Australian shares flat as BHP declines; retailers gain

The lowdown:

Wealth Lander chief investment officer Jerome Lander said markets were weighing up optimism that inflation may be cooling globally with concerns of a global downturn.

“There’s optimism that we might be coming up to the end of the rate-hiking cycle because inflation globally isn’t surpassing expectations any more,” he said. “But we’re headed towards recession globally because there’s major resistance in markets coming up, and we’re waiting for the full effects of interest rate tightening to kick in. In the medium term, we’re set for further challenges from earnings and geopolitical tensions.”

Lander also attributed the slowdown in markets to a wearing off of the “January effect” – where investors sell poorly performing assets at the end of the year to harvest a tax loss and reinvest to boost returns in January.

Australian market movements on Tuesday didn’t surprise Lander, who said the largely flat result indicated a period of indecision. “The US market was closed yesterday, so Australia is waiting to see how overseas markets react,” he said. “Generally defensive sectors like consumer staples and healthcare do better when the market is down.”

The MSCI ACWI Index, a gauge of global equities, stalled after its best start to a year in a generation as investors assessed whether the rally had gone too far given the outlook for inflation, growth and earnings.

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Meanwhile, US spot markets were closed for a holiday but futures on the S&P 500 and Nasdaq 100 indexes fell at least 0.2 per cent each, the yield on 10-year Treasuries was little changed at 3.5 per cent, and the US dollar snapped a three-day losing streak. European stocks were boosted by gains in real estate companies.

While inflation in the US appears to have peaked, aggressive policy tightening by the Federal Reserve and other central banks risks pushing the global economy into a recession that could hurt corporate profits. The World Bank last week added to the gloomy outlook, warning of “one of the sharpest slowdowns we have seen in the past five decades”.

“It’s been quite a frantic start to the year, so investors may be capitalising on the opportunity to catch their breath,” Craig Erlam, a senior market analyst at Oanda Europe, wrote in a note. “The question now is whether earnings season will enhance that new sense of hope or spoil the party before it really gets going. A bad earnings season could undermine hopes of a soft landing that looks more possible now than it has for many months.”

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Earnings will be a key catalyst on Wall Street this week as traders assess whether companies were able to navigate headwinds including higher interest rates. The busy period will also be punctuated by corporate earnings, including Wall Street heavyweights Goldman Sachs and Morgan Stanley.

Several Fed officials will be speaking this week, providing more clues on their policy priorities. The World Economic Forum’s annual meeting kicks off in Davos, Switzerland, with speakers there including European Central Bank President Christine Lagarde and the International Monetary Fund’s Kristalina Georgieva.

Meanwhile, Japanese markets continued to be driven by speculation of a shift in monetary policy, with the Topix index trading lower as the yen’s rebound weighed on exporters.

Investors are on guard for another surprise from the Bank of Japan when it sets policy on Wednesday. The yen strengthened to levels last seen in May and Japan’s benchmark 10-year bond yield pushed above the top of the BoJ’s ceiling for a second day.

Bitcoin fluctuated between gains and losses on Monday, following a rebound over the weekend, when it surged amid optimism that it may have bottomed.

Tweet of the day:

Quote of the day:

“The consequences of climate change and the increased frequency of natural disasters are intersecting with Australia’s unfit built environment and creating material underwriting challenges for insurers and banks, with insurers the most materially exposed in the short-to-medium term,” Suncorp chief executive Steve Johnston wrote in a witness statement to the ACCC, as the financial services company looks to sell its banking arm to ANZ in a bid to keep insurance affordable.

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