One day up, one day down seems to be the mantra for tech investors as US markets were dragged backwards by renewed selling of technology companies on Wall St overnight.
Inflation fears are also following that pattern: on Wednesday the market seemed to be taking inflation in its stride and by Thursday the sentiment had reversed … again.
Is it the market, or the fickle nature of human beings causing the uncertainty?
Fed Reserve CEO James Bullard indicated four rate hikes were on the cards in 2022.
That didn’t help.
Market analyst Craig Erlam said interest rates and inflation “will keep investors on their toes. Underlying anxiety in the markets… could make for some volatile price action for the foreseeable future.
“It does seem that investors are on the edge of what they will tolerate, and it won’t take much to push them over the edge,” he said.
The Dow Jones Industrial Average lost 0.6%, the broader S&P 500 declined 1.4% and the tech-heavy Nasdaq Composite dropped 2.5%, with Microsoft, Netflix and Atlassian (NASDAQ:TEAM) all declining.
Hayman Capital Management founder and chief investment officer Kyle Bass says that if interest rates do continue to rise next year, the market is in for a torrid time.
“With interest rates concurrently with quantitative tightening, there’s no way the stock market goes up this year, it probably goes down pretty aggressively, if they stick to that plan,” Bass told CNBC on Thursday.
“I think they are going to have to back away from that plan, once they start hiking,” the hedge-fund manager said.
Wall St performance is generally an indicator of ASX performance and with that in mind, the ASX is set to open down this morning.
ASX SPI 200 futures were 0.5% lower to 7329 as of 8.08am AEDT.
Here’s what we saw (source Commsec):
- The Aussie dollar fell from highs near US73.13 cents to lows near US72.74 cents and was near US72.80 cents at the US close.
- Global oil prices eased on Thursday.
- The Brent crude price fell by US20 cents or 0.2% to US$84.47 a barrel.
- The US Nymex crude price lost US52 cents or 0.6% to US$82.12 a barrel.
- Base metal prices were mixed.
- Nickel rose by 0.8% to the highest level since 2011.
- Copper eased by 1.1% from three-month highs despite supply concerns.
- Tin fell by 2%.
- The gold futures price fell by US$5.90 or 0.3% to US$1,821.40 an ounce.
- Spot gold was trading near US$1,822 an ounce at the US close.
- Iron ore dipped by US$3.65 or 2.8% to US$127.95 a tonne.
Australian markets
Jewellery retailer Michael Hill International Ltd (ASX:MHJ) looks to have captured attention after delivering record Christmas results in the face of store closures.
In the second quarter of the 2022 financial year, all stores sales were up 9.8% to $217.5 million despite 2381 lost store trading days. Same store sales were up 9.6% on the prior year to $204.2 million.
Looking at Australian operations, same stores sales were up 5.2% and all stores sales were up 2.2% despite store closures in most states and territories.
“The successful planning and execution of Christmas underpinned this outstanding result,” CEO Daniel Bracken said.
“From the highly engaging and emotive marketing campaign, to the deployment of new digital initiatives, excellence in supply chain and inventory management and our Christmas recruitment strategy, all came together to deliver Michael Hill’s best Q2 in the company’s history.”
First half FY22 group comparable earnings before interest and taxes of $49 million to $53 million, up from $44.6 million in the prior comparable period are expected.
Unions to pile on wage pressure
The Australian this morning reported that unions are set to put huge wage pressure on employers, many of whom have been hard hit by the pandemic.
Journalist Ewin Hannan wrote, “Employers have warned increased industrial action by unions in pursuit of 'unsustainable' wage claims would threaten jobs and 'cripple' businesses as they emerged from the pandemic. Key unions have vowed to pursue 'significant' annual pay rises of at least 3% in 2022, declaring frustrated workers were 'itching' to strike in support of new wage claims.”
What does that mean for employers?
While some have done well in the pandemic with consumers turning to local goods, many have been faced with huge operational debts including rents for offices they haven’t been able to use and staff that have barely worked.
Could hospitality businesses really afford a wage hike? Could those working in the arts or tourism pay more?
And what about CBD businesses that rely on city workers?
Meanwhile Omicron is ripping through supply businesses causing all sorts of supply chain and employment issues.
Australian Industry Group chief executive Innes Willox has called for any pay rises to be moderate.
“During the recovery from the pandemic it is important that wage increases are moderate and sustainable,” Willox told The Australian.
“The last two years for most businesses have been very tough and it is not in anyone’s interests for there to be an outbreak of unsustainable wage claims and associated industrial action. Such actions threaten jobs and business viability. It is time for everyone to pull together to support the recovery rather than unions seeing an opportunity to make unsustainable wage claims.”
Financial commentator Peter Switzer writes in his column: “Inevitably, unions have to do their job and fight for pay increases for their members but in 2022, with Omicron delaying the start of the expected boom for the economy, it just makes more sense that the push on wages should more be for next year.
“The mental condition of job creators called bosses or employers, who might have their house on the line, could’ve had kids at home trying to learn or babies testing out their lungs crying, a new curveball of a higher wage bill could simply see them do a Roberta Duran, who while boxing Sugar Ray Leonard, exclaimed “No Mas!”. And if your Spanish isn't real hot, that translates to “no more.”
US markets
Most of the talk has been about inflation and the potential for several interest rate rises this year, however in other important news the US government's pandemic control measure to mandate vaccines or testing rules at large employers has been rejected by the Supreme Court.
The mandate would have affected more than 80 million workers. That number is now 20 million as the court did allow the measure to be mandated for healthcare workers.
Had the mandate passed, all companies with 100 or more employees would have had to enforce vaccinations or have unvaccinated employees wear masks and be subject to weekly tests.
On the market megacap technology shares suffered with Tesla Inc (NASDAQ:TSLA). down 6.8%, Microsoft falling 4.2%, Amazon losing 2.4% and Apple down 1.9%.
Shares of Snap plunged 10.2%.
At the close of trade, the Dow Jones index fell by 177 points or 0.5% after lifting 223 points earlier in the session. The S&P 500 index lost 1.4% and the Nasdaq index dropped 382 points or 2.5%.
European markets
European stocks were also muted, highlighted by losses in defensive sectors.
There was good news for automakers and technology stocks in Europe on hopes of improving semiconductor supply.
Equiti Capital analyst David Madden believes European stocks could struggle this year.
“We’re going to see some companies particularly in the retail space, manufacturing sectors start talking about lower margins.”
The pan-European STOXX 600 index ended flat. Shares of household goods dropped by 1.2% while autos shares gained 1.6%. The German Dax index rose by 0.1% and the UK FTSE index gained 0.2%. In London trade, shares in Rio Tinto (+0.2%) and BHP (+1.1%) both lifted.