Gold miners lead ASX lower as Wall Street slumps on inflation report

The Australian sharemarket has ticked lower in early trade on Wednesday, tracking losses on Wall Street after a report showed US inflation was worse than expected last month, fuelling interest rate concerns.

The S&P/ASX 200 was down 18.9 points, or 0.2 per cent, at 9110.10 at around 10.45am AEDT, with losses in mining stocks outweighing modest gains across most other sectors. The soft trading comes after the ASX jumped 1.1 per cent on Tuesday, buoyed by a plunge in oil prices amid hopes for an end to the Iran war. The Australian dollar was flat at US68.66¢.

Materials stocks were the biggest drag on the local market, with iron ore and copper giants BHP and Rio Tinto down 1.3 per cent and 1.9 per cent. Their losses were outdone by the gold miners, which slumped following America’s hotter-than-expected inflation data. Northern Star Resources slid 3 per cent, Evolution Mining shed 2 per cent and Newmont dropped 3.2 per cent.

Gold extended its decline as the data and remarks from policymakers reinforced bets that the Federal Reserve will raise interest rates next month. Bullion fell as much as 2.8 per cent to trade below $US4030 an ounce. Higher rates are a headwind for gold, which doesn’t pay interest.

The mining heavyweights’ losses were countered by gains in financial stocks, with the Big Four banks all trading higher. Commonwealth Bank was up 1 per cent after saying its first-quarter profit climbed 8 per cent to $2.8 billion as growth in loans to businesses offset struggles in mortgages during the housing slump. Westpac also gained 1 per cent, ANZ Bank was up 1.1 per cent and National Australia Bank - the country’s biggest business lender - edged up 0.3 per cent.

Consumer stocks were also stronger. Bunnings and Officeworks owner Wesfarmers added 0.7 per cent and supermarket giants Woolworths and Coles rose 0.5 per cent and 0.9 per cent, respectively. Tech stocks advanced, with software makers WiseTech and Xero up 0.9 per cent and 1.5 per cent. Family tracking app Life 360 jumped 7.7 per cent, rebounding from its sell-off on Tuesday.

Oil stocks were slightly higher even as Brent crude fell further overnight, briefly slumping below $US90 a barrel, as technical factors helped deepen a selloff driven by expectations of further de-escalation in the Iran war. US President Donald Trump, facing domestic pressure to end the conflict, said further strikes on Iran wouldn’t be necessary. Democrats, who swept midterm elections, are now weighing whether to use a looming government shutdown deadline to push Trump to find an off-ramp. Woodside shares rose 0.4 per cent and Santos gained 0.5 per cent.

On Wall Street overnight, the S&P 500 slipped 0.4 per cent and gave back some of its big rally from the day before. The Dow Jones Industrial Average dropped 0.3 per cent, and the Nasdaq composite sank 0.7 per cent.

Pressure from the bond market undercut stocks following the discouraging report on inflation. Americans had to pay more for groceries, electricity and other costs of living last month than what economists had expected. That could push the Fed to hike its main interest rate at its next meeting in December and beyond.

Higher interest rates can help rein in inflation, but they do so by making it more expensive for everyone to borrow money and by slowing the overall economy. Higher rates also make investors less willing to pay high prices for stocks and other investments.

One Fed official even hinted the central bank may increase the federal funds rate by double the typical amount next month because of how high inflation has remained for years.

Speaking in London before the inflation report was released, Fed Governor Christopher Waller said “a stronger policy move may be needed” if the report showed an important underlying measure of inflation rose by 0.3 per cent from September.

In that case, he said the Fed should consider hiking the federal funds rate by half a percentage point rather than the typical quarter point. Moving by only the usual amount could “put our credibility at risk, a risk I am not eager to take.”

Shortly afterward, Tuesday’s inflation report showed that the underlying measure of inflation Waller was worried about was exactly 0.3 per cent, the threshold he had set. That sent yields jumping in the bond market as traders upped their forecasts for coming hikes to rates by the Fed.

The yield on the 10-year Treasury leaped to 4.99 per cent from 4.88 per cent late on Monday. It’s a notable move for the bond market, and the yield helps set where rates are for mortgages and other loans going to US households and businesses.

The 10-year Treasury yield had been dropping since early October, when it topped 5.30 per cent as worries spiked about high inflation, higher interest rates, the US government’s big debt and other concerns.

Jumps in Treasury yields push downward on prices for all kinds of stocks, and they can particularly hurt companies in the real-estate business.

Higher mortgage rates can keep potential customers away from homebuilders, for example, and Lennar fell 5.4 per cent for one of the sharper losses in the S&P 500.

The single heaviest weight on the S&P 500 was Nvidia, which fell a further 5.5 per cent. It’s been under pressure since its board announced an investigation into its CEO, Jensen Huang, who admitted to a relationship with a woman who, according to The New York Times, US intelligence determined was gathering information for China.

It’s also been swinging amid broader worries that have knocked the artificial-intelligence industry around recently. Democratic victories in statehouses across the country last week raised concerns about possible restrictions on construction of AI data centres. That built on top of longstanding worries that AI stock prices had shot too high and were in a bubble.

The recent shakiness for AI-related stocks had raised questions about whether Anthropic, the company behind the Claude chatbot, may delay its initial public offering of stock.

But Anthropic said in a filing with US regulators that it’s looking to sell its stock at a price valuing the company at up to $US1.4 trillion ($2 trillion). That would make it one of the most valuable companies on Wall Street, worth more than Walmart, JPMorgan Chase, ExxonMobil or Coca-Cola.

with AP, Bloomberg

The Market Recap newsletter is a wrap of the day’s trading. Get it each weekday afternoon.