The Australian market fell sharply, as oil prices hit a three-year high and prolonged COVID lockdowns across the country led to further decline in retail sales.
Key points:
- ASX 200 has fallen 3% since the start of the month
- Retail turnover fell 1.7% in August
- Brent crude has jumped 52% since January 1
The benchmark ASX 200 closed 1.5% lower at 7,276 points, erasing all of its gains from last week. Eight out of 10 stocks traded lower.
Oil and gas stocks posted the biggest gains, like Beach Energy (+ 10.5pc), Whitehaven Coal (+ 6.5pc), Origin Energy (+ 5.3pc), Woodside Petroleum (+ 5pc), Santos (+ 5.6pc) and Oil Search (+ 7.1pc).
Healthcare, mining and tech stocks were the worst performers, notably Fortescue Metals (-5.6 pc), Pro Medicus (-6.7 pc), Megaport (-4.6 pc), TechnologyOne ( -4.7 pc), Appen (-4.4 pc) and Xero (-6.4 pc).
The Australian dollar rose moderately to 73 cents US.
Retail turnover collapses
COVID closures continued to weigh heavily on Australian retailers as sales fell for a third consecutive month, according to the latest figures from the Bureau of Statistics (ABS).
Retail trade turnover fell 1.7% to $ 29.3 billion in August, after falling 2.7% in July and falling 1.8% in June.
The $ 360 billion retail sector accounts for around 18% of Australia’s economic output and further weakness is expected this month with Sydney, Melbourne and Canberra all locked down.
NSW, Victoria and ACT saw falls “in line with their respective levels of restrictions,” said Ben James, ABS director of economy-wide quarterly surveys.
“In stark contrast, states without lockdowns have performed well, with Western Australia and South Australia registering strong gains as physical stores are open to trade.”
“Another full month of foreclosure” saw NSW’s retail sales drop sharply. It fell 3.5% to its lowest level since April 2020.
Victoria’s turnover fell 3%. But ACT did even worse, as an instant lockdown on August 5 resulted in a 19.9% drop in retail sales in the territory.
Retailers are banking on increased vaccinations
While the economy as a whole is sure to contract sharply this quarter, relief is in sight with NSW just weeks away from easing restrictions as people flock to get bitten.
After an excruciatingly slow start, nearly 86 percent of New South Wales’ adult population have now received a first injection and 60 percent have received a double dose.
Yet the pandemic has also massively accelerated the adoption of online shopping by both consumers and retailers.
Online food sales have doubled from pre-pandemic levels, and even gourmet restaurants have stepped into the game, selling take-out and put-together gourmet meal kits at home.
Prolonged closures of physical stores across Australia led to massive drops in several areas last month. The largest declines were observed in the retail sale of clothing, footwear and personal accessories (-15.7pc), cafes, restaurants and take-out food services (-7pc), department stores (-10.2pc) and the retail sale of household items (-2.3pc).
“However, that doesn’t really do justice to the damage caused by these prolonged lockdowns,” said Callum Pickering, economist for job search website Indeed.
“Since May, covering a three-month period, spending on clothing and footwear is down 35%, department store spending down 26%, and coffee shop and restaurant spending down 23%.”
Soaring oil spurs energy sector
Energy stocks were boosted by oil prices, which surged for a sixth straight day as investors worried about squeezing supplies amid rising demand in parts of the world.
Brent crude futures rose 1.3% (to US $ 80.59 per barrel), their highest level since October 2018. This comes on top of its 1.8% surge overnight (during American and European trading sessions).
Investors remained bullish as the U.S. hurricane disruption to supply continues longer than expected at a time when demand picks up due to the easing of lockdowns and the wider rollout of the COVID-19 vaccination, ”said Chiyoki Chen, chief analyst at Commerce in the Sun.
Hurricanes Ida and Nicholas, which swept through the Gulf of Mexico in the United States in August and September, damaged platforms, pipelines and processing centers, cutting off most offshore production for weeks.
Also weighing on supply, Africa’s major oil exporters Nigeria and Angola will find it difficult to increase production up to quotas set by the Organization of the Petroleum Exporting Countries (OPEC) at least until next year, as underinvestment and lingering maintenance issues continue to hamper production, sources say to their respective oil companies.
Their battle mirrors that of several other members of the OPEC + group who cut production over the past year to support prices when COVID-19 hit demand, but fail to scale up production to meet global needs. fuel increases as economies recover.
The supply issues come as countries relax their movement restrictions related to COVID-19, potentially increasing demand.
Soaring oil prices are also fueling speculation that global inflation will prove to be more sustainable than expected, forcing central banks to act and benefiting so-called reflation investments, which rise alongside interest rates.
“Overall, it’s a positive story because we have a strong macroeconomic history underpinning everything,” said Fahad Kamal, chief investment officer at Kleinwort Hambros in London.
Mr Kamal noted that optimism had been reflected in central banks signaling their intention to phase out pandemic-era stimulus measures, which in turn increased bond yields (or borrowing costs for governments).
Technology Slips On Higher Rate Bets
US markets were mixed, with the industry-heavy Dow Jones index outperforming the Nasdaq index of technology stocks.
The Dow Jones closed 0.2% higher at 34,869 points. The S&P 500 lost 0.3% to 4,443.11, and the Nasdaq Composite lost 0.5% to 14,970.
“Tech stocks have a higher valuation, which means you are paying for future growth, and higher interest rates are a drag on future growth,” said Tim Ghriskey, chief investment strategist at Inverness Counsel in New York.
US Treasury yields (for 10-year bonds) continued their recent overnight march. They climbed to 1.5% for the first time since June on the basis of strong economic data and signal that the Federal Reserve is moving towards a more hawkish policy.
Spot gold fell 0.3% to US $ 1,744.62 an ounce.
ABC / Reuters
