The lowdown
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In corporate news, Qatar Airways is in talks to take up to a 20 per cent stake in Virgin Australia, according to a report in The Australian Financial Review. The deal, set to dramatically shake up the country’s aviation industry, would come amid private-equity-owned Virgin’s stalled plans to relist its shares on the ASX.
More broadly, IG Australia market analyst Tony Sycamore said the fallout from Wednesday’s red-hot inflation numbers rocked the local market for a second day.
“Yesterday’s rise in the Reserve Bank of Australia’s preferred measure of inflation to 4.4 per cent in May puts it on track to comfortably beat the RBA’s own forecast for June,” he said. “This means it will likely take a significant and unlikely downside surprise in June inflation data to prevent the RBA from delivering a 14th rate hike to 4.60 per cent before year-end. The ASX 200 and its interest-rate-sensitive sectors are not big fans of higher interest rates.”
The local losses come after major US stock indexes eked out modest gains after a choppy trading session overnight, with investors holding their cards close to their chest ahead of a presidential debate and an inflation report closely watched by Federal Reserve policymakers.
The S&P 500 closed 0.2 per cent higher at 5477.90, while the Dow Jones Industrial Average was flat. The Nasdaq Composite rose 0.5 per cent.
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The US Federal Reserve has been projecting only one interest rate cut this year, in December. But investors see a 56.3 per cent chance of a 25 basis point rate cut in September, and about two cuts by year-end, LSEG’s interest rate probabilities app showed.
A renewed bout of volatility hit AI giant Nvidia, which slipped during its annual shareholder meeting but ended up with a gain of 0.3 per cent. The poster child of the artificial-intelligence frenzy has been on a rollercoaster ride, mostly driving broad-market direction.
However, big tech fell in late trading after Micron Technology’s outlook failed to meet the lofty expectations for the AI industry that has driven the bull market.
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“The stock market is way too reliant on big tech — period and end of story,” said David Bahnsen at The Bahnsen Group. “Whether or not the past week’s volatility in tech is the start of something deeper or if that reckoning is still forthcoming remains to be seen, but excessive investor sentiment, euphoria and overdone momentum always ends the same.”
For the coming earnings season, the “Magnificent Seven” megacaps are still expected to account for the bulk of the growth for the overall S&P 500, according to Ryan Grabinski at Strategas.
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“This is a banking code with teeth,” said Australian Banking Association chief executive Anna Bligh as the corporate regulator approved the ABA’s updated rule book, which extends protection to 10,000 additional small businesses.
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