Energy companies remained in the red after oil prices dropped to post their biggest fall in more than a month. Woodside Energy declined 2.4 per cent and Santos shed 1.7 per cent.

The lowdown:

Australian Eagle Asset Management senior portfolio manager Alan Kwan said he was surprised by the reversal in markets as the information technology sector bounced back.

“We saw bad news from Tesla and Apple in the US,” he said. “But there’s been a reversal in Australia from Tuesday where IT was weak. It might be due to optimism that, after a bad 2022 for technology companies, there’ll be a better 2023.”

Apple fell 3.7 per cent on the Nasdaq, after a Nikkei Asia report indicated slumping demand and staff shortages in China, leaving the iPhone maker’s market value below $US2 trillion for the first time since March 8, 2021. Tesla took a bigger fall, losing 12.2 per cent – the biggest decline among S&P 500 stocks after the electric vehicle maker’s 2022 sales disappointed investors.

Meanwhile, bleak factory activity data from China also dragged down US oil prices, which closed 4.1 per cent lower on Tuesday, weighing on American energy companies, as well as their Australian counterparts. Kwan also cited low gas prices as a weight on the energy sector.

“There’s been an unusually warm winter in Europe, potentially lowering demand for those commodities,” he said.

Kwan added he was closely watching quarterly production reports from companies due in the second half of the month, as well as the Reserve Bank’s first cash rate decision for the year in February.

On Wall Street broadly, stocks gave up early gains and ended the first session of 2023 lower, just days after the S&P 500 index closed the books on its worst year since 2008.

The S&P 500 shed a 1 per cent gain and finished 0.4 per cent lower on Tuesday. The Dow Jones Industrial Average slipped less than 0.1 per cent and the Nasdaq composite dropped 0.8 per cent.

Amid the gloom, Facebook parent Meta Platforms rose 3.7 per cent to lead a rally in communications services stocks. Gains in several big banks and other financial stocks also helped keep the market’s losses in check. Wells Fargo rose 1.2 per cent.

Long-term bond yields fell significantly. The yield on the 10-year Treasury, which influences mortgage rates, fell to 3.8 per cent from 3.9 per cent late on Friday. Stock and bond markets were closed on Monday for the observed New Year’s Day holiday.

Markets will be watching the extent to which central banks continue to lift their cash rates in a bid to curb inflation, and the potential for such changes to trigger higher unemployment and recession. The Fed’s key lending rate stands at a range of 4.25 per cent to 4.5 per cent after rocketing from a range of 0 per cent to 0.25 per cent at the beginning of 2022. Their next policy decision on interest rates is set for February 1. The US central bank forecasts that it will reach a range of 5 per cent to 5.25 per cent by the end of 2023, and doesn’t expect a rate cut until 2024.

That’s despite a falling 2-year US Treasury yield, an indicator of future interest rates and inflation, signalling investors’ expectations for a trimming of interest rates as early as this year.

Investors are also looking ahead this week to several updates on the employment market, including a monthly report on the US job market on Friday and corporate earnings reports set to be released in greater January in mid-January. Strong employment in the US has helped buffer the economy from a recession, analysts have said, but also makes the Fed’s fight against inflation more difficult and raises that risk that it could go too far and bring on a recession.

“If we get a weak report, that would be a boost to the market because it might imply that the Fed will ease back a bit on the rate hikes,” managing director of trading and derivatives at Charles Schwab, Randy Frederick said.

Analysts polled by FactSet expect earnings for companies in the S&P 500 to broadly slip during the fourth quarter and remain flat for the first half of 2023.

Stocks in Hong Kong and China extended their gains on Wednesday.

Tweet of the day:

Hashtag “TwitterDown” was trending today as users reported login and loading problems for the second time in a week.

Quote of the day:

“Most businesses have said they’ve really had two years of COVID to build better flexibility into their supply chain, and therefore a wider range of sources from which they get goods. So whilst we’ve seen supply shortages, it’s not necessarily going to get dramatically more challenging for us here,” KPMG national chairman Alison Kitchen told reporters on Wednesday, referring to the impact of China’s COVID outbreak on supply chains for Australian businesses.

You may have missed:

The president of e-commerce giant Shopify says consumers still have a healthy appetite for retail therapy, but are ditching random, unplanned spending as cost-of-living pressures bite.