The ASX followed Wall Street's interest-rate-inspired decline, ahead of the Reserve Bank's next meeting tomorrow, despite receiving a big boost from takeover target Newcrest.
Catch up with the day's financial news and insights from the ABC's specialist business reporters on our live blog.
Disclaimer: this blog is not intended as investment advice.
Key events
Live updates
Market snapshot at 4:40pm AEDT
By Michael Janda
ASX 200: -0.3% at 7,539
All Ords: -0.3% at 7,746
Australian dollar: +0.3% at 69.4 US cents
Dow Jones: -0.4% to 33,926 (Friday close)
S&P 500: -1% to 4,136 (Friday close)
Nasdaq: +1.6% to 12,007 (Friday close)
FTSE: +1% to 7,902 (Friday close)
EuroStoxx 600: +0.3 to 461 (Friday close)
Brent crude: +0.2% to $US80.11/barrel
Spot gold: +0.6% to $US1,877/ounce
Iron ore: -1.3% to $US122.50/tonne
Bitcoin: -2.8% to $US22,729
Market closes down as traders await RBA's next move
By Michael Janda
Well, that was a bit of a quiet afternoon — the market has closed pretty much where it was when I did the last snapshot around 1:00pm AEDT.
The ASX 200 was off a quarter of a per cent at 7,539 points, while the All Ordinaries index lost a third of a per cent to 7,746.
Far more companies among the top 200 lost ground than gained it — 137 versus 57 — with gains across energy, utilities, mining and consumer staples preventing bigger losses for the index.
Gold miner Newcrest was easily the biggest gainer on the market today after fielding a takeover offer from the world's biggest gold mining company Newmont.
Winners:
- Newcrest Mining +9.3%
- Beach Energy +3.7%
- Incitec Pivot +3.2%
- Whitehaven Coal +2.9%
- PEXA Group +2.8%
Losers:
- Lake Resources -6.2%
- Sayona Mining -5.8%
- Core Lithium -5.8%
- BrainChip Holdings -5.3%
- Credit Corp -4.8%
Education, real estate and industrials were the biggest drags on the market today, with the first two sectors down around 2 per cent and the latter off nearly 1.2 per cent.
Traders will no doubt look to how Wall Street keeps reacting to surprisingly robust US economic data now it's had a weekend to mull over the jobs numbers and their interest rate implications.
In very early trading, S&P 500 futures were down around 0.4 per cent, hinting at another fall to back up Friday's losses.
The big market moving local event tomorrow will be the Reserve Bank's interest rate decision, published at 2:30pm AEDT.
Financial market pricing suggests a 90 per cent chance of rates rising by 0.25 of a percentage point, with an outside chance of either a bigger rates increase (0.4 or 0.5 of a percentage point) or rates being left on hold.
I'll have the online story on that decision, while Emilia Terzon and Gareth Hutchens will have you covered on the blog.
Takeover target Newcrest worth less than the sum of its parts: Barrenjoey
By Michael Janda
Writing ahead of details emerging about Newmont's takeover approach, Barrenjoey mining analyst Daniel Morgan canvassed the factors that made Newcrest vulnerable and attractive as a takeover target.
"The key attraction of Newcrest is the company's portfolio of long-life assets with a portfolio life of 22 years, well above most listed peers," he noted.
The chart shows that Newcrest's current mines have a lot more life left in them than Newmont's.
Morgan says, for various reasons, Newcrest is trading below its optimal valuation.
"If Newcrest traded on the average Resource and Reserve multiple as these peers, the share price would be almost ~A$40 per share. Newcrest is trading at ~US$1,600/oz gold price. At spot gold/copper prices, our NPV [net present valuation] would lift to A$32.67 per share.
"Newcrest trades at a 10% discount to our sum-of-the-parts DCF valuation of A$24.43 per share, compared to Australian peers at a 10-50% premium."
So basically, he's saying Newcrest is vulnerable at its current share price, and potentially good value to Newmont if the US company could divest some of its underperforming assets or otherwise restructure the Australian firm to unlock more of its value.
If it goes through, this takeover would create a global gold mining behemoth, because Newmont is already the world's most valuable gold miner:
And world's biggest gold producer:
Morgan flagged that Newcrest's board could deploy a range of defensive options if it decides that Newmont's latest offer still doesn't reflect the full value of the company.
His current valuation prices the company at $24.43 (just below where it has been trading today since the offer was confirmed) while Barrenjoey's price target for Newcrest was $26.
Consumer spending slumps at the end of 2022
By Michael Janda
Ahead of its board meeting tomorrow, if the Reserve Bank wanted more evidence that its interest rate rises are starting to work then it got it.
The Australian Bureau of Statistics released figures for the volume of retail trade over the last three months of last year — that is how much stuff Australians bought, not simply how much we spent.
It turns out that we purchased less than the quarter before, 0.2 per cent less to be precise.
But a lot of that spending was on food (+2.1 per cent).
If you take that out, and also remove eating out and takeaway, then other retail volumes slumped by 2.1 per cent.
A 1.1% increase in retail prices across the board during the quarter kept retail turnover from falling more.
