ASX retreats as energy stocks decline; oil slumps

A plunge in oil prices overnight sent energy stocks tumbling on Thursday, but the sector and the Australian sharemarket more broadly pared back its losses to close almost unchanged.

The S&P/ASX200 slipped 5.1 points, or 0.1 per cent, to 7173.3, dragged down by consumer stocks, banks and healthcare companies. The losses came after the ASX rallied 1.8 per cent on Wednesday and as utilities, energy and mining companies traded in the green.

Wall Street dipped on Wednesday.Credit: Bloomberg

Energy giants Woodside (up 0.4 per cent) and Santos (up 0.7 per cent) dropped sharply in early trade after Brent crude, the global oil benchmark, slid more than 3.5 per cent to below $US75 a barrel. However, they more than made up for their losses as the trading day progressed, lifting the energy sector (up 0.3 per cent) along with coal miners Yancoal (up 0.6 per cent) and Whitehaven (up 1 per cent).

Miners (up 0.3 per cent) were also stronger on the back of lithium companies with prospector Pilbara Minerals (up 5 per cent), Allkem (up 2.7 per cent) and IGO (up 2.7 per cent) among the biggest large-cap advancers.

Iron ore heavyweights BHP (up 0.4 per cent), Fortescue (up 1.6 per cent) and Rio Tinto (up 1 per cent) also helped bolster the index.

Utilities (up 0.8 per cent) were the strongest sector on the local bourse as AGL (up 3.4 per cent) and Mercury NZ (up 2.4 per cent) both advanced.

Consumer discretionary companies (down 0.5 per cent) were among the weakest on the index as Treasury Wine Estates lost 2.9 per cent.

Healthcare companies (down 0.5 per cent) were also softer, with Ramsay Healthcare shedding 1.8 per cent and medical equipment supplier EBOS Group losing 1.8 per cent.

Financials (down 0.4 per cent) also dragged down the ASX with three out of the four big banks trading in the red.

CBA lost 0.1 per cent, NAB shed 0.4 per cent and ANZ dipped 0.4 per cent. Macquarie (down 1.4 per cent) and insurer QBE (down 1.4 per cent) also weighed down the sector.

IG Australia market analyst Tony Sycamore said it was a relatively quiet session on the local bourse as the repercussions of the Reserve Bank’s dovish decision to hold interest rates and the lower-than-expected economic growth figures from Wednesday continued to be felt.

“This morning, the market pulled forward expectations for the RBA’s first 25 basis point rate cut in 2024 from November to August,” Sycamore said. “There is now a total of 40 basis points of RBA rate cuts priced into the Australian interest rate market for 2024.”

Sycamore said on a normal day, this would have ensured a positive session for the ASX, but that a 4 per cent fall in crude oil prices overnight constrained the energy sector’s growth. Crude has plummeted in recent weeks amid signs of swelling global supplies, including estimates from ship-tracking firms that American crude exports are nearing a record 6 million barrels a day.

Sycamore said consumer discretionary stocks were weaker because of a “mild round of profit-taking,” along with interest rate-sensitive sectors such as financials.

Overnight on Wall Street, the S&P 500 slipped 0.4 per cent for its third straight loss, locking in its longest losing streak since October. Each of those drops was modest, though, and the index remains near its best level in 20 months.

The Dow Jones fell 0.2 per cent and the Nasdaq composite lost 0.6 per cent.

Energy stocks also suffered in the US, posting the market’s worst drops by far. Halliburton sank 3.6 per cent, and Marathon Oil fell 3.5 per cent after crude oil touched its lowest price since June.

Losses for big tech stocks, which are some of Wall Street’s most influential, also weighed on the market. Nvidia dropped 2.3 per cent, and Microsoft lost 1 per cent.

Helping to limit the market’s losses was a gain of 1.9 per cent for home builder Toll Brothers, which reported stronger profit for the latest quarter than analysts expected. It also said demand from buyers has remained solid so far in the current quarter, thanks in part to slightly easier rates available for mortgages.

Mortgage rates have regressed as Treasury yields have dropped on hopes that the Federal Reserve may finally be finished with its barrage of hikes to interest rates, meant to get high inflation under control. Wall Street is betting the Fed’s next move will be to cut rates, possibly as early as March, which would juice the economy and financial markets.

More reports arrived overnight that bolstered those hopes. The Federal Reserve’s next meeting on interest rates is in a week, and the widespread expectation is for it to leave its main interest rate alone at its highest level in more than two decades.

One report said private employers in the US added fewer jobs last month than economists expected. While no one on Wall Street wants to see widespread layoffs, a cooldown in the job market could remove upward pressure on inflation.

A more comprehensive report on the job market from the US government will arrive on Friday, one that can cause big swings on Wall Street.

“What we don’t know is how much the markets have already priced in a slowing labour market, or how they will react if Friday’s data comes in stronger than anticipated,” said Chris Larkin, managing director, trading and investing at E-Trade from Morgan Stanley.

Treasury yields in the bond market were generally lower following the economic reports, and the 10-year yield fell to 4.11 per cent from 4.17 per cent late Tuesday. It was above 5 per cent in October and at its highest level since 2007.

Travel-related companies were strong as falling crude prices relieved some pressure on them. Carnival rose 5.9 per cent, and Royal Caribbean Line gained 3.4 per cent.

Airlines also flew higher. Delta Air Lines climbed 3.5 per cent after it told investors it’s sticking to its forecasts for revenue and profit for the end of 2023.

On the losing end of Wall Street was Brown-Forman, the company whose brands include Jack Daniel’s whiskey. It fell 10.4 per cent after reporting weaker earnings than analysts had forecast. It also cut its forecast for a measure of sales growth for the full year.

Shares of Altria Group, which sells Marlboro cigarettes in the United States, fell 2.8 per cent.

Wall Street could be setting itself up for disappointment if cuts to rates do not come as quickly as hoped. While Federal Reserve officials have hinted that their main interest rate may indeed be at a peak, some have said it’s too early to begin considering when cuts could come.

Stock markets abroad were mostly higher. Japan’s Nikkei 225 jumped 2 per cent after a top central bank official reiterated the Bank of Japan will keep its monetary policy easy until it achieves a stable level of inflation. Gains were more modest across the rest of Asia and Europe.

“Of course many airlines are doing better than average and many are struggling… But [the average passenger margin] is about enough to buy a basic ‘grande latte’ at a London Starbucks,” said International Air Transport Association director general Willie Walsh as the global airline industry expects to record a net profit of $35.6 billion for 2023.

Rio Tinto plans to use solar and wind power to slash emissions to generate electricity by 75 per cent at its proposed Winu copper mine in the remote northern Pilbara.

with AP, Bloomberg

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Brisbane Times – Latest News ASX energy stocks decline oil slumps

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