The laggards

De Grey Mining was the poorest performer of the day, with losses of 8.7 per cent, followed by mining giant Fortescue Metals Group which dropped 8.5 per cent as shares traded without the rights to its latest 89-cents-a-share dividend.

Gold Road Resources finished 7.7 per cent lower.

The lowdown

Figures from the Australian Bureau of Statistics said that though the local economy expanded for an 11th consecutive quarter, annual growth has slipped to 1 per cent for 2023-24.

AMP deputy chief economist Diana Mousina described the figure as “very poor for Australia” given its population growth has exceeded 2 per cent every year.

“Australia’s GDP growth relative to our global peers is low, and we are at the bottom of the pack,” she wrote in a note to clients.

“The weakness in the detail of the data suggests that the RBA should re-think its hawkish position on interest rates, as the economy does not need any further tightening in monetary conditions.”

Deloitte Access Economics partner Stephen Smith said the GDP figures showed the Australian economy was “still on life support”.

The private sector has “effectively ground to a halt,” Smith noted, with Australians living in recession-like conditions and only government spending keeping economic growth in the green.

“The economy has likely reached the bottom of the trough, while interest rates have now clearly peaked. Central banks around the world are cutting rates, or are looking to do so.”

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Mining heavyweights BHP and Rio Tinto fell sharply, down 2.5 per cent and 2.3 per cent, as the price for Australia’s key export product iron ore continued to decline. The price for the metal slumped a further 3.5 per cent to $US93.45 per tonne overnight.

Financial stocks slumped, with all big four banks deeply in the red. Australia’s biggest lender CBA lost 2.4 per cent, NAB was down 2.5 per cent, Westpac fell 2.1 per cent and ANZ shed 1.6 per cent. The Millionaires’ Factory Macquarie Bank declined 1.2 per cent.

Tech stocks followed the negative lead of their US peers, with WiseTech down 2 per cent, Xero losing 2.5 per cent and NEXTDC slumping 3 per cent.

The Australian dollar slumped, and traded at 67.11 US cents at 4.46pm AEST.

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On Wall Street overnight, the S&P 500 fell 2.1 per cent as growth and monetary policy anxieties combined to torch risky assets much as they did a month earlier.

Just as in the August episode, tech got hit the hardest, with AI giant Nvidia driving a plunge in chipmakers. And the parallels don’t stop there. The yen jumped, a closely watched manufacturing gauge again missed forecasts, and oil plummeted on concern about tepid global demand. Wall Street’s “fear gauge” – the VIX – soared. Treasury yields tumbled, with traders keeping their bets on an unusually large half-point Federal Reserve rate cut this year.

The Nasdaq 100 slid 3.3 per cent. The Dow Jones fell 1.5 per cent. The $US22 billion ($32.8 billion) VanEck Semiconductor ETF saw its biggest plunge since March 2020, with Nvidia down 9.5 per cent. Boeing sank 7.3 per cent on an analyst downgrade.

With inflation expectations fairly anchored, attention has shifted to the health of the US economy as signs of weakness could speed up policy easing.

Swap traders are anticipating the Fed will reduce rates by more than two full percentage points over the next 12 months, which would be the steepest drop outside of a downturn since the 1980s.

The Morgan Stanley strategist who foresaw last month’s market correction says firms that have lagged the rally in US stocks could get a boost if Friday’s jobs data provide evidence of a resilient economy. A stronger-than-expected payrolls number would likely give investors “greater confidence that growth risks have subsided,” Michael Wilson wrote.

With inflation expectations fairly anchored, attention has shifted to the health of the economy as signs of weakness could speed up policy easing.

While rate cuts tend to bode well for equities, that’s not necessarily the case when the Fed is rushing to prevent a bigger US slowdown. The trepidation regarding the latest rise in the unemployment rate will leave traders “on edge” until Friday’s payrolls data is in hand, said Ian Lyngen and Vail Hartman at BMO Capital Markets.

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“This week’s jobs report, while not the sole determinant, will likely be a key factor in the Fed’s decision between a 25 or 50 basis-point cut,” said Jason Pride and Michael Reynolds at Glenmede.

Treasury 10-year yields fell five basis points to 3.85 per cent. A record number of blue-chip firms are swarming the corporate-bond market, taking advantage of cheaper borrowing costs ahead of the US presidential election. The yen climbed as Bank of Japan governor Kazuo Ueda reiterated the central bank will continue to raise rates if the economy and prices perform as expected.

Traders are projecting the Fed will cut its rate by a full percentage point by the end of the year, implying an unusually large half-point reduction at one of the three meetings left in 2024.

What’s more, they are anticipating that the central bank will reduce its benchmark rate by more than two full percentage points over the next 12 months, which would one of the steepest falls since the 1980s.

Tweet of the day

Quote of the day

“One of the balances that the RBA considers is unemployment,” Future Fund chair Greg Combet said. “And to have an unemployment rate of around 4.2 per cent is a good outcome in this environment.”

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Mark Fitzgibbon, the departing chief of NIB, one of Australia’s biggest health insurers, has warned that premium rises may need to return to pre-COVID-19 pandemic levels, with increases of up to 6 per cent, to cope with a pandemic recovery sparking a surge in customer claims for services such as elective surgery.

Bloomberg

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