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The laggards
Iron ore miners, including BHP (down 2.2 per cent), Fortescue (down 4.1 per cent) and Rio Tinto (down 2.1 per cent), all had a poor session, with investors reacting poorly to the ongoing weakness in iron ore prices.
Healthcare companies (down 1.1 per cent) weighed on the index as major companies, including Fisher & Paykel (down 3.2 per cent), Resmed (down 0.7 per cent) and CSL (down 1.2 per cent), declined.
Consumer discretionary stocks (down 1 per cent) and materials (down 1.7 per cent) also fell, with IDP Education (down 2 per cent). Meanwhile, shares in baby formula manufacturer Bubs Australia dropped 5 per cent after the company’s chief financial officer followed the CEO out the door.
The lowdown
Wealthlander chief investment officer Jerome Lander said investors were drawn to the utilities and consumer staples sector amid macroeconomic uncertainty.
“Investors are looking for safety after some weaker economic data was released and as the US gets close to its debt ceiling talks having to be resolved,” he said.
He added the technology rally seen in recent days had run out of steam overseas and the enthusiasm had dissipated domestically, as well, as riskier stocks were sold off.
Meanwhile, commodities pulled in both directions, as a key player in the world’s biggest oil-producing group warned against downwards speculation in oil prices and optimism faded in iron ore.
“Spot prices are still strong, but there’s been a lot of futures-selling because of the view that markets are heading into a recession,” Lander said. “There’s been a drawdown in oil recently, but that may be about to reverse with the statements made by Saudi Arabia.”
On the other hand, Lander said he was surprised by the sell-off in materials companies, attributing it to investors adopting a “risk-off” position.
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Overnight on Wall Street, stocks slid as the US government crept closer to the edge of a potentially disastrous default on its debt.
The S&P 500 fell 1.1 per cent after House Speaker Kevin McCarthy said, “We’re not there yet” on a deal to prevent the US government from running out of cash. That followed a meeting late on Monday that he and President Joe Biden called productive, but ultimately ended with no agreement.
The Dow Jones dropped 0.7 per cent, while the Nasdaq lost 1.3 per cent.
Until now, the stock market has remained largely resilient even as Washington approached a June 1 deadline. That’s when the US government may no longer be able to pay its bills, unless Congress allows it to borrow more. Economists and investors widely believe a default would send shockwaves through the global economy and financial markets.
Saudi Arabia’s Energy Minister, Abdulaziz bin Salman sent a warning those trying to predict the production policies of OPEC+.Credit: Bloomberg
The assumption on Wall Street has been for Congress to reach a deal at the 11th hour – as it’s already done several times before – because the alternative simply seems too dire for anyone to allow.
But a worry on Wall Street is that Washington may not feel urgency to act until financial markets shake hard enough to light a fire under politicians in both parties.
The concerns about the debt ceiling are coming on top of concerns that the slowing US economy could be heading for a recession, even without a default. A preliminary report released on Tuesday morning suggested the world’s largest economy remains split, with growth for travel and other service businesses strengthening while manufacturing remains under pressure.
On the winning side of Wall Street was Lowe’s, which rose 1.7 per cent after reporting stronger profit and revenue for the latest quarter than analysts expected. But it also cut its financial forecasts for the year, partly because of lower-than-expected sales to do-it-yourself customers.
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Retailers are among the last companies to report their results for the first three months of the year, and most companies have been beating expectations. Retailers in particular have gotten lots of attention because resilient spending by US households has been one of the main positives keeping the economy out of a recession.
Manufacturing and other areas of the economy are struggling under the weight of much higher interest rates meant to get inflation under control.
High interest rates have also meant stress for the US banking system. Three high-profile bank failures since March have rattled the system, and Wall Street has been on the hunt for the next bank that could suffer a debilitating drop in confidence by its customers.
Some of the heaviest scrutiny has been on PacWest Bancorp, but it rallied for a second day after announcing the sale of a $US2.6 billion ($3.9 billion) portfolio of real-estate construction loans. It rose another 7.9 per cent after jumping 19.5 per cent Monday.
Other banks also strengthened, including a 4.6 per cent jump for Zions Bancorp.
In the bond market, the 10-year Treasury yield ticked down to 3.70 per cent from 3.72 per cent late Monday. It helps set rates for mortgages and other important loans.
The two-year yield, which moves more on expectations for the Fed, inched up to 4.34 per cent from 4.32 per cent.
Tweet of the day
Quote of the day
“I think central banks can’t afford to let inflation get out of the bag. Who wants to be the central banker who brought back inflation?” said AustralianSuper chief investment officer Mark Delaney as he warned that a recession is imminent.