The lifters
Gold miners rose, with Northern Star (up 6.4 per cent) and Evolution Mining (up 5.1 per cent) as the price of the haven commodity strengthened. Genesis Minerals advanced 11.5 per cent. Gold topped its April 22 record high of $US3509, climbing $US44 to change hands as high as $US3552 in Monday morning trading.
Consumer staples ended a mixed session ahead, with Coles and Treasury Wine Estate each up 0.8 per cent, and Endeavour Group 0.5 per cent higher. But Woolworths (down 0.2 per cent) and A2 Milk (down 0.7 per cent) were both lower.
Harvey Norman was one of the day’s top performers, gaining 8.6 per cent.
The lowdown
The Australian sharemarket has started the new month on the wrong foot, dragged down by the big banks and major miners while gold surged to a new all-time high and a volatile earnings season ended.
IG analyst Tony Sycamore said gold’s rally was prompted by social media post by US President Donald Trump, who claimed outlandishly that prices in the United States were “WAY DOWN, with virtually no inflation”.
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The president’s remarks come in the context of his campaign to dramatically lower US interest rates, which the Federal Reserve has been slow-walking due to concerns about inflation. Lower rates would send gold prices higher.
Precious metals have benefited from strong investor appetite for havens amid geopolitical tensions and uncertain financial conditions — including Trump’s repeated attacks against the Fed that have sown concerns over the central bank’s independence.
Bets have risen that the Fed will lower interest rates at its next policy meeting this month, and a key US jobs report this Friday is expected to reinforce those expectations. Lower borrowing costs tend to benefit precious metals, which do not pay interest.
With Australia’s earnings season drawing to a close, analysts highlighted the surge in share price volatility.
“Unusually, volatility isn’t confined to the small caps. We’re accustomed to seeing small, thinly covered stocks swinging wildly on results day. A 20 per cent or even 30 per cent move isn’t completely out of the ordinary. But we’re not used to seeing the blue chips behave like this,” Morningstar analysts said in a note, highlighting CSL and James Hardie’s collapse last week, down 30 per cent and 17 per cent respectively.
“The animal spirits of the market are fickle, and when the winds change, it can be brutal. That’s one lesson we can take from this reporting season.”
It’s a crucial time for equities and the next few weeks will give Wall Street a clear reading on whether the sharemarket rally will continue — or if it’s doomed to get derailed.
Jobs reports, a key inflation reading and the Federal Reserve’s interest rate decision all hit over the next 14 trading sessions, setting the tone for investors as they return from summer vacations.
Wall Street closed out another winning month on Friday, even as stocks gave back some of their recent gains, pulling the market below its latest all-time highs.
September’s record remains on traders’ minds “but few managers will liquidate core holdings on seasonality alone”, Chris Weston, head of research at Pepperstone Group, wrote in a note.
“It seems unlikely that, simply because we’ve moved into September, we’ll suddenly see a radical shift in conditions — especially as the macro environment hasn’t meaningfully changed,” he wrote.
Wall Street is closed on Monday (US time) for the Labor Day holiday.
The S&P 500 fell 0.6 per cent a day after climbing to a record high. The benchmark index ended August with a 1.9 per cent gain, its fourth straight month of gains. It’s now up 9.8 per cent so far this year.
The Dow Jones also came off its own record high, slipping 0.2 per cent, while the Nasdaq composite closed 1.2 per cent lower.
“The reason the market is down today is primarily because we are heading into a long weekend, and a lot of traders don’t like to have a hefty exposure over a long weekend because of the news that could come out and take them by surprise,” said Sam Stovall, chief investment strategist at CFRA.
Mixed economic data may also have given traders an excuse to sell and pocket some profits following the market’s milestone-setting week. A closely watched measure of inflation showed prices mostly held steady in July, and a survey of consumer sentiment suggested Americans’ worries about the economy and prices intensified since July.
Losses in technology weighed on the market, offsetting gains in health care and other sectors.
Dell Technologies slid 8.9 per cent for the biggest decline among S&P 500 stocks a day after the company reported second-quarter revenue that exceeded analysts’ expectations, but noted margin pressures and weakness in PC revenue.
Among other tech companies that ended the day in the red: tech giant Nvidia fell 3.3 per cent, Broadcom dropped 3.6 per cent and Oracle slid 5.9 per cent.
The Commerce Department said prices rose 2.6 per cent in July compared with a year ago, as measured by the personal consumption expenditures index. That’s the same annual increase as in June and in line with what economists expected.
Still, excluding the volatile food and energy categories, prices rose 2.9 per cent in July from a year earlier, up from 2.8 per cent in June and the highest since February.
While inflation is much lower than the roughly 7 per cent peak it reached three years ago, it is still running noticeably above the Federal Reserve’s 2 per cent target.
Still, Fed chairman Jerome Powell signalled last week that the central bank might cut its key interest rate at its meeting this month, amid signs of sluggishness in the job market.
The most recent government data suggests hiring has slowed sharply since this spring.
Federal Reserve chairman Jerome Powell has signalled the central bank may cut its key interest rate at its meeting next month.Credit: AP
“Today’s in-line PCE Price Index will keep the focus on the jobs market,” said Ellen Zentner, chief economic strategist for Morgan Stanley Wealth Management. “For now, the odds still favour a September cut.”
Lower rates can boost investment prices and the economy by making it cheaper for US households and businesses to borrow, but they risk worsening inflation.
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Traders see a roughly 87 per cent chance that the central bank will cut its benchmark interest rate this month by a quarter of a percentage point, according to data from CME Group.
Meanwhile, the latest reading in a survey of US consumers by the University of Michigan showed sentiment soured last month. The final August reading is the lowest since May, reflecting heightened concerns about prices and the economy.
Treasury yields were mixed in the bond market. The yield on the 10-year Treasury rose to 4.23 per cent from 4.21 per cent late on Wednesday. The yield on the two-year Treasury, which more closely tracks expectations for Federal Reserve action, slipped to 3.62 per cent from 3.63 per cent.
The Fed will get to review two more important inflation barometers before its next policy meeting, the producer price index and consumer price index. Unless those reports show a huge spike in inflation, the Fed is “almost guaranteed” to cut interest rates this month, said Chris Zaccarelli, chief investment officer for Northlight Asset Management.
