United States
Investors in the US continued to adjust their exposure to the high-flying tech stocks on Wednesday, resulting in marginal declines for both the Nasdaq and the S&P 500. Also drawing attention was the release of the Federal Reserve’s minutes from their last interest rate meeting, where most officials expressed concerns that the risks to inflation outweighed their worries about a slowing jobs market.
At the close, the movements in the indexes mirrored those of the previous session. The Dow saw a slight gain of 0.04%, up by 16 points, finishing at 44,938. Meanwhile, the Nasdaq Composite dropped by 142 points, or 0.67%, closing at 21,172. The S&P 500 fell 0.24%, closing at 6,395, marking its fourth consecutive day of declines. The rotation out of stocks with inflated valuations was evident in sector moves on the S&P 500, where seven sectors posted small gains, while the four losing sectors were led by technology and consumer discretionary. The day’s silver lining was that deeper losses observed early in the session — with the Nasdaq down by 1.9% — were largely recovered by the afternoon.
Profit-taking in tech stocks saw Apple and Alphabet (Google) drop by 1.97% and 1.14%, respectively. AI-related stocks, including Nvidia and Palantir, experienced steep declines early in the session after a report from a Massachusetts Institute of Technology (MIT) think tank caught traders’ attention. The study suggested that most corporations are not seeing measurable returns from their generative AI investments. However, these stocks recovered later in the day, with Nvidia closing lower by just 0.14% at $175.40.
Big-box retailers Walmart and Costco saw solid gains ahead of Walmart’s earnings report, which was set to be released before the opening of US trade today. Earnings for Walmart are expected to be strong, and the stock closed higher by 1.26%, while Costco gained 1.40%.
The release of the FOMC minutes on Wednesday, highlighting ongoing concerns from the majority of members about inflation risks, has sharpened traders’ focus on Friday’s upcoming speech by Fed Chairman Jerome Powell at the Jackson Hole symposium. While most still expect a rate cut from the Fed in September, market conviction has softened compared to the near-unanimous expectation of a cut earlier in August. Currently, the CME’s FedWatch Tool suggests that market participants have priced in an 85% chance of a rate cut at the September meeting.
Bond yields continued to drift in light summer trading, with the 10-year Treasury yield falling by 2 basis points to 4.29%. The US dollar remained steady, with no movement on the Bloomberg US Dollar Index, as it continues to trade in a tight range over the last two weeks.
Europe
European stocks continued to rise on Wednesday, with the Euro Stoxx 600 closing up by 0.23% in a broad-based rally, driven primarily by consumer staples. In the UK, higher-than-expected inflation figures were largely dismissed as the FTSE 100 reached a record close, advancing 1.08% to 9,288. However, most regional bourses on the continent ended the day lower.
The shift toward consumer staples stocks reflected a growing global trend, with investors flocking to defensive names while selling off overvalued, crowded stocks. This shift helped Unilever climb 3.26%, and Reckitt, a manufacturer and distributor of consumer goods, gained 2.27%. The defensive tilt also saw financial stocks in demand.
Meanwhile, technology stocks and the defence sector (arms manufacturers) experienced declines. Both sectors, which have been crowded trades with high earnings growth expectations already priced in, saw a pullback. Additionally, the hope for peace in Ukraine was cited as a contributing factor to the drop in any military related shares.
In the UK, the Consumer Price Index (CPI) hit an 18-month high, with annual inflation reaching 3.8%, while inflation in the services sector surged to 5%. Rising wages are contributing to the inflationary pressure, exacerbated by the country’s tight labour market. As a result, expectations for rate cuts by the Bank of England (BOE) later this year have been diminished. Despite this, bond yields generally fell, with the UK’s 10-year bond dropping 7 basis points to 4.67%, and Germany’s equivalent bond falling 3 basis points to 2.71%
Australia
The ASX200 ended Wednesday with a modest gain, as corporate results continued to have a significant impact on the index. It rose by 22 points, or 0.25%, closing at 8,918. Seven of the eleven sectors posted gains, with consumer discretionary performing the best, while materials lagged as the worst performer.