Interestingly, this inflation number is a lot lower than the consumer price index figure of 1.9 per cent recorded for the same quarter, and published last month.
The big declines in retail volumes were seen in the department store, "other retailing", clothing and footwear, and household goods categories — exactly the types of areas you might expect people to cut back on if they're starting to struggle with rising mortgage repayments.
CBA economist Stephen Wu concluded:
"There were clear signs of discretionary goods spending easing in today's data.
"Some of that reflects the pivot to discretionary services spending as many households travelled domestically and overseas over the festive period. But some of the softness also undoubtedly reflects cost of living pressures that are straining household budgets.
"The downturn in the housing market for both prices and turnover are playing a role too, particularly for household goods.
"The 0.2% decline in retail trade volumes show demand was already softening late last year – even before the full impact of rate hikes occurred. With another rate hike expected at the February 2023 RBA Board meeting, and a large stock of fixed rate debt due to rollover over this year, demand will only weaken further from here.
"The upshot is that it is less likely sustained price rises can occur."
Inflation problem solved? Perhaps not yet, but another sign that we're on the way there.
Market snapshot at 12:55pm AEDT
By Michael Janda
ASX 200: -0.3% at 7,539
All Ords: -0.3% at 7,748
Australian dollar: Flat at 69.19 US cents
Dow Jones: -0.4% to 33,926 (Friday close)
S&P 500: -1% to 4,136 (Friday close)
Nasdaq: +1.6% to 12,007 (Friday close)
FTSE: +1% to 7,902 (Friday close)
EuroStoxx 600: +0.3 to 461 (Friday close)
Brent crude: +0.3% to $US80.20/barrel
Spot gold: +0.4% to $US1,873/ounce
Iron ore: -1.3% to $US122.50/tonne
Bitcoin: -1.6% to $US23,000
Top movers on the ASX at 12:50pm AEDT
By Michael Janda
And the best and worst performers on the ASX are...
Top five:
- Newcrest Mining +11.9%
- Beach Energy +2.9%
- Collins Foods +2.8%
- Incitec Pivot +2.6%
- Whitehaven Coal +2.6%
Bottom five:
- Sayona Mining -4.8%
- Paladin Energy -4.7%
- Core Lithium -4.4%
- Lake Resources -4.4%
- Smartgroup Corporation -3.8%
Resources sector keeps ASX from bigger falls
By Michael Janda
The mining sector is holding up the market today, especially in light of Newcrest's share price surge on a takeover offer.
Around the middle of the trading day, at 12:45pm AEDT, the ASX 200 index was down 0.2 per cent to 7,547 points, while the All Ords was off 17 points to 7,755.
Around three-quarters of the top 200 stocks on the ASX were trading lower.
However, the basic materials sector, which covers miners, had jumped 0.7 per cent, led by a 12 per cent surge for Newcrest.
That sector was also being pulled higher by gains for the big three iron ore miners, BHP, Rio and Fortescue, all up just either side of 1 per cent.
Energy and utilities stocks were also higher.
On the flip side, interest rate sensitive sectors were on the nose, with real estate down 1.4 per cent and discretionary retail and financial stocks both down about 0.6 per cent.
What are the odds of an Australian recession?
By Michael Janda
About 26 per cent over the next two years, according to a panel of experts assembled by The Conversation.
"KPMG forecaster Sarah Hunter says while Australia should avoid a recession as commonly described (two consecutive quarters in which production shrinks), economic growth could well turn negative for one quarter at the start of the year, as household spending turns down and mining shipments are disrupted by floods.
"Regardless, the economy will be 'very weak by historic standards' in 2023. The panel expects economic growth of only 1.7 per cent in 2023, climbing to 2.5 per cent by 2026."
You can read more of Peter Martin's article on the ABC News website.
Not everyone is forecasting an interest rate rise tomorrow
By Michael Janda
While the market pricing (according to Refinitiv data) is suggesting a greater than 90 per cent chance of interest rates rising tomorrow, not everyone believes it's a done deal.
This from Ben Jarman, Tom Kennedy and Jack Stinson at JP Morgan:
"At this week's meeting, we look for the RBA to hold the cash rate steady at 3.10%.
"Since [the December quarter] CPI result, markets are pricing a higher chance of a 25bp [basis point] hike, which is the clear risk to our call.
"Though we remain convinced a pause is coming soon, an outcome of a 25bp hike, with more open-ended guidance (for example, removing the expectation of rate hikes "over the period ahead," while emphasizing ongoing data dependence) is similarly plausible.
"A further string of several 25bp hikes from here we think is unlikely; the RBA's continued use of discretion and respect for policy lags suggest it won't keep moving when the cash rate is already restrictive and earlier hikes are gaining traction in the activity data. This traction includes a clear moderation in consumption and GDP growth so far, as well as in the leading indicators of the labor market."
On the other hand, economists who have been urging caution on rates, such as CBA's Gareth Aird, have suggested that not only is a 0.25 percentage point hike all but certain tomorrow, but that there is a chance the RBA may lift the cash rate target by 0.4 of a percentage point to 3.5 per cent.
