Wall Street retreats, ASX set to slide; Fed chief talks up inflation fight
Staff writers
Updated ,first published
The Australian sharemarket has dipped lower at the open after a rise in oil prices on Monday morning, while Wall Street slid over the weekend following a speech by chairman Kevin Warsh that helped strengthen faith that the Fed will do what’s needed to bring inflation down.
The S&P/ASX 200 was down 1.9 points to 9090.4 in early trade, with seven of 11 industry sectors in negative territory. Global crude benchmark Brent rose 1.9 per cent to $US89.75 a barrel after the US military struck Iranian rocket launchers that were preparing to send mines into the Strait of Hormuz, ending weeks of relative calm.
“Markets look set for a shaky start to the trading week,” Kyle Rodda, a senior analyst at Capital.com, wrote in a note to clients. “Sentiment won’t be helped at all by geopolitical risk in the Middle East.”
Energy stocks are higher on the back of stronger oil prices, with Woodside up 0.3 per cent, Santos adding 1.4 per cent and refiner Ampol climbing 1.2 per cent in early trade.
Mining stocks slid, with BHP losing 1.4 per cent, Rio Tinto down 0.9 per cent and Fortescue 0.4 per cent lower. Gold miners fell sharply as the price of the precious metal slumped by more than 3 per cent over the weekend and traded at about $US4450 an ounce after Warsh’s pledge to fight inflation lifted bets that the US central bank will raise interest rates. Evolution Mining fell by 4.1 per cent and Northern Star slumped by 3.5 per cent.
Bank stocks advanced, with Commonwealth Bank and Westpac each up 1.2 per cent while National Australia Bank rose 1.1 per cent and ANZ Bank added 0.9 per cent.
Embattled gaming group Star Entertainment fell 3.9 per cent after it reported a $307 million loss for 2026, including asset writedowns, as its auditors reiterated their significant doubts about its survival.
Technology stocks are lower across the board, with Xero down 2.4 per cent, WiseTech and Technology both 1 per cent lower and NEXTDC falling 2.1 per cent in early trade.
The Australian dollar was trading at US71.61¢.
On Friday on Wall Street, the S&P 500 fell 0.2 per cent after flipping between modest gains and losses through the morning. The Dow Jones Industrial Average dipped 9 points, or less than 0.1 per cent, and the Nasdaq composite slipped 0.5 per cent.
The reaction was stronger in the bond market following Warsh’s first speech as chairman of the Fed at an annual economic symposium held in Jackson Hole, Wyoming. The mountain setting has been the backdrop for major Fed policy announcements in the past, and the pressure was on Warsh.
Worries had grown that his tough talk about getting inflation down to the Fed’s 2 per cent target may be just that, unless the Fed backs it up with action. The Fed could hike short-term interest rates to get inflation under control, but it could also feel deterred from doing so because that would slow the economy and hurt prices for investments. And President Donald Trump, who appointed Warsh, has been vocal about wanting interest rates to be lower rather than higher.
Warsh was adamant again on Friday that he wants to give financial markets fewer clues about what the Fed plans to do with rates for its two jobs of keeping inflation low and the job market strong. He has said he wants markets to react to what incoming data says about the economy and inflation rather than what the Fed says.
But Warsh also said Friday that “short-term interest rates are the predominant tool” for the Fed to do its job. And he said, “I would be hard-pressed to describe broad financial conditions as restrictive,” an implication that short-term interest rates may not be high enough to tamp down the economy and inflation.
The yield on the two-year Treasury, which closely tracks expectations for what the Fed will do with its federal funds rate, jumped to 4.35 per cent from 4.22 per cent just before the speech.
That’s a big move for the bond market, and it was because traders upped their forecasts that the Fed will hike its federal funds rate as soon as next month. They’re now betting on a nearly 58 per cent probability of that, up from the 35 per cent seen a day earlier, according to data from CME Group.
Longer-term yields also rose following some initial zigzags, but not by as much as shorter-term yields. The 10-year Treasury yield climbed to 4.72 per cent from 4.67 per cent late Thursday, and the 30-year Treasury yield got to 5.21 per cent from 5.19 per cent.
All the moves, including the modest ones for stocks even though higher interest rates tend to hurt them, indicate investors “pricing a more credible Fed,” according to economists at Bank of America led by Aditya Bhave.
“The positive market reaction highlights that investors place a premium on policy clarity, even when that clarity carries” a message implying higher interest rates, according to Seema Shah, chief global strategist at Principal Asset Management.
On Wall Street, Gap jumped 12.9 per cent after the retailer reported stronger profit for the latest quarter than analysts expected. It also said Michael Francis, an industry veteran who began his career on the retail sales floor, will take over as head of its Old Navy stores.
Marvell Technology fell 10.3 per cent even though the chip company reported profit and revenue for the latest quarter that edged past analysts’ expectations. CEO Matt Murphy said its business related to artificial-intelligence technology is strong, and it raised its forecasts for upcoming revenue growth.
In stock markets abroad, indexes rose across much of Europe.
