The Australian share market slipped into negative territory by midday on Friday, following a turbulent night on Wall Street where influential technology stocks saw significant declines. The S&P/ASX 200 index fell by 11 points, or 0.1%, to 8817.3 in early afternoon trading. Despite the overall downturn, six out of the eleven industry sectors remained in positive territory, with energy stocks leading the gains.
The decline in tech shares has been the primary drag on the local bourse. Financial stocks also showed weakness, with mixed performances among the major banks. National Australia Bank rebounded by 1.9%, recovering some of its losses from Thursday after releasing its results. However, Commonwealth Bank and Westpac fell by 1% and 0.5% respectively, while ANZ Bank remained flat. Macquarie Group experienced a steep decline of 7% after reporting a $1.7 billion profit, which fell short of market expectations.
Energy and Mining Sectors Show Mixed Results
Energy stocks provided some support to the broader market as oil prices rose. Woodside Energy increased by 1.5%, Ampol gained 0.3%, and Santos advanced by 0.6%. Meanwhile, mining stocks displayed a mixed performance. Iron ore giants Rio Tinto, BHP, and Fortescue fell by 1.7%, 0.8%, and 1.8% respectively, as the price of iron ore retreated. Conversely, gold miners such as Evolution Mining and Northern Star saw modest gains of 0.2% and 0.6%, benefiting from a rise in gold prices.
Impact of Wall Street’s Decline
The Australian market’s downturn mirrors the broader losses on Wall Street, where the S&P 500 fell by 1.1%, the Dow Jones Industrial Average dropped 398.70 points, or 0.8%, and the tech-heavy Nasdaq declined by 1.9%. The technology sector has been a significant driver of Wall Street’s movements throughout the week. Thursday’s losses pushed major indices into negative territory for the week, potentially ending a three-week winning streak for the S&P 500, Dow, and Nasdaq.
The heaviest weights on the market included Nvidia, which fell by 3.7%, and Microsoft, which declined by 2%. Their substantial market values mean they have a disproportionate impact on the overall market direction. Other major stocks contributing to the decline included Amazon, which slumped by 2.9%.
Corporate Earnings and Economic Indicators
Corporate earnings and forecasts have been the focal point for Wall Street, as investors seek insights into the economic outlook amid limited data availability due to the ongoing US government shutdown. The shutdown has resulted in a lack of key economic indicators, including inflation, employment, and retail sales data. This has left investors relying on corporate updates and private economic reports to gauge the health of the economy.
Private payrolls increased more than expected in October, according to a report from ADP, and the services sector expanded, as reported by the Institute for Supply Management. However, job cuts in the US surged by 175% in October compared to the previous year, according to Challenger, Gray & Christmas.
“We anticipate the Fed will continue to implement rate cuts to prevent any weakness in employment from accelerating,” said Seema Shah, chief global strategist at Principal Asset Management. “Much of the market’s optimism hinges on the assumption that policymakers will maintain some level of support.”
Federal Reserve’s Dilemma Amid Economic Uncertainty
The absence of comprehensive economic data has complicated the Federal Reserve’s decision-making process. The central bank must balance the risk of exacerbating inflation against the need to support a weakening job market. The Fed has already cut its benchmark interest rate twice this year and has signaled a cautious approach moving forward. Market forecasts indicate a 71% probability of another rate cut in December, down from over 90% prior to the latest cut, according to CME FedWatch.
In addition to the economic uncertainty, the US government shutdown is directly impacting the aviation sector. The Federal Aviation Administration announced a 10% reduction in air traffic across 40 high-volume markets starting Friday, leading to declines in airline stocks. American Airlines fell by 2%, Delta Air Lines by 1.2%, and United Airlines by 1%.
As the Australian share market reacts to global economic developments, investors will continue to monitor corporate earnings and economic indicators closely. The ongoing volatility underscores the complex interplay between market forces and economic policy, with implications for both domestic and international markets.
