Recession fears intensify as RBA upgrades inflation outlook: ASX sinks 2.4% to 2-month low at noon

Market Reports

by Melissa Darmawan

Australian shares dived to its lowest level since 17 March in a broad-based rout led by information tech as recession fears intensified. Only a handful of stocks are bucking the trend with three per cent of stocks advancing with treasury yields lower as investors buy into credit in a search for safety amid a stronger greenback.

The Reserve Bank has revised sharply its inflation outlook to hit 6 per cent by December from 3.25 per cent in its February projection, and core inflation, its preferred measure to top 4.75 per cent by year-end from 2.75 per cent.

SPI futures

At noon, the S&P/ASX 200 is 2.4 per cent or 173.60 points lower at 7,191. The SPI futures are pointing to a fall of 164 points.

Why a bloodbath?

The local bloodbath followed Wall Street's crater with Nasdaq’s 5 per cent fall as the reassurance from the US Federal Reserve on a softish landing was just not enough to keep nerves at bay. Renewed fears reminded by China’s extended Covid-19 lockdown plus the Russian war in Ukraine triggered angst on what it could mean to inflation. Investors believe that central banks are going to struggle to fight soaring inflation, closing out of their positions.

Heavy trading volumes are seen with Brainchip (ASX:BRN), soaring 9.3 per cent to $1.12, Sayona Mining (ASX:SYA), tumbling 5.1 per cent to 28 cents, and Qantas (ASX:QAN) down 3.5 per cent to $5.44.

Property is the second worst performer, followed by healthcare, energy, and materials, which dived around 3 per cent each, with the other sectors down around 2 per cent. Consumer staples have shed the least by 1 per cent.

There are a few green shoots, Wesfarmers (ASX:WES) and Amcor (ASX:AMC) are both up around 0.6 per cent each, along with Sequoia Financial (ASX:SEQ) up 1.5 per cent to 68 cents.

Beach Energy (ASX:BPT) is leading the energy circle lower, falling by 5.3 per cent to $1.63, Woodside Petroleum (ASX:WPL) down 3.3 per cent to $30.78, and Santos (ASX:STO) trading 2.6 per cent lower at $7.96.

BHP Group (ASX:BHP) is weighing on iron ore players, down 2.4 per cent to $46.30, followed by Rio Tinto (ASX:RIO) down 2.3 per cent to $109.06 and Fortescue Metals (ASX:FMG) down 1 per cent to $20.62.

Evolution Mining (ASX:EVN) is leading gold miners lower, down 3.1 per cent to $3.82, Newcrest Mining (ASX:NCM) has fallen 2.3 per cent to $26.28 and Northern Star (ASX:NST) is trading 2.2 per cent lower at $9.45.

Macquarie Group (ASX:MQG) posted first half results, sending its stock 7.8 per cent lower to $186.78 with Commonwealth Bank of Australia (ASX:CBA) and the rest trading around 1.5 per cent lower each with ANZ Banking Group (ASX:ANZ) shedding the least, down 0.6 per cent.

Local economic news

The Reserve Bank has revised sharply its economic forecasts, anticipating CPI to hit 6 per cent by December, from 3.25 per cent in its February projection, and core inflation, its preferred measure, to hit 4.75 per cent by year-end from 2.75 per cent.

In its quarterly economic update published in the Statement on Monetary Policy, the central bank anticipates both CPI and core inflation to moderate to 3 per cent by mid-2024.

Unemployment is tipped to drop further to 50-year lows of 3.25 per cent by the end of next year, from 3.75 per cent in its February forecasts.

Wages growth is forecast to strengthen further as the unemployment rate declines, to be 3.75 per cent by mid-2024, this would be the fastest pace since 2012.

Here is Lauren with the top headlines

Macquarie Group (ASX:MQG) has posted a 56 per cent jump to $4.7 billion annual profit with almost all the divisions posting a jump in earnings. Macquarie Capital is an outperformer with profit soaring 269 per cent from $651 million in 2021 to $2.4 billion, reflecting significantly higher fee and commission income due to mergers and acquisitions and debt capital markets activities. A final dividend of $3.50 a share will be paid on July 4, an increase of 15 cents from the prior year. The bank did not provide specific guidance but said it continues to maintain a cautious stance with a conservative approach to capital, funding and liquidity that positions them well to respond to the current environment. Shares are trading 7.8 per cent lower at $186.78.

REA Group (ASX:REA) reported a rise in revenue during the March quarter after continued high demand gave sellers the confidence to bring their properties to the market. The property advertiser’s revenue of $278 million rose 23 per cent from the prior year period, while its EBITDA lifted 27 per cent to $155 million. REA said while further interest rate rises are expected, strong bank liquidity, record low unemployment and increased immigration should underpin the Australian property market. Shares are trading 5.6 per cent lower at $115.23.

News Corp (ASX:NWS) reported a 7 per cent rise in revenue during the March quarter to US$2.49 billion despite significant currency volatility. The news giant’s profit improved by 20 per cent, while net income of $104 million increased by 8 per cent thanks to a rebound in advertising, new content, licensing revenues and strong digital subscriber gains. News Corp said the increase reflects growth in all revenue lines, including recent acquisitions, offsetting the negative impact of foreign currency fluctuations. Shares are trading 11 per cent lower at $25.66.

APA Group (ASX:APA) has reviewed its group entity names to better reflect its renewed focus on energy infrastructure, with a portfolio of gas, electricity, solar and wind assets across Australia. Shares are trading 1.7 per cent lower at $11.36.

Coal miner Coronado Global (ASX:CRN) confirms that it was in confidential discussions with Arch regarding a potential merger, however, the companies are no longer in discussions and there are no expectations it will resume. Shares are trading 6.5 per cent lower at $2.30.

What else is on watch?

Citi cut Corporate Travel (ASX:CTD) to neutral with a price target of $25.49, with shares down 3.8 per cent to $23.56, Goldman Sachs raised ARB Corp (ASX:ARB) to a buy from neutral, with shares down 3.6 per cent to $32.04, and Jefferies cut National Australia Bank (ASX:NAB) to a hold, with shares down 1.3 per cent to $31.82.

APA Group (ASX:APA) amid The Australian reporting that the gas pipeline owner has been weighing an acquisition of a $4 billion electricity transmission company in the US. Shares are trading 1.7 per cent lower at $11.36.

Adbri (ASX:ABC) has confirmed interest in the $1 billion building materials empire BGC in WA, according to The Australian. Shares are trading 3.1 per cent lower at $2.94.

Whitehaven Coal (ASX:WHC), the share price is up 83.7 per cent for the calendar year. Newcastle coal prices were up almost 4 per cent. Shares in Whitehaven (ASX:WHC) are down 2.1 per cent to $4.96.

Best and worst performers

All sectors are in the red. The sector with the fewest losses is consumer staples, down 0.9 per cent. The worst-performing sector is information technology, down 3.9 per cent.

The best-performing stock in the S&P/ASX 200 is PolyNovo (ASX:PNV), trading 4.6 per cent higher at $0.91. It is followed by shares in Wesfarmers (ASX:WES) and Amcor (ASX:AMC).

The worst-performing stock in the S&P/ASX 200 is News Corporation (ASX:NWS), trading 10.3 per cent lower at $25.87. It is followed by shares in Paladin Energy (ASX:PDN) and Virgin Money UK (ASX:VUK).

Commodities and the dollar

Gold is trading at US$1866.71 an ounce.
Iron ore is 2.0 per cent higher at US$145.80 a ton.
Iron ore futures are pointing to a fall of 1.3 per cent.
One Australian dollar is buying 70.85 US cents.

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