The materials sector dropped by 2.32%, primarily due to a pullback in iron ore prices, which weighed heavily on bulk miners. BHP fell 0.88% to $41.75, while Fortescue dropped 1.57% to $19.38. However, the biggest decline came from James Hardie, which reported its first-quarter results along with a profit warning, citing a slowdown in the U.S. housing market. The company’s newly acquired U.S. building materials business, Azek, saw its net profit plunge by 60% due to the slowdown. As a result, James Hardie shares plummeted 27.8%, losing $12.34 to close at $32.00. CEO Aaron Erter attempted to downplay the situation, calling the slowdown a “blip on the radar” and suggesting Azek was performing well.
Lynas, the rare earth miner, retreated by 7.36% after its recent record-breaking performance, following news that China’s exports of rare earth magnets had recovered to a six-month high in July, returning to levels seen before the introduction of export restrictions.
CSL continued its decline after analysts downgraded their price targets and recommendations following the company’s results. CSL fell another 2.11%, ending at $220.74. On the other hand, Lottery Corp emerged as the top performer among the large-cap stocks, reporting better-than-expected numbers. Its shares surged 6.99%, closing at $5.66. Also in the consumer discretionary sector, Wesfarmers performed strongly, gaining 2.64% to close at a record high of $92.47. Wesfarmers is set to release its annual results next Thursday.
Investors moved away from stocks that reported disappointing results and sought the perceived safety of the banks. All four of the Big 4 banks saw solid advances, with NAB leading the way, rising 3.68% to $42.03, and Westpac not far behind, adding 2.47% to $38.23. CBA which went ex-dividend $2.60 on Wednesday covered that dividend and rose an additional $1.35 to close at $172.40.
In New Zealand, the Reserve Bank of New Zealand (RBNZ) lowered interest rates by 25 basis points and signalled that more cuts may be on the horizon. This led to a drop in New Zealand yields and prompted some buying of Australian bonds, meaning lower yields. The 10-year Australian bond yield dropped 3 basis points to 4.29%, while the 2-year yield also declined by 3 basis points to 3.33%.
Overnight, equity trading once again showed a positive bias, with ASX200 futures rising by 23 points, or 0.26%. The Australian dollar remained stable, holding steady at the lower end of its recent range, and opened the trading day at 0.6431 against the US dollar.
Commodities
Oil prices rebounded strongly after a prolonged period of weakness in August. West Texas Intermediate (WTI) gained 1.38%, rising by 86 cents to close at US$63.21, while Brent crude increased by 1.73%, closing at US$66.93. The recent one-sided trading made the commodity ripe for a bounce, and a drop in US crude oil inventories served as a catalyst for traders to cover their short positions. The US Energy Information Administration reported a larger-than-expected inventory draw, with oil inventories falling by 6 million barrels last week, compared to an anticipated 1.8-million-barrel draw.
Copper and iron ore prices also saw gains on Wednesday. Copper rose by US$28 (+0.29%) to US$9,720 per tonne on the London Metal Exchange (LME), while iron ore bounced back from recent declines, closing at US$102.05 in New York trade, marking a 1.6% advance over the last 24 hours.
Gold moved higher as investors sought more defensive risk positions, with the price of gold advancing 0.98% to US$3,348 per ounce. Silver joined the upswing, closing higher by 1.36% at US$37.90.
Economic Calendar
AU:
- S&P Global Manufacturing PMI’s (Aug) – 9:00am
- Consumer Inflation Expectations (Jul) – 11:00am
EU:
- HCOB Purchasing Managing Indexes (Aug) – 6:00pm
US:
- Philadelphia Fed Manufacturing Index (Aug) – 10:30pm
- S&P Purchasing Managers Index (Aug) – 11:45pm
- Conference Board Leading Index (Jul) – 12:00am
This article was written by Paul Darwell, Rivkin Securities Pty Ltd. Enquiries can be made via [email protected] or by phoning +612 8302 3632.
