ASX suffers worst day in 2.5 months on recession fears, panic-selling causes 3.2% tumble over week

Australian shares had an ugly day as investors sold off on fears that the pace of the interest rate hiking cycle would send the economy into a recession. Investors learned of the RBA, US Federal Reserve, Bank of England and other central banks like India, raising interest rates in an effort to fight inflation.

Looking back over the week, the local bourse had a rough week, despite a rebound on Thursday as investors mulled on the RBA’s highly anticipated interest rate decision on Tuesday and the Statement of Monetary Policy forecasts for inflation today.

The Reserve Bank revised sharply its inflation outlook to hit 6 per cent by December from 3.25 per cent in its February projection, and core inflation, its preferred measure, to top 4.75 per cent by year-end from 2.75 per cent.

The local tumble followed Wall Street’s crater with Nasdaq’s 5 per cent fall as the reassurance from the US Federal Reserve on a softish landing was just not enough to keep nerves at bay. Renewed  inflationary fears were triggered by China’s extended Covid-19 lockdown and the Russian war in Ukraine. Investors believed that central banks are going to struggle to fight soaring inflation, and closed out of their positions.

Information tech was by far the worst sector, down 4.5 per cent, followed by property, down 3.5 per cent, then healthcare and communication services, both down 2.5 per cent each. Consumer staples shed the least, down 0.2 per cent.

Weighing on the tech space was Life360 (ASX:360), which tumbled 8.2 per cent to $3.36, and Xero (ASX:XRO) sank 8.7 per cent to $86.95.

There were a few green shoots like health stocks, Polynovo (ASX:PNV), up 4.1 per cent to $0.90 and Fisher & Paykel (ASX:FPH), up 2.4 per cent to $19.86. Coles (ASX:COL) also rose 1.3 per cent to $18.72 and Amcor (ASX:AMC) lifted 1 per cent to $17.87.

Beach Energy (ASX:BPT) led the energy circle lower, down 3.2 per cent to $1.66. Santos (ASX:STO) fell 1.6 per cent to $8.05 and Woodside Petroleum (ASX:WPL) closed 1.4 per cent lower at $31.39.

Rio Tinto (ASX:RIO) weighed on iron ore players, down 2.1 per cent to $109.26, while BHP (ASX:BHP) fell 1.4 per cent to $46.80 and Fortescue Metals (ASX:FMG) closed flat at $20.83.

Evolution Mining (ASX:EVN) sent gold miners lower, down 3.3 per cent to $3.81. Northern Star (ASX:NST) dropped 2.5 per cent to $9.42 and Newcrest Mining (ASX:NCM) closed 1.7 per cent lower at $26.43.

Onto major banks, Macquarie Group (ASX:MQG) posted first half results, which sent its stock to tumble 7.9 per cent to $186.90. National Australia Bank (ASX:NAB) fell 2 per cent to $31.62, Commonwealth Bank (ASX:CBA) dropped 1.3 per cent to $102.40, Westpac (ASX:WBC) dipped 0.8 per cent to $23.83 and ANZ Banking (ASX:ANZ) closed 0.6 per cent lower at $26.76.

At the closing bell, the S&P/ASX 200 was 2.2 per cent or 159 points lower at 7,206. Over the week, it closed 3.2 per cent or 229 points lower.

Local economic news

The Reserve Bank has revised sharply its economic forecasts, anticipating CPI to hit 6 per cent by December, from 3.25 per cent in its February projection, and core inflation, its preferred measure, to hit 4.75 per cent by year-end from 2.75 per cent.

In its quarterly economic update published in the Statement on Monetary Policy, the central bank anticipates both CPI and core inflation to moderate to 3 per cent by mid-2024.

Unemployment is tipped to drop further to 50-year lows of 3.25 per cent by the end of next year, from 3.75 per cent in its February forecasts.

Wages growth is forecast to strengthen further as the unemployment rate declines, to be 3.75 per cent by mid-2024, this would be the fastest pace since 2012.

Company news

Macquarie Group (ASX:MQG) has posted a 56 per cent jump to $4.7 billion annual profit with almost all the divisions posting a jump in earnings. Macquarie Capital is an outperformer with profit soaring 269 per cent from $651 million in 2021 to $2.4 billion, reflecting significantly higher fee and commission income due to mergers and acquisitions and debt capital markets activities. A final dividend of $3.50 a share will be paid on July 4, an increase of 15 cents from the prior year. The bank did not provide specific guidance but said it continues to maintain a cautious stance with a conservative approach to capital, funding and liquidity that positions them well to respond to the current environment. Shares closed 7.9 per cent lower to $186.90.

