ASX drops, dragged down by banks and miners

The lowdown:

RBC Capital Markets head of equities Karen Jorritsma said a lack of volume in markets led to choppy trading but that the news flow from some of Australia’s biggest companies moved markets on Friday.

“The news flow from BHP and Rio Tinto haven’t been as good as people would have hoped,” she said.

Industrials (up 0.7 per cent), meanwhile, traded higher after some positive updates from companies including unit-equipment pooler Brambles, which Jorritsma said provided a “really strong” trading update on Thursday.

Looking forward, Jorritsma said traders would be watching out for more quarterly reports from energy and resources companies, as well as macroeconomic indicators.

“Investors will be looking for signs of economic growth, margin compression and whether we’re seeing results of the RBA’s rate hikes,” she said.

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Stocks on Wall Street fell following mixed earnings reports from big companies and more signals the US economy may be slowing.

The S&P 500 fell 0.6 per cent after drifting listlessly earlier this week. The Dow Jones slipped by 0.3 per cent while the Nasdaq composite dropped by 0.8 per cent.

Tesla weighed heavily on the market for a second straight day on worries about how much profit it’s making on each of its electric vehicles. It dropped 9.7 per cent after reporting revenue for the first three months of the year that fell short of analysts’ expectations as it repeatedly cut prices on its models.

Tesla cutting prices “is good for inflation”, said Rob Haworth, senior investment strategist at US Bank Wealth Management. “But for the market, the question has to be: you’re cutting prices again, it seems like we’re not seeing enough demand on the auto side.”

“It’s still working its way through the system, higher rates for everyone. It’s more costly to buy a car, more costly to buy a house from a financing perspective.”

AT&T sank 10.4 per cent after it reported slightly weaker revenue than analysts forecast, though profit squeaked past expectations. Analysts also pointed to weaker-than-expected cash flow. It was the worst day for its stock in two decades and its second-worst since late 1983.

In the bond market, yields fell following a couple of reports on the US economy.

Slightly more workers filed for unemployment benefits last week than the week before, a potential signal that a still-strong job market is starting to soften under the weight of much higher interest rates.

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A separate report said that manufacturing trends in the mid-Atlantic region weakened by much more than economists expected.

They helped drag the yield of the 10-year Treasury down to 3.53 per cent from 3.59 per cent late Wednesday. The two-year yield, which more closely tracks expectations for the Federal Reserve, fell to 4.14 per cent from 4.25 per cent.

Broadly, the majority of companies have been topping profit forecasts so far in the early days of this reporting season. That’s likely in large part because expectations were quite low coming into it.

Analysts were forecasting this would mark the sharpest drop in S&P 500 earnings per share since the pandemic was pounding the economy in 2020. Profits are under pressure as inflation remains high, interest rates are much higher than a year ago and portions of the economy slow.

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Mining giant BHP says Indian steelmakers and China’s economic rebound will prop up demand for some of Australia’s largest commodity exports, helping to offset the impact of slowing growth in the US, Japan and Europe.

With AP

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