ASX retreats as retailers fall, tech stocks gain; Nick Scali tanks

The Australian sharemarket declined in early trade on Thursday, despite a strong lead from Wall Street where strong results from SpaceX and other big companies boosted sentiment. Nick Scali shares plummeted after a profit warning.

The S&P/ASX 200 was down 42.3 points, or 0.5 per cent, at 8789 at around 11.15am AEDT, with eight of its 11 sectors in the red. The weak start comes after a volatile session on Wednesday, where the local bourse swung between gains and losses before closing 0.2 per cent higher.

The Australian dollar was stronger at US70.35¢ after hawkish Reserve Bank comments on Wednesday, which boosted rate hike bets for next month.

Energy shares and retailers led early declines, while the mining and banking heavyweights were also struggling. Tech stocks advanced, tracking the positive sentiment for the sector in the US.

Shares of furniture retailer Nick Scali dived 15.3 per cent after warning its sales in the December half will be 11 per cent to 14 per cent below last year’s as consumers tightened their belts after the federal budget in May. Hit by lower demand amid the cost-of-living crisis and rising interest rates, it expects net profit to fall my as much as 32 per cent to $28 million to $32 million in the period.

The profit warning weighed on other retailers, with fellow furniture seller Harvey Norman down 2.9 per cent, while Bunnings and Kmart owner Wesfarmers fell 2.3 per cent, electronics retailer JB Hi-Fi lost 2.2 per cent and Rebel sports store owner Super Retail Group shed 2.4 per cent.

Expectations of another rate hike as early as next month have been rising after Reserve Bank deputy governor Andrew Hauser said this week Australia’s inflation outlook looked “materially worse” than predicted in August, citing higher oil and technology prices. He warned mortgage holders and businesses the bank is facing “hard choices” in its bid to bring down inflation amid warnings it risks pushing the country into recession.

Traders price about a 43 per cent chance of a rate hike at the end of the RBA’s two-day meeting on November 3, up from about 30 per cent before Hauser’s comments. A 25 basis point rate hike is all but fully priced for February, brought forward from expectations it may occur in May.

On the energy front, oil rose again overnight following a deadly attack on a Saudi oil field, raising concerns that escalating hostilities in the Middle East could hit supply even as exports through the Strait of Hormuz have accelerated in recent months.

West Texas Intermediate climbed toward $US98 a barrel, while Brent jumped above $US110 in post-settlement trading. A drone strike on Saudi Aramco’s Shaybah field killed two people, although operations were unaffected. Meanwhile, the US has ordered the departure of some personnel and family members from American embassies in the kingdom.

Local energy stocks were down, however. Santos fell 0.9 per cent after its latest production report, while Woodside shed 4 per cent and refiner Ampol edged down 0.4 per cent.

The Big Four banks were mixed. CBA and National Australia Bank both slipped 0.2 per cent and Westpac was down 0.8 per cent, while ANZ Bank rose 0.4 per cent.

Iron ore giant Fortescue fell 1.7 per cent after warning its operations may be affected if the tough pricing negotiations with China’s state-backed buyer aren’t concluded by year-end. The nation’s third-largest miner has become targeted by China’s push to force down iron ore prices, putting future revenues from its single biggest market under pressure.

Bigger rivals BHP and Rio Tinto, which have been pivoting towards copper to tap demand for the red metal in the AI boom and reduce their reliance on ore, fell 1 per cent and 1.5 per cent, respectively.

In the property sector, Mirvac was down 2.1 per cent after the developer said its residential sales slumped 44 per cent in the latest quarter to 429 net deposits and lots exchanged, as demand was hit by the RBA’s rate hikes and property tax changes. Stockland shed 1.3 per cent.

Meanwhile, tech companies continued their relief gains after encouraging earnings from tech and AI companies on Wall Street, which helped boost confidence in the tech trade.

