AU Evening Wrap: Australian Shares End Three-Day Rally Ahead of US Inflation Data and Fed Policy Meeting
Market Performance
Australia's sharemarket experienced a significant decline, marking the largest daily drop in six weeks. The drop was attributed to investors' anticipation of the US Federal Reserve delaying immediate rate cuts, to be discussed at its policy meeting this week. Additionally, political uncertainty in Europe contributed to a negative market sentiment, as the far-right made significant advances in European elections, and a surprise poll in France raised concerns about the future of the bloc.
The benchmark $S&P/ASX 200(.XJO.AU$ dropped 1.3 per cent, or 104.6 points, to 7755.4, partially reversing the gains made last week after two major central banks had bolstered hopes of lower borrowing costs.
Ten out of eleven sectors showed negative performance. The sell-off was particularly heavy in the materials and interest-rate-sensitive property stocks, resulting in a red signal. The index-heavy $BHP Group Ltd(BHP.AU$ lost 1.8% to trade at $43.74, while $Rio Tinto Ltd(RIO.AU$ fell 1.9% to $122.91 and $Fortescue Ltd(FMG.AU$ dropped 3.2% to $23.6. The decrease in iron ore prices, due to concerns over demand in China, was the primary reason behind this drop.
The gold miners were also severely affected, as the price of the precious metal suffered the most significant decline in three years on Friday, following a strong jobs report in the US that dashed any hopes of a rate cut. Furthermore, the reports that China's central bank is holding off gold purchases further undermined demand.
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Australian Businesses Report Increased