ASX End Of Day Wrap

Australian Market Recap: S&P/ASX 200 Declines, Tech Takes a Hit as Energy and Defensive Sectors Ascend

The S&P/ASX 200 concluded the trading day 18 points lower, marking a dip of 0.26%.

In a notable shift, investors redirected funds from high-performing tech equities into underperforming sectors such as energy and defensives on Thursday. Meanwhile, Australia’s trade surplus has shrunk due to a slump in iron ore exports, Japan’s GDP growth outperformed predictions, retail stocks continue their downward trajectory as consumer savings decrease, and Citi provides insights on Australia’s GDP data.

Market Overview

Major Indices, with the ASX 200, All Ords, Small Ords, All Tech, and Emerging Companies, closed down between 0.26% and 2.53%. Among the sectors, energy, utilities, materials, consumer staples, and industrials posted modest gains while financials, health care, communication services, consumer discretionary, real estate, and information technology ended the day with losses. The AUD/USD was up 0.13% whereas the US Futures, including the S&P 500, Dow Jones, and Nasdaq, also declined.

Market Movements

The ASX 200 experienced a downturn amidst a significant rotation from leading sectors (tech) to lagging sectors (energy and defensives). Major names in the tech sector, including Xero (-5.3%), Wisetech (-3.4%), and Altium (-4.9%), saw aggressive sell-offs. This denotes the first significant tech pullback since mid-May, prompting questions around whether this marks a period of consolidation for the sector after an extended rally, and if so, whether this presents an opportunity for the underperforming sectors to take the lead.

Economic Insights

Australia’s trade surplus contracted to $11.2bn in April, down from $14.8bn the previous month. This was due to a 5.0% decrease in overall exports for April, reflecting a dip in commodity prices and a decrease in shipments to China.

On the other hand, Japan’s Q1 GDP growth surged to 0.7% from 0.1% in the previous quarter, surpassing consensus expectations of 0.5%. On a year-on-year basis, GDP increased 2.7%, versus an expected 1.9%. Capital spending saw a 1.4% rise, with manufacturers’ business spending growing at its fastest rate since 2015.

Stock Movements

Several stocks in the energy and coal sectors witnessed a positive move, including Woodside (+1.1%), Beach Energy (+3.5%), New Hope (+8.6%), Whitehaven (+5.5%), Yancoal (+4.4%), and Stanmore (+4.3%). On the flip side, the retail sector, represented by stocks such as Lovisa (-5.2%), Premier (-3.3%), and Super Retail (-2.4%), suffered losses alongside technology stocks like Xero (-5.3%), Altium (-4.9%), and Wisetech (-3.4%).

Macro Insights

Citi shared their analysis on the Australian GDP data and their forecasts for the economy. They acknowledged a moderate pickup in consumer spending but pointed to decreasing consumer savings as a potential headwind for the retail sector. Citi also noted that higher commodity prices have significantly boosted Australia’s terms of trade, contributing to the country’s economic recovery. However, this is at risk if China’s demand for Australian commodities continues to decrease.

Wrap-Up

As the day closed, there was a noticeable shift of investor preference from high-performing tech stocks to the relatively underperforming energy and defensive sectors. The movements in Japan’s GDP and Australia’s trade surplus provided mixed signals about the broader economic landscape, while the outlook for the retail and tech sectors remained challenging in the face of decreasing consumer savings and tech pullback, respectively.