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ASX trades lower on budget day after lacklustre session on Wall Street
By Stan Choe
The Australian sharemarket traded lower on the eve of the federal budget after US stocks drifted to a mixed finish overnight.
The S&P/ASX 200 dropped 34.2 points, or 0.4 per cent, to 7715.80 as of 2.10pm AEST, with the real estate and energy sectors posting the biggest declines with losses of around 0.5 per cent, respectively. Healthcare and consumer discretionary stocks edged 0.4 per cent higher.
Wall Street has made a mixed start to the week. Credit: Reuters
Shares of mining giant BHP, the largest stock on the index, dropped 0.5 per cent after its takeover target – UK miner Anglo American – rejected a sweetened $64 billion takeover bid, escalating the merger battle.
On the flipside, car parts seller GUD Holdings soared 12.1 per cent after the company late on Monday issued a bullish trading update, saying its automotive business “continues to trade well”.
The local market’s overall lacklustre start comes after a mixed close on Wall Street, where the S&P 500 edged down by less than 0.1 per cent after flipping between small gains and losses through the session, the Dow Jones slipped 0.2 per cent and the Nasdaq composite rose 0.3 per cent.
Australian Treasurer Jim Chalmers will forecast a surplus of $9.3 billion in his budget – released on Tuesday night -- which will promise nationwide cost-of-living relief without fuelling inflation while trying to reshape the economy with the Albanese government’s “Future Made in Australia” industry package.
With the market’s focus on the outlook for interest rates, a key aspect for investors will be the budget’s impact on inflation.
The Reserve Bank of Australia last week held official interest rates at 4.35 per cent but forecast inflation was likely to rise from 3.6 per cent to 3.8 per cent through the second half of this year. It is not expecting to have inflation back within its target band until the second half of next year. Its forecasts, however, did not consider any policies that will be announced in the budget.
The treasurer will reveal that inflation could fall to the target band by the end of this year, and be down to 2.75 per cent by the middle of 2025 as the government’s various cost-of-living measures take the edge off expected price increases. Falling inflation would give the Reserve Bank room to cut interest rates, which could stimulate consumption and boost share prices.
Lithium miners advanced amid hopes the budget will include measures to boost the sector amid the Albanese government’s push to make Australia a leader in critical minerals. Piedmont Lithium jumped 10.3 per cent and Chalice Mining gained 5.9 per cent.
In US trading overnight, meme stock GameStop staged a surprising comeback, soaring 74.4 per cent in a swing reminiscent of its maniacal moves from three years ago, when hordes of smaller-pocketed investors sent the stock’s price way above what many professional investors considered rational.
One believer in particular, nicknamed Roaring Kitty, helped lead that charge, and a post on a social media account linked to him stirred more adrenaline. Within the first 70 minutes of trading on Monday, trading of GameStop’s stock was temporarily halted nine times because its price was swinging so sharply.
US shares have broadly rallied this month following a rough April on revived hopes that inflation may ease enough to convince the Federal Reserve to cut its main interest rate later this year. A key test for those hopes will arrive on Wednesday, when the US government offers the latest monthly update on inflation that households are feeling across the country.
Other US economic reports this week include updates on inflation that wholesalers are seeing and sales at US retailers. They could show whether fears are warranted about a worst-case scenario for the country, where stubbornly high inflation forms a devastating combination with a stagnating economy.
Hopes have climbed that the economy can avoid what’s called “stagflation” and hit the bull’s eye where it cools enough to get inflation under control but stays sturdy enough to avoid a bad recession. US Federal Reserve Chair Jerome Powell also gave financial markets comfort when he recently said the Fed remains closer to cutting rates than to raising them, even if inflation has remained hotter than forecast so far this year.
Some critics say the Fed may have to delay rate cuts for longer than traders expect because of continued pressure on inflation. The goal for inflation that “the Fed seeks is a pipe dream” according to Barry Bannister, a managing director at Stifel.
In the meantime, a stream of stronger-than-expected reports on US corporate profits has helped support the market. Companies in the S&P 500 are on track to report growth of 5.4 per cent for their earnings per share in the first three months of the year versus a year earlier, according to FactSet. That would be the best growth in nearly two years.
US earnings season has nearly finished, and reports are already in for more than 90 per cent of companies in the S&P 500. But this upcoming week includes Walmart and several other big names. They could offer more detail about how US households are faring.
In the bond market, Treasury yields eased a bit. The yield on the 10-year Treasury slipped to 4.48 per cent from 4.50 per cent late Friday.
In other international markets, Chinese indexes were mixed. The Biden administration is expected to announce this week that it will raise tariffs on electric vehicles, semiconductors, solar equipment, and medical supplies imported from China, according to people familiar with the plan. Tariffs on electric vehicles, in particular, could quadruple to 100 per cent.
Indexes slipped 0.2 per cent in Shanghai and rose 0.8 per cent in Hong Kong. Elsewhere in Asia and in Europe, most were modestly lower.
with AP
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