US stocks gain as Federal Reserve signals rates pullback, Australian dollar jumps above 67 US cents

© Provided by ABC Business Miners have pulled down the Australian share market.  (ABC News: Stephanie Chalmers)

The ASX has fallen for a second day in a row, and the Commonwealth Bank has posted a multi-billion profit for the first few months of the new financial year. 

The Australian market lost ground as US shares declined after a volatile session as investors assessed comments by US Federal Reserve officials over future interest rate rises. 

However, by the close the market had come off its lows, with the All Ordinaries slipping by 0.1 per cent to 7,345, and the ASX 200 index also fell 0.1 per cent to 7,142. 

Most sectors rose with the gains led by healthcare, industrials, tech stocks and banks. 

Miners and energy firms were among the losers after OPEC cut its 2022 global demand forecast again, which saw oil prices fall further. 

Biotech Imugene (+7.7 per cent) and fertiliser maker Incitec Pivot (+5.9 per cent) did the best on the ASX 200 after delivering a $1 billion profit, up nearly six-fold. 

It also said the spin off of its explosives business, Dyno Nobel, could be delayed by up to a year as it considers unsolicited offers for its ammonia factory in Louisiana in the US. 

Leading the losses were lithium companies Core Lithium (-15.8 per cent) and Allkem (-12.4 per cent) on speculation about weaker cathode production in China. 

Core Lithium’s chief financial officer also decided to step down. 

Nitro Software rose 1.5 per cent after recommending investors accept a $500 million takeover by a private equity firm. 

The Australian dollar climbed above 67 US cents. 

Bitcoin rose nearly 2 per cent to $US16,660 after slumping last week on the collapse of crypto currency exchange FTX. 

China markets

In Hong Kong, the Hang Seng index put on 4 per cent, while the Shanghai Composite rose 1.5 per cent, with nearly all sectors higher as Chinese regulators gave a further boost to the property sector, and more COVID-19 restrictions were lifted.

But economic data pointed to a slowing economy. 

Industrial output rose 5 per cent over the year to October, and retail sales fell by 0.5 per cent.

CBA profit

The Commonwealth Bank made a multi-billion-dollar profit for the first quarter of the financial year.

The major bank said after tax cash profit came in around $2.5 billion from June to September, up nearly 14 per cent from a year ago, amid a fall in bad debts and steep interest rate increases by the Reserve Bank. 

Net profit was $2.7 billion for the quarter.

Income rose on the back on the back of higher earnings from deposits and higher interest rates as the bank wrote more loans. 

Chief executive Matt Comyn said the Australian economy had shown resilience in the face of the rising cost-of-living and interest rate pressures.

“Despite these near-term challenges we remain optimistic on the medium to long term outlook,” he said. 

“We recognise the concern and pressure many customers are feeling due to the higher cost of living, and increases in the cash rate.”

CBA shares rose 1.3 per cent. 

RBA ‘reputational damage’

In a review of the Reserve Bank’s forecasts, the central bank said more specific forward guidance on interest rates during the pandemic had worked to lower funding costs and support the economy. 

However, it noted that making specific forecasts had created substantial communication problems, which attracted extensive criticism and reputational damage.

In late 2020 and for much of 2021, the RBA board and Governor Philip Lowe predicted that interest rates were unlikely to rise until 2024.

However, the central bank was forced to start raising rates in March this year because of rising global and domestic inflation, and booming home prices. 

Dr Lowe admitted earlier this year that the pandemic guidance was “embarrassing”. 

“The bank had attracted extensive criticism when the cash rate was increased much earlier than the time-based element of the board’s conditional guidance had suggested,” the RBA said in the review. 

“The fact that many people interpreted this forward guidance as ‘a promise’ that there would be no rate rises until 2024 led to considerable reputational damage to the bank.” 

“When the cash rate was increased in May 2022, many people saw the bank as having broken ‘its promise’.

As a result, the RBA said it would make less specific, general statements about where interest rates are going, unless stronger forecasts were needed.

“Forward guidance on interest rates will not always be provided, although the board will continue to outline how monetary settings will be adjusted in response to evolving economic conditions,” it said.

Forward guidance refers to a central bank communicating about the future course of monetary policy.

RBA flags more rate rises

In addition, the RBA said in the minutes from its meeting earlier this month that more interest rate rises were on the cards, with inflation running at 7.3 per cent annually. 

It eased the pace of rate rises again earlier this month by increasing rates by 0.25 percentage points rather than 0.5 percentage points because of worries that falling home prices would dampen household spending. 

However, it said future rate rises would be dependent on how the economy was tracking. 

