ASX200 Afternoon Report September 1st 2022

The ASX200 trades 118 points lower at 6869 at 3.20 pm Sydney time.

With Wall Street still reeling from Fed Chair Powell's hawkish testimony at Jackson Hole, the last thing the ASX200 needed was a superstorm to hit the market on the first day of a new month.

A rise in European inflation overnight to a record 9.1% sets the scene for the European Central Bank to follow the Fed's lead and raise rates by a supersized 75bp when it meets next week.

An unwelcome prospect as the European economy strains under the weight of a horrific macro backdrop that includes an energy crisis and war in Europe, followed by another round of hawkish Fed Speak.

In prepared comments, Cleveland Fed President Mester channelled her inner Paul Volker, the ex-Fed Chairman infamous for bringing soaring inflation under control in the 80s by throwing the economy into not one but two U.S recessions.

"As Paul Volcker said as he fought inflation in the 1980s: '…failure to carry through now in the fight on inflation will only make any subsequent effort more difficult, at much greater risk to the economy,'"

U.S 2-year yields traded above 3.5% for the first time since 2007.

Playing on the market's sensitives around slowing growth and demand for commodities, a new round of lockdowns affecting millions of Chinese after fresh outbreaks of Covid-19 in key Chinese cities.

Hardly the backdrop for mining giant BHP to go ex-dividend $2.53, driving a 6.3% fall in the stock that shaved 44 points off the index alone. Joining the Big Australian in the red, FMG fell 2.93% to $17.88, Oz Minerals fell 1.56% to $25.32, and South32 fell 1% to $4.11.

After trading above $97.00 p/b early in the week, crude oil prices have collapsed below $89 p/b, locking in a 10% fall for August. The retreat came following the new round of lockdowns in China and hawkish Fed Speak, raising questions over economic growth and future demand for crude oil.

Beach Energy fell 3% to $1.65, Santos fell 1.85% to $7.75, and Woodside fell 1.6% to $33.70, leaving its move to a fresh year-to-date high earlier in the week, exposed as a false break higher.

The writing was on the wall for Buy Now Pay Later stocks today after reports that losses for Swedish BNPL stock Klarna had tripled in the first half of the year. Tyro Payments fell 10.6% to $1.09, Sezzle fell 6.72% to $0.63c, EML Payments fell 5.32% to $0.89c, ZIP fell 5% to $0.91c and Afterpay owner Block fell 3.1% to $99.20.

Often a sea of salvation on a dark day, the surety of the Big Bank's earnings has not stopped them from joining the rot. Westpac fell 1.3% to $21.33, CBA fell 1.16% to $96.32, NAB fell 1.03% to $30.27, and ANZ fell 0.6% to $22.69

Sparing the index further blushes the Consumer Staples sector, is the only sector to be trading higher on the day. Endeavour Group gained 2.7% to $7.46, a2M kept its revival on track as it added 2.34% to $5.68, and Coles added 1.37% to $17.80.

The break of key support 6960/40 area has dashed hopes for an immediate retest of resistance and the top of the range, 7130/50 area.

While the buying that supported the market from off this morning's 6836 low is encouraging, the ASX200 needs to reclaim 7000 to suggest the pullback from the 7137 high is complete and the uptrend resumed.

Source Tradingview. The figures stated are as of September 1st, 2022. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

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