Evening Wrap: ASX 200 slumps as record copper price fails to spark miners – rising energy prices stoke inflation and rate hike fears

The ASX 200 fell across every sector as Brent crude broke through US$100 per barrel overnight for the first time since the interim Iran deal in mid-July, stoking fresh inflation fears and sending benchmark bond yields surging — hammering technology, miners, and consumer stocks equally. The only shelter was found in utilities, gold, healthcare, and insurers, and even there the gains were modest.

Be sure to click/scroll through for the usual reporting of the major sector and stock-specific moves, the broker responses to them, as well as all the key economic data in tonight's Evening Wrap. Also, I have detailed technical analysis on the Nasdaq Composite and the S&P/ASX 200 in today's ChartWatch.

Let’s dive in!

The S&P/ASX 200 (XJO) finished 92.0 points lower at 8,819.4, roughly mid-range at 0.9% from its session low and 1.0% from its high. Despite the benchmark halving its intraday decline, in the broader-based S&P/ASX 300 (XKO) advancers lagged decliners by a miserable 61 to 214.

Let's start with the problem. Then we'll get to the damage.

And to be fair, whilst the two charts below are the main reason for our share market's pain today, they rose for slightly different reasons (sure, no doubt there was some overlap there too!).

US 10-Year T-Bond Yield (top) and US 30-Year T-Bond Yield (bottom)

The reason yields at the shorter end of the curve rose, 1's, 2's and 10's, is the continued surge in the oil price, but not just brent now... Key European natural gas futures are also rising in an ominous fashion – suggesting that the problems in the Middle East have run more than long enough to bleed into other areas of the energy commodity markets. (You've already heard me discuss here and in webinars the moves in coal prices).

Dutch TTF Natural Gas Futures (Front month, back-adjusted) NYMEX. Complete the sentence: "History doesn't repeat, but it sure does ______."

The mechanism is simple: higher energy prices = higher inflation = higher official interest rates = greater compensation required by bond holders to lock their cash away in an Uncle Sam IOU for an extended period of time (due to the time value of money). Bond prices fall, pushing their yields higher.

Higher benchmark yields – they're risk-free returns remember – makes the return on risky assets like shares much less attractive (yes Brian, even the blue chip shares in your portfolio are risky!). Risk managers (i.e., fund managers) adjust prices of shares accordingly.

In theory, companies with the most distant promises of earnings (we call these "long duration"), those exposed to an ever-more-pressured consumer, or those with bond-like earnings and distributions are usually hurt the most (we call these "bond-proxies").

The reason yield on the 30's rose was probably some of the above (its not immune to the short term outlook on inflation and rates), but mainly due to the US Treasury's announcement it would buy $6 billion of longer dated US debt as part of its long-to-shorter swap strategy unveiled a couple weeks back. The market was expecting more.

Interestingly, commodities prices were robust as the US dollar dipped. Base and precious metals were up. Copper in particular, had a strong session.

High Grade Copper Futures (Front month, back-adjusted) COMEX

Which brings us to the local bourse's performance today.

Stuff that wasn't so bad: stuff at the risk-off end of the spectrum, like Utilities (XUJ) (-0.3%), Gold Sub-Index (XGD) (-0.5%), Health Care (XHJ) (-0.7%), and to some extent, Financials (XFJ) (-0.9%).

I note in Financials, insurance stocks thrived . Consider that when benchmark bond yields surge, the fixed income portfolios into which insurers park premium inflows generate higher returns. Insurance Australia Group (IAG) (+1.3%), Suncorp (SUN) (+1.2%), and QBE Insurance (QBE) (+0.5%) each added.

At the other end of the risk spectrum, risk-on, we have sectors like Information Technology (XIJ) (-1.7%) and Materials (XMJ) (-1.6%). IT makes sense, long duration, was always going to struggle today. But Materials was a bit of an interesting one... possibly the prospect of higher diesel and other energy costs hurting there, or just plain: higher rates can't be good for global economic growth.

Analysis

For all the calamity and drama on experienced today on our OTP, the Comp chart analysis is rather sanguine. Blip down. Still holding the short term uptrend. There's really nothing much to add here from our previous analysis. So I won't.