REA Group (ASX:REA) reported a rise in revenue during the March quarter after continued high demand gave sellers the confidence to bring their properties to the market. The property advertiser’s revenue of $278 million rose 23 per cent from the prior year period, while its EBITDA lifted 27 per cent to $155 million. REA said while further interest rate rises are expected, strong bank liquidity, record low unemployment and increased immigration should underpin the Australian property market. Shares closed 8.1 per cent lower to $112.15.

News Corp (ASX:NWS) reported a 7 per cent rise in revenue during the March quarter to US$2.49 billion despite significant currency volatility. The news giant’s profit improved by 20 per cent, while net income of $104 million increased by 8 per cent thanks to a rebound in advertising, new content, licensing revenues and strong digital subscriber gains. News Corp said the increase reflects growth in all revenue lines, including recent acquisitions, offsetting the negative impact of foreign currency fluctuations. Shares closed 7.7 per cent to $26.60.

APA Group (ASX:APA) reviewed its group entity names to better reflect its renewed focus on energy infrastructure, with a portfolio of gas, electricity, solar and wind assets across Australia. Shares closed 1.9 per cent lower to $11.34.

Coal miner Coronado Global (ASX:CRN) confirms that it was in confidential discussions with Arch regarding a potential merger, however, the companies are no longer in discussions and there are no expectations it will resume. Shares closed 8.1 per cent lower to $2.26.

Artificial intelligence technology business BrainChip (BRN) has received a query from the ASX around its share price, soaring as high as 9 per cent intra-day in a session where the local index is trading over 2 per cent lower, following a 5 per cent tumble with the Nasdaq on Wall St. Shares closed 3.4 per cent higher to $1.06.

What else was on watch?

Citi cut Corporate Travel (ASX:CTD) to neutral with a price target of $25.49, with shares down 5.4 per cent to $23.17, Goldman Sachs raised ARB Corp (ASX:ARB) to a buy from neutral, with shares down 4 per cent to $31.91, and Jefferies cut National Australia Bank (ASX:NAB) to a hold, with shares down 2 per cent to $31.62.

APA Group (ASX:APA) amid The Australian reporting that the gas pipeline owner has been weighing an acquisition of a $4 billion electricity transmission company in the US. Shares closed 1.9 per cent lower at $11.34.

Adbri (ASX:ABC) confirmed interest in the $1 billion building materials empire BGC in WA, according to The Australian. Shares closed 1 per cent lower at $3.00.

Whitehaven Coal (ASX:WHC), the share price is up 83.7 per cent for the calendar year. Newcastle coal prices were up almost 4 per cent. Shares in Whitehaven (ASX:WHC) closed 3.7 per cent lower at $4.94.

Futures

The Dow Jones futures are pointing to a fall of 3 points.
The S&P 500 futures are pointing to a fall of 2 points.
The Nasdaq futures are pointing to a fall of 8 points.
The SPI futures are pointing to a fall of 156 points when the market next opens.

Best and worst performers

All sectors closed in the red. The sector with the fewest losses was Consumer Staples, down 0.2 per cent. The worst-performing sector was Information Technology, down 4.5 per cent.

The best-performing stock in the S&P/ASX 200 was PolyNovo (ASX:PNV), closing 4.1 per cent higher at $0.90. It was followed by shares in Fisher & Paykel Healthcare (ASX:FPH) and Coles Group (ASX:COL).

The worst-performing stock in the S&P/ASX 200 was Paladin Energy (ASX:PDN), closing 10.3 per cent lower at $0.74. It was followed by shares in Life360 (ASX:360) and Xero (ASX:XRO).

Asian markets

Japan’s Nikkei has gained 0.6 per cent.
Hong Kong’s Hang Seng has lost 3.6 per cent.
China’s Shanghai Composite has lost 2 per cent.

Wall Street

Over the last four trading days, the Dow Jones gained 0.1 per cent, the S&P 500 gained 0.4 per cent and the Nasdaq lost 0.1 per cent.

Commodities and the dollar

Gold is trading at US$1876.17 an ounce.
Iron ore is 2 per cent higher at US$145.80 a ton.
Iron ore futures are pointing to a fall of 2.7 per cent.
Light crude is trading $0.44 higher at US$97.75 a barrel.
One Australian dollar is buying 70.89 US cents.