The Australian share market has clawed back some of yesterday’s heavy losses, despite another slump in global markets over the possibility of more aggressive US and European interest rate hikes ahead.
The ASX 200 closed 0.5 percent higher, at 6,998 points.
Energy stocks like Woodside Energy (+1.5 percent) and Santos (+1.5 percent) drove the market higher.
They were boosted by a 4 percent jump in oil prices overnight – on reports the world’s biggest oil-producing nations, including Russia and Saudi Arabia, are planning to slash their output.
Meanwhile, Bubs Australia dropped 5 percent, despite the infant formula products maker posting record revenues, while Healius climbed 3.5 percent after the healthcare services firm lifted its dividend.
Shares of emerging uranium producer Paladin Energy surged 5.8 percent on speculation that Japan may shift to more nuclear power.
On the flip side, Sandfire Resources (-3.6 percent), Kelsian Group (-1.7 percent), Lynas Rare Earths (-2.4 percent), Evolution Mining (-1.3 percent), and Downer EDI (-2.5 percent) were some of today’s worst performers.
By 4:30 pm AEST, the Australian dollar had fallen slightly to 68.97 US cents, while the US greenback briefly hit a 20-year high.
Commonwealth Bank senior economist Kristina Clifton said the local currency was weighed down by “weaker than expected building approvals data”.
Building approvals fell by 17.2 percent in July, compared (far worse than the 3 percent drop that economists had expected).
This was driven mainly by a 43.5 percent plunge in multi-unit approvals, which fell to their lowest point since 2012.
“Building approvals are volatile month to month but there is currently a downward trend in place,” Ms. Clifton said.
“Rising interest rates and high construction costs are weighing on demand for new properties. Our Australian economics team expects residential construction to be a drag on the economy in 2023.”
In corporate news, Woodside Energy tripled its interim dividend payout after the gas producer posted a five-fold increase in first-half profit on booming oil and gas prices.
Liquefied natural gas (LNG) prices have soared as sanctions on Russia, after its invasion of Ukraine, have worsened supply issues in an already tight market.
This has led to buyers from Asia and Europe seeking alternative suppliers, benefiting producers in countries such as Australia and Papua New Guinea.
Woodside, among the top 10 global independent oil and gas producers after its merger with BHP’s petroleum arm, announced an interim dividend of $US1.09 per share, a more than threefold increase on its last year’s payout of 30 US cents a share.
It posted an underlying net profit after tax, excluding one-time charges, of $US1.82 billion, compared with a profit of $US354 million a year earlier.
As a result of merging with BHP’s petroleum division, Woodside now owns 100 percent of the Scarborough gas project, valued at $5.6 billion.
Although Scarborough is the company’s biggest growth project, Woodside has been looking to sell a stake on and off for more than 18 months.
Chief executive Meg O’Neill said the company was in talks with “high quality” prospective partners, but in light of the strength of the LNG market, it would only sell if it gets fair value for what is “an extraordinarily important asset for the future of Woodside”, due to start producing in 2026.
“But again, we’re not going to fire sale this critical asset,” Ms. O’Neill told analysts on a conference call.
She did not comment on whether Woodside was still looking to sell as much as a 50 percent stake in Scarborough.
Woodside has begun a strategic review of all the assets in the enlarged business to map out its next growth project, which could include new energy, and Browse and Greater Sunrise gas off northwest Australia, she said.
Investors, aware that rates would remain high even as recession risks grew, decided to sell off their risky assets.
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On Wall Street, the S&P 500 lost 0.7 percent to end at 4,030 points, while the Nasdaq Composite fell 1.1 percent to 12,012 and the Dow Jones index slipped 0.6 percent to 32,100.
That was on top of their sharp losses on Friday, which saw the Dow, S&P, and Nasdaq drop between 3 and 4 percent each.
The US market sell-off spread to Australia yesterday and led to the ASX 200 sinking 2 percent.
US Federal Reserve chair Jerome Powell said on Friday the US economy would need tight monetary policy “for some time” before inflation was under control.
His hawkish comments were delivered at the Jackson Hole central bankers’ summit in Wyoming and dashed hopes that the Fed might pivot to more subdued rate hikes after recent data suggested inflation may be easing.
European Central Bank board member Isabel Schnabel added to market unease.
She warned on Saturday that central banks risked losing public trust and must act forcefully to curb inflation, even if that dragged their economies into a recession.
“The message from Jackson Hole was loud and clear and not what markets were expecting,” said Nordea chief analyst Jan von Gerich.
“Central banks need convincing evidence that inflation is coming down. That is bad news for the economy and risk appetite and raises the risk of a deeper recession if we get more rapid rate hikes.”
Investors ramped up US and eurozone rate hike bets, with markets pricing in a greater chance of 0.75 percentage point hikes from the Fed and ECB in September.
Mega cap technology and growth stocks like Apple and Microsoft fell by more than 1 percent each and were among the biggest drags on the US stock market.
The CBOE’s volatility index (VIX), Wall Street’s fear gauge, hit a seven-week high of 27.67 points.
“Friday’s sell-off was frankly overdone,” said Randy Frederick, vice president of trading and derivatives for Charles Schwab in Austin, Texas.
Australia’s economy is becoming more concentrated, and dominant firms are increasing prices.
“I know [Powell] said he was going to play tough with inflation but it is honestly not that much different than what he has been saying for the last several weeks.
“He was a little more hawkish but I mean, geez, who is surprised by that, really?
“I don’t see a whole lot of up or downside here in the near term. I see a lot of volatility and that is probably going to be the case at the very least until we get past the September 21 [US] rate hike.”
The two-year Treasury yield, which is particularly sensitive to interest rate expectations, briefly touched a 15-year high (at 3.45 percent).
They were also far above the 10-year US bond yield (at 3.13 percent).
Once again, the yield curve remains firmly inverted, which means shorter-term (two-year) bonds and paying higher returns than longer-term (10-year) bonds.
This kind of inversion is considered by many to be a reliable signal of a looming recession.
Gold prices reversed course to trade higher as a US dollar rally lost steam.
Workers are getting a record low share of Australia’s national income, while company profits surge.
“Gold sold-off after Powell’s speech and right now the uptick is due to pure bargain hunting as well a pull-back in a dollar,” said Bob Haberkorn, senior market strategist at RJO Futures.
Mr. Haberkorn also said: “Gold will soon start trading in a small range till further clues from the Fed.”
Oil prices swung higher on speculation that the world’s biggest oil-producing nations may cut output at their next meeting.
Saudi Arabia, a top producer in the Organization of the Petroleum Exporting Countries (OPEC), last week raised the possibility of production cuts, which sources said could coincide with a boost in supply from Iran should it clinch a nuclear deal with the West.
OPEC+, comprising OPEC, Russia, and allied producers, meets to set policy on September 5.
