Inflation spike sends ASX below 7,000, CPI rises 3.5% in Q4: ASX slumps 2.3% at noon

Market Reports

by Melissa Darmawan

Hotter than expected inflation figures triggered a slump in the Australian sharemarket after traders digested the December quarter results. The trimmed annual inflation rate which is closely watched by the Reserve Bank of Australia shot up, sending Aussie bond yields and the dollar higher.  Business conditions also weighed on trader's sentiment while a lift in consumer confidence attempted to offset . The local bourse is on track for its worst day since September 2020.

The accelerated decline on the local market followed a wild session on Wall St after investors dumped stocks and bought bonds, as traders fled risky assets. The major indexes swung from a meltdown to a recovery to close off a volatile session.

The inflation figures comes after the jobless rate fell to its lowest level in 13 years to 4.2 per cent in December. Governor Philip Lowe has repeated many times that he won’t raise interest rates until unemployment has fallen to 4 per cent and wage growth rises to 3 per cent. Unemployment is close to that requirement, but wages growth is only at 2.2 per cent. Economists are betting that in the first board meeting of 2022 next Tuesday, that an interest rate hike is likely to be brought forward, however given that wage growth is only at 2.2 per cent, the likelihood to cease bond purchases is imminent.

Market participants continued to climb the wall of worries this holiday-shortened week, with the local market closed tomorrow. Concerns of the interest rate hike from the Fed and even globally from other central banks, companies' ability to maintain 2021 earnings momentum amid record high inflation, and now mounting tension in Russia as a situation at the border with Ukraine intensifies as Russia prepares to invade Ukraine are unsettling traders.

Across the sectors, the sell-off has intensified with losses in the order of 2 to 3 per cent. Energy is leading the declines by almost 3 per cent, financials are just behind by 2.8 per cent, property and information technology at 2.7 per cent while consumer staples is retreating the least, by 1 per cent.

Beach Energy (ASX:BPT) said in its December quarterly update that production in million barrels of oil equivalent fell 7 per cent below the prior quarter due to a combination of natural field declines and maintenance. Shares are trading 5.5 per cent lower at $1.34. Meanwhile, Santos (ASX:STO) is down 3.7 per cent lower at $6.80, and Woodside Petroleum (ASX:WPL) is trading 2.3 per cent lower at $24.56.

Fortescue (ASX:FMG) shipped 47.5 million tonnes of iron ore in the first half of financial year 2022, marking a 3 per cent increase from the corresponding period and a record for a half year. Shares have tumbled almost 3 per at $19.93. Its iron ore peers, BHP (ASX:BHP) is down by 1.2 per cent at $45.06, and Rio Tinto (ASX:RIO) is trading 0.9 per cent lower at $107.

Banks are down in a band of 3 per cent led by National Australia Bank (ASX:NAB, tanking 3.2 per cent at $27.28, Macquarie Group (ASX:MQG), down 3.1 per cent lower at $184.05, ANZ Banking Group (ASX:ANZ) are trading 3.1 per cent lower at $26.92, Westpac Banking Corporation (ASX:WBC) declined 2.9 per cent at $20.20, while Commonwealth Bank of Australia (ASX:CBA) is trading 2.9 per cent lower at $94.65.

Gold stocks have lost its shine with Northern Star (ASX:NST)  down 3.6 per cent at $9.30, Evolution Mining (ASX:EVN) is down 2.9 per cent at $3.91 and Newcrest Mining (ASX:NCM) is trading 2.4 per cent lower at $24.57.

The local bourse is the worst performer in the Asia Pacific region with the outlook for the afternoon is not looking any better.

At noon, the S&P/ASX 200 is 2.3 per cent or 166 points lower at 6,974.

The SPI futures are pointing to a fall of 161 points.

Local economic news

The annual inflation rate rose to 3.5 per cent in the fourth quarter of 2021 from the prior quarter of 3.0 per cent, above market estimates of 3.2 per cent. On a quarterly basis, consumer prices went up 1.3 per cent in the December quarter, the most in five quarters, accelerating from a 0.8 per cent gain in the third quarter. The annual trimmed inflation, the figure the Reserve Bank watches, rose to 2.6 per cent, up from 2.1 per cent in the September quarter, to the highest since 2014 according to the Bureau of Statistics.

NAB business survey conditions slipped 8 points while confidence fell 12 points in December.

ANZ and Roy Morgan consumer confidence rose from 97.9 to 100.1 points over the week after sentiment rallied off the back of unemployment falling its lowest level in 13 years and a drop in Covid-19 cases.

Company news

Shares in Codan (ASX:CDA) are skyrocketing 16.5 per cent higher at $9.75 after first-half sales rose 32 per cent to $257 million and net profit grew 21 per cent. They are the best performer of the session.

Zip Co (ASX:Z1P) is a bright spot, up 0.6 per cent at $3.30 after the buy now pay later firm confirmed they are in talks with US fintech Sezzle regarding a potential acquisition.

Myer (ASX:MYR) said total sales from August 2021 to January 2022 rose 12.3 per cent compared with the same prior period thanks to a strong demand in the lead up to Christmas. The retail giant said the omicron outbreak has had a negative impact on trading since Christmas. Shares jumped 4.1 per cent higher at $0.38.

Shares in Novonix (ASX:NVX) are trading 6 per cent lower at $7.75 after committing to entering investment and supply agreements with KORE Power as part of an ongoing joint effort to strengthen the North American battery supply chain.

Auckland Airport (ASX:AIA) has announced a 12-month delay on the first price reset in response to uncertainty in the aviation market amid the pandemic. Shares are trading 0.7 per cent lower at $6.73.

St Barbara (ASX:SBM) reported its December quarter with gold production at 65,523 ounces, with an all-in sustaining cost of A$1,587 per ounce. Gold production was in line with the prior quarter. Shares are trading 3.9 per cent lower at $1.32.

Best and worst performers

All sectors are in the red. The sector with the fewest losses is consumer staples, down almost 1 per cent. The worst-performing sector is energy, down 2.9 per cent.

The best-performing stock in the S&P/ASX 200 is Codan (ASX:CDA), trading almost 17 per cent higher at $9.79. It is followed by shares in The A2 Milk Company (ASX:A2M) and Life360 (ASX:360).

The worst-performing stock in the S&P/ASX 200 is Gold Road Resources (ASX:GOR), trading 7.8 per cent lower at $1.38. It is followed by shares in Liontown Resources (ASX:LTR) and PointsBet Holdings (ASX:PBH).

Commodities and the dollar

Gold is trading at US$1842.68 an ounce.
Iron ore is 2.7 per cent lower at US$133.70 a ton.
Iron ore futures are pointing to a fall of 1.7 per cent.
One Australian dollar is buying 71.58 US cents. 

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