“Acknowledging the uncertainty, members did not rule out returning to larger increases if the situation warranted,” the minutes said. 

“Conversely, the board is prepared to keep rates unchanged for a period while it assesses the state of the economy and the inflation outlook.” 

AGL board gets ‘first strike’ at AGM

AGL investors have delivered a protest vote to the board at the company’s annual general meeting over the company’s handling of the transition to renewable energy from fossil fuels. 

One third of votes cast were against the company’s pay plans, with nearly 70 per cent in favour, which constitutes a “first strike.” 

If the board receives another protest vote of more than 25 per cent at the next annual general meeting, there will be a board spill. 

Just over two thirds of investors. voted for AGL’s climate transition action plan. 

Meanwhile, shareholders defied the board and supported directors nominated by climate activist investor Mike Cannon-Brookes. 

Investors approved all four directors put forward by Grok Ventures, the largest shareholder, and Mr Cannon-Brookes’s private investment company. 

The technology entrepreneur forced the company earlier this year to abandon plans for a demerger, and speed up the closure of its coal fired power plants. 

Mr Cannon-Brookes’s four candidates for the board were company director Christine Holman, former Tesla executive Mark Twidell, former Energy Security Board chair Kerry Schott, and chairman of the Australian Financial Complaints Authority John Pollaers. 

Prominent investor Geoff Wilson said the election of the new board members was a positive step for shareholder democracy. 

“Today shareholders gave a strong message to the chair and all AGL directors that they need to step up,” Mr Wilson said. 

“With the new board members, it seems logical that the number of directors and their positions will result in change.” 

AGL chair Patricia McKenzie said that each member of the AGL board shared an ambition for AGL to “play a leading role in Australia’s energy transition, moving away from fossil fuels and towards a low-emissions economy.” 

Brynn O’Brien from the Australasian Centre for Corporate Responsibility said it was a historic vote. 

“History has been made today,'” she said. 

“The board of an Australian listed company has been transformed by shareholders over its handling of climate risks.” 

AGL had rejected three of the candidates and their election increases pressure on chair Patricia McKenzie. 

The board will appoint a new chief executive to replace former chief executive Graeme Hunt, who quit amid Mr Cannon-Brookes’s attempts to overhaul the company. 

AGL rejected two takeover bids by Mr Cannon-Brookes and infrastructure investor Brookfield Asset Management earlier in the year. 

But Brookfield and private equity firm EIG have now made an $18.4 million takeover bid for AGL’s rival, Origin Energy. 

AGL shares fell 1.2 per cent to $7.61. 

Wall Street in the red

US stocks have lost their gains in a volatile session as US central bank officials indicated the Federal Reserve will likely slow its interest rate rises.

Federal Reserve vice-chair Lael Brainard is the latest official to signal that the US central bank could slow the pace of interest rate rises.

She told Bloomberg last week’s inflation data was “reassuring” after US consumer prices eased back over October to 7.7 over the year., sparking a share market rally. 

“I think it will probably be appropriate soon to move to a slower pace of rate increases,” she said. 

“I think what’s really important to emphasise is we’ve done alot but we have additional work to do both on raising rates and sustaining restraint to bring inflation down to 2 per cent over time.” 

Another official said the Fed would consider slowing the pace of increases next month, but that should be seen as softening its promise to lower inflation. 

Earlier this month, the Fed raised its benchmark federal funds rate to a range of 3.75 per cent to 4 per cent, the highest level since 2008. 

The market is betting that the central bank may raise rates by 0.5 percentage points, instead of the supersized 0.75 percentage points that it has announced four times in a row this year. 

The market rose after Ms Brainard’s comments,  but turned negative after a choppy session. 

The Dow Jones index lost 0.6 per cent to 33,537, the S&P 500 fell 0.9 per cent to 3,957, and the Nasdaq lost 1.1 per cent to 11,196. 

Shares in Amazon fell after the New York Times reported that the online giant was planning to lay off around 10,000 staff in corporate and technology jobs as soon as this week. 

Oil prices slumped overnight with Brent crude slipping 3.3 per cent, to $US92.74 a barrel as coronavirus cases spread in China with Beijing and other cities reporting a record number of infections. 

Spot gold gained nearly 0.1 per cent to $US1,772 a barrel. 

Europe markets ended higher. 

The FTSE 100 in London rose 0.9 per cent, to 7,385, the CAC 40 in Paris rose 0.2 per cent, to 6,609, and the DAX in Germany rose 0.6 per cent, to 14,313. 

Crypto currency exchange Crypto.com dismissed speculation it was in trouble after the implosion of crypto exchange FTX last week. 

ABC/Reuters

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