• Mining stocks bounced back, trimming losses on the ASX
  • For the week, the ASX 200 was down 0.5%
  • T.Rowe Price predicts an earnings recession in Australia next year

 

Energy and mining stocks bounced back today, trimming losses on the ASX.

At the close of Friday, the benchmark ASX 200 was down just 0.5% after plummeting more than 1% at the open.

For the week, the index closed half a percent down.

Asian exchanges were also trading lower today following the big drop in New York last night.

Shares in the US had plunged as it became apparent the US Fed might be deliberately attempting to tip the economy into a recession in order to bring inflation under control.

“Uncertainty persists for the global economic outlook as hawkish central banks battle with high inflation in the face of weakening growth expectations,” said T.Rowe Price Head of Multi-Asset Solutions APAC, Thomas Poullaouec, in a note.

“Our base case for 2023 is that Australia is likely to experience an earnings recession even if we do not suffer an economic recession,” Poullaouec said.

Although earnings have held up reasonably well until now, that’s largely because the impact of the rate hikes that we’ve seen domestically is really only just starting to bite.

“The average decline in ASX earnings during an earnings recession has been close to 30%,” said Poullaouec.

“The real pain will be felt next year when fixed rate mortgages originated during the COIVID period roll off to considerably higher variable rates.

“Ironically, the more resilient the consumer might be in the short term, the more the Reserve Bank of Australia will need to tighten in order to curb aggregate demand.”

On the ASX, coal and minerals stocks posted a mini rally today.

Coal prices lifted as EU members reached a deal on the ninth package of sanctions on Russia over its Ukaraine invasion.

The Aussie dollar slumped 2% to US67.2c, while US gold futures extended Wednesday’s decline, trading at $US1,783/oz right now.

Meanwhile, the Australian private sector output shrank for a third successive month in December according to the Flash PMI data released today.

The index tracks business managers’ views on production, new orders, backlogs of orders, inventories, exports, imports, and prices for raw materials amongst others.

Looking ahead tonight, the US will also release its PMI data, while the EU CPI is scheduled for release.

 

BIG CAP WINNERS

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Mineral Resources (ASX:MIN) rose 1% after announcing its intention to submit an off-market takeover bid for the balance of Norwest Energy (ASX:NWE) shares it doesn’t own already.

MinRes says it intends to offer one fully paid ordinary share in MinRes for every 1,367 Norwest shares. Norwest is MinRes’ minority joint venture partner in the Lockyer Deep gas project in the Perth Basin.

 

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National Australia Bank (ASX:NAB) fell 1% after lodging its AGM materials to the ASX.

Fletcher Building (ASX:FBU) also fell 1% after confirming that its NZ International Convention Centre and Hobson Street Hotel project costs will exceed the 2019 fire insurance proceeds. FBU says it is provisioning an additional $NZ150m.

Link Administration (ASX:LNK) declined 1% despite extending its services to AustralianSuper for a further two years from 1 July 2023.