Software maker WiseTech rose 1.7 per cent and cloud connections provider Megaport climbed 5.8 per cent. Embattled data centre operator NextDC jumped 7.9 per cent, paring back a fraction of its more than 40 per cent slump on Wednesday when it gave a profit warning over community backlash to extend its major data centre in Melbourne.

On Wall Street overnight, the S&P 500 added 0.6 per cent and pulled within 0.8 per cent of its all-time high set earlier this month. The Dow Jones Industrial Average gained 360 points, or 0.7 per cent, and the Nasdaq composite climbed 1.1 per cent.

SpaceX helped lead the market and climbed 7.8 per cent after reporting a stronger profit than analysts expected. Elon Musk, who runs the company that makes money from artificial-intelligence technology, rockets and other businesses, also said that SpaceX took a step to consider a possible merger with Tesla, his electric-vehicle company.

Reporting after the closing bell, Tesla beat Wall Street estimates for third-quarter revenue as a rebound in vehicle deliveries and growth in its energy storage unit lifted sales, even as heavy spending on AI and robotaxis weighed on profit. Its shares rose more than 1 per cent in extended trading after a 3.4 per cent gain in regular trade.

The automaker reported revenue of $US28.1 billion ($40 billion) for the three months ended September 30, compared with analysts’ average estimate of $US27.9 billion, according to data compiled by LSEG. Revenue was $US28.1 billion in the year-earlier quarter.

Meta also exceeded Wall Street estimates in its third-quarter earnings, reporting revenue of $US64.6 billion for the quarter, up 26 per cent from a year earlier. Meanwhile, a judge has ordered Meta to pay New Mexico $US25 billion after a jury found the company liable for deceiving users about privacy and content moderation policies on Facebook.

Judge Francis Mathew handed down the amount. The state had sought $US35 billion to $US40 billion. Jurors in September found Meta liable for over 43 million violations of New Mexico consumer protection laws when a political consulting firm, Cambridge Analytica, harvested Facebook user data to generate targeted political ads for the 2016 election. Meta will release its results after the closing bell.

Other stocks rallying on profit reports that topped analysts’ expectations included Capital One Financial, which rose 2.5 per cent, and Winnebago Industries, which climbed 10.7 per cent.

Expectations are high for profit growth for all kinds of companies during the summer, and they need to meet them to justify the big runs their stock prices have made despite worries about high inflation, higher interest rates and other challenges weighing on Wall Street.

Winnebago was able to report a more resilient profit than expected even as high fuel prices and frustration among US shoppers restrain interest in recreational vehicles, for example. CEO Michael Happe said its more expensive towable RVs are a tougher sell, but customers are interested in its “more accessible” offerings.

On the losing side of Wall Street was Netflix, which fell 5.3 per cent even though the streaming service reported a stronger profit than analysts expected. Investors focused instead on worries that Netflix’s momentum may be slowing. The company’s forecast for revenue growth in the final three months of the year fell short of analysts’ expectations.

AT&T fell 6.4 per cent even though it likewise delivered a stronger profit for the latest quarter than analysts expected. It gave a forecast for growth this year in an underlying measure of earnings before income taxes and some other things that fell short of some analysts’ expectations.

Among AI stocks, which have been at the centre of the market’s action in recent weeks, the movements remained unsettled.

After leading the rest of the market for years because of the frenzy around AI, stocks in the industry have become shaky on worries that the build out of data centres may slow because of how much more expensive it’s become to borrow money.

CoreWeave, which has borrowed money to buy AI chips that it rents out to customers over the cloud, has been particularly volatile. Its stock bounced between an early gain of nearly 4 per cent and a drop of 4.5 per cent Wednesday morning before finishing with a dip of 0.5 per cent. Other AI-linked stocks were more resilient, and Nvidia’s rise of 2.5 per cent was the strongest force lifting the S&P 500.

In the bond market, the yield on the 10-year Treasury erased an early dip and climbed back to 5.12 per cent, where it was late Tuesday.

with AP, Bloomberg

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