The ASX went the way of the Matilda’s in their match against England last night; a late rally wasn’t enough to get it over the line.
The ASX200 fell 0.65% or 47.00 points to 7,148.20 today, setting a new 20-day low.
China’s downward pressure on resource stocks continued, with Core Lithium and Lake Resources taking the brunt and falling 24.31% and 8.51% respectively.
While there looks to be short-term pain ahead for those battery stocks, the outlook for critical minerals is still very rosy – critical mineral investment lifted by 30% last year and demand for future-facing minerals shows no signs of abating.
The sectors were, predictably, down. Healthcare took the biggest hit, falling -1.28%, while Real Estate made gains of 0.96% and Utilities and Energy just managed to hold steady with minimal gains.
While zinc (1.34%), West Texas crude (-2.24%) and palladium (-2.34%) slumped, some base metals managed to reverse their downward slides; copper gained 0.51%, nickel 0.90% and tin 0.85% although the three energy-related minerals are still down over the last five days.
Labour market shows signs of weakness
With inflation stabilising and business returning to normal, the consequences of interest rate hikes and inflated costs are beginning to make themselves known.
The ABS reported the national unemployment rate climbed 0.2% in July, to 3.7%. While still historically low, CreditorWatch chief economist Anneke Thompson believes this may be the first sign of businesses failing.
“The number of unemployed people in Australia climbed by almost 36,000, with almost all of this increase being felt in two states, Queensland and NSW,” Thompson pointed out.
“Given this increase in unemployed people, the unemployment rate in Queensland rose by a substantial 0.8% on a seasonally adjusted basis, to now be 4.5%.
“While this is only one month’s worth of data, and there is no consistent trend seen yet in weakness in the labour force in these two states, CreditorWatch’s Business Risk Index data has consistently highlighted areas in Western Sydney and South-East Queensland as being the most at risk of business failure.
“These areas have an above-average proportion of workers in casual or insecure work, and businesses that have been in operation for a relatively short period of time, and are therefore much more susceptible to fluctuations in demand.
“Overall, Australia’s unemployment rate remains low by historical standards, but there are clear signs now that more weakness in the labour force can be expected, given the deteriorating economic conditions, led by very weak consumer demand.”
Analysts expect lacklustre 2024 for US markets
US markets have had a solid run this last year, down from COVID highs but recovering from the initial shocks of late last year. Over the year, the Nasdaq has gained 3.93%, the S&P500 2.3% and the Dow 2.31%.
Unfortunately for US stocks, analysts don’t believe the upward run will last.
“Economic data in the US has been more resilient than expected, leading to upward revisions to the near-term growth outlook but we think there is room for disappointment,” Cardano chief economist Shweta Singh said.
“Headline GDP figures from the last quarter mask the slowdown in private consumption and weakening domestic demand in general.
“Separately, the UK economy has also been more resilient, in line with our expectations.
“Meanwhile, the large downside data surprises in the Eurozone are in line with our view that too much optimism was baked into the Eurozone outlook.
“More importantly, beyond this year, consensus continues to move towards our long-held view that economic growth through 2024 will be tepid, including in the UK and across Europe.
“Financial conditions, which are crucial leading indicators of economic growth are tightening globally. The demand and supply of credit are deteriorating and the balance sheet support for households and business balance sheets is dwindling.
“The Federal Reserve is most likely done with its rate hike cycle while the European Central Bank may hike once more, but the Bank of England may have further to go.
“A structurally tight labour market and sticky wage growth will force central banks to keep the policy stance relatively tight through 2024.”
Rosenberg Research president David Rosenberg agrees, stating that the stock market “simply does not understand – or more charitably, does not appreciate – the disinflation underway in China, the impact of the Fitch downgrade in terms of future fiscal policy making, the credit crunch that is sure to follow, and the end of the student debt relief program in the month ahead, which is sure to exert a dampening impact on the biggest spenders in the economy; the youth.”
“It would be one thing if the S&P 500 was priced for these imperfections, but instead it is priced for perfection,” he said.
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