View

1/2RP. (RP = Risk Position — it reflects my personal allowable capital allocation limit for my investments in US stocks. So 1/2RP is 50%, 2/3RP is 67% and FRP is 100%).

Key Levels

26701-863 is the closest key point of supply vs 25910-95 as the closest key point of demand, and then the long term trend ribbon (presently 24243-25132).

Analysis

In addition to the “sanguine” nature of the Comp’s chart above, note also that most Asian indices were up or down only modestly today. US stock futures are trading higher by 0.2-0.4% at the time of writing (Comp futures are +0.2%).

So, it looks like this was very much an OTP thing. I’ve been noting here over and over that our forecast earnings earnings growth (hobbled by high official rates and plunging consumer and business sentiment due to the housing market unwind) is a mere fraction of that on offer among our global share market peers.

And when you’re not part of the global AI infrastructure and interconnectivity buildout… well, you inevitably end up a bit of a backwater…

Aha! I hear you say… but we’re not totally bereft of exposure to the AI revolution… we produce the commodities vital to its expansion. Sure, that’s actually a very good point, but it’s hardly innovation and pushing the frontiers.

At least it’s something – even if the rest is going down the gurgler… Still, it's not like our “good stuff” was any good today! 😭

But don't lose faith my faithful OTP disciples! There was a – let’s call it “decent” – downward pointing shadow on today's candle. Equals: there was some BTD going on. 🤞 Importantly, that BTD occurred around the long term uptrend ribbon.

Resources and Healthcare (the two sectors that have been the strongest of the lot on a relative basis) did the heavy lifting in the afternoon's juicing, but it’s better than nothing. Financials were particularly juicy, too. 🧃

Hey – we could have closed smack-bang on the session’s low, and that would have probably signalled lights out. 🪦🌵

Theoretically, a close on the low would have implied that even after a major belting, the big fund managers saw no bargains… indeed, after such a close, it would suggest they felt stocks remained too expensive = more to go! ⚠️

That’s about all the sugar coating I can do, I’m afraid, because when the spade is called as much – oof! Today was not a good day...

The short term trend is in absolute tatters. And given today’s close below the long term trend ribbon – the long term trend ain’t looking so crash-hot either!

I put to you that 8708-8656 must hold now… or it’s going to start to look very “heading to the bottom of the range” kind of stuff. ☹️

A close back above the long term uptrend ribbon, with a long white candle that closes on its high is essential – and it's essential it happens very soon. Tomorrow or Monday at the latest.

View

That downward pointing shadow keeps me 1/2RP on Australian shares for another day (i.e., 50% of my capital allocated to ASX shares invested vs 50% cash).

Key Levels

8935-40 is likely to now act as a zone of supply, but the short term trend ribbon (presently 9004-9007) is most likely the biggest barrier the OTP will have to contend with on the way back up. 8708-8656 is the next key zone of demand.

(Glossary of acronyms! Old Tin Pot (OTP): S&P/ASX 200 | MOTN: More Often Than Not | FOMO: Fear Of Missing Out | HOFU: Holding On For Upside | BTD: Buy The Dip | NUTE: No Urgency To Enter | FOHO: Fear Of Holding On | STR: Sell The Rally | RP: Risk Position | FFS: Fund Flow Shenanigans!)

***CHARTWATCH LIVE WEBINARS — NEW VIDEO DROPPED!!! 📺🍿***

Are ASX shares headed for a crash? This expert says it's time to protect your capital (and he shows you how to do it)

TODAY

• AUS August MI Inflation Expectations

  • Result: +4.9% p.a. unchanged vs July

  • Reader: Lower than April's +5.9% p.a. peak, but remains far too high (consider it was +3.9% p.a. this time last year). Equals — the RBA won't like this data one bit... %⬆️!

LATER THIS WEEK

THURSDAY

• 22:15 EUR European Central Bank (ECB) Main Financing Rate (+0.25% p.a. forecast to 2.65% p.a.)

• 22:30 USA August Core PPI (+0.3% m/m forecast vs +0.2% m/m in July)

FRIDAY

• 22:30 USA August Core CPI (+0.2% m/m forecast vs +0.2% m/m in July)