Newcrest shares surge on Newmont takeover bid
By Michael Janda
After speculation yesterday in the Financial Review, Australian gold miner Newcrest has confirmed today that it has fielded a takeover offer from US-listed Newmont.
It's a share, rather than cash, deal from one of the biggest gold mining companies in the world to take out Australia's biggest miner of the precious metal.
A very short release to the ASX this morning reveals that Newmont yesterday tabled a conditional and non-binding offer of 0.38 shares in the New York Stock Exchange listed company for every one Newcrest share.
If the deal went through, Newmont would create a depository listing on the ASX for the new Newmont shares being issued to Newcrest shareholders, meaning their shares would be held and traded locally rather than in the US.
The statement also reveals that Newmont had previously tendered an offer pitched at 0.363 shares for every Newcrest share, which it upped yesterday to the current proposal.
Newcrest says its board is considering the latest proposal and that its shareholders need not take any action at the current time.
However, plenty of investors have been buying this morning: Newcrest shares had surged 10.2 per cent to $24.74 shortly after 11:00am AEDT.
Market snapshot at 10:30am AEDT
By Michael Janda
ASX 200: Flat at 7,557
All Ords: -0.1% at 7,766
Australian dollar: Flat at 69.22 US cents
Dow Jones: -0.4% to 33,926 (Friday close)
S&P 500: -1% to 4,136 (Friday close)
Nasdaq: +1.6% to 12,007 (Friday close)
FTSE: +1% to 7,902 (Friday close)
EuroStoxx 600: +0.3 to 461 (Friday close)
Brent crude: +0.3% to $US80.15
Spot gold: +0.1% to $US1,868
Bitcoin: -1.8% to $US22,959
ASX loses ground on rates fears
By Michael Janda
The Australian share market has taken Wall Street's Friday lead, losing ground on fears that the Fed, and therefore other central banks, will have to raise rates higher to get inflation under control.
But the declines here are more in line with the modest dip seen on the blue chip Dow Jones Industrial Average, rather than the bigger falls on the more tech-focused parts of Wall Street.
The benchmark ASX 200 index was off 0.3 per cent at 7,536 in the first 20 minutes of trade, while the All Ordinaries had a similar fall at the open to 7,747 points.
Overall, 155 firms out of the top 200 were trading lower, with only 34 gaining ground.
The fact that those 34 included mining giants and market heavyweights BHP, Rio Tinto and Fortescue helped minimise the overall loses on the ASX.
Mining and energy were the only sectors on the up, while the interest rate sensitive real estate sector led the falls.
Just how far can the Reserve Bank push interest rates?
By Michael Janda
That's the question posed by ABC Business Editor Ian Verrender in his latest column.
"For Dr Lowe, the decision he and his colleagues must make tomorrow and in coming months is, just how deep a recession are they prepared to wear?
"Even if we do somehow avoid the technical definition of recession — two consecutive quarters of economic contraction — that will be little consolation for those who can no longer meet the repayments on their homes. The pain is never equally spread and, this time around, it will be younger Australians who cop it in the neck."
You can read his full analysis here:
Who really had it tougher buying a home?
By Michael Janda
It's one of Australia's favourite debates: who did it tougher in the housing market?
Was it Baby Boomers who confronted 17-20 per cent mortgage interest rates?
Or is it their kids who, despite seeing mortgage rates about a third of that level, are paying almost as much of their income in interest because they're often paying $1 million-plus for a home?
My colleague Nassim Khadem has spoken to some of the best experts in the field to get their take ... and the verdict is pretty unanimous.
Shock US jobs gains spook traders
By Michael Janda
Good morning and welcome to the ABC News markets live blog for another trading week.
We're back to good news being bad news for the markets as a massive positive surprise in US jobs on Friday numbers raised the prospect of more interest rate hikes.
The data showed that 517,000 jobs were added to the US economy in January, above 188,000 expected by the average of forecasters.
That pushed unemployment down to 3.4 per cent, when economists had expected it to rise to 3.6 per cent.
"The worry of course is that the much better than expected data is bad news if the Fed sees this as bolstering its case of two more hikes and keeping rates elevated for longer," wrote NAB analyst Tapas Strickland.
One Federal Reserve official described it as a "wow number" and we get to find out what Fed chair Jerome Powell thinks when he is "in conversation" on Tuesday.
But markets have already decided what they think.
"Fed pricing has shot back up following Payrolls and the ISM to almost fully pricing a 25bps [basis points] March hike and then a follow up May hike (there is now 40bps priced across the two meetings, up from 30bps the day prior) . The terminal fed funds rate is now priced at 5.00% from 4.90% previously, and pricing for cuts in H2 2023 has been pared slightly to -40bps from -50bps the day prior."
That saw the Nasdaq fall a steepish 1.6 per cent on Friday, with the S&P 500 down 1 per cent and the Dow Jones off a more modest 0.4 per cent.
The ASX SPI 200 futures are indicating local stocks may buck the trend, up 0.2 per cent at 7,513 points.
That could be because the Australian dollar fell on the US rate rise expectations. It was trading below 69 US cents earlier today, but was at 69.11 by 9:25am AEDT.
