain the biggest catalyst” for the US sharemarket until the election, strategists and economists at Bank of America wrote in a BofA Global Research report.

At Goldman Sachs, economist David Mericle said he was expecting Friday’s report to show hiring in September was stronger than the 146,000 growth in payrolls that economists across Wall Street were broadly forecasting.

In the past, a stronger-than-expected number could have hurt the stock market by fanning worries about upward pressure on inflation. Now, though, it would likely be welcomed as a signal that a recession shouldn’t be as big a worry.

Interest rates and the strength of the economy are usually the two main levers that set prices for stocks. In Asia, the levers were pulling in opposite directions.

Japan’s Nikkei 225 slumped 4.8 per cent on worries the country’s incoming prime minister will support higher interest rates and other policies that investors see as less market-friendly. Shigeru Ishiba is set to take over on Tuesday.

In China, meanwhile, indexes soared 8.1 per cent in Shanghai and 2.4 per cent in Hong Kong following the latest announcements of stimulus for the world’s second-largest economy. It was the best day for Shanghai stocks in nearly 16 years.

Markets in mainland China will be closed Tuesday through October 7 for a holiday marking 75 years of communist rule.

Tweet of the day

Quote of the day

“It was comments like ‘ohh, how much of you is Aboriginal? Don’t worry. You don’t look it’.”

That’s from one of the participants quoted in a long-awaited ABC review that found overwhelming evidence of racism at the public broadcaster.

The report involved interviews with 120 current and former ABC staff and found staff were subjected to racism from both external individuals and organisations in connection with their work.

You may have missed

Oh, what a wedge! The government will surely be squeezed into allowing Qatar Airways to take a 25 per cent stake in Virgin Australia, regardless of whether it is in the national interest. Because it’s certainly not in the Labor government’s interest to block the Middle Eastern carrier – again.

The optics of denying Qatar’s Foreign Investment Review Board application to buy a 25 per cent stake in Virgin would be so damaging for the government that it would be reckless for Treasurer Jim Chalmers to even try. Read more from columnist Elizabeth Knight here.

With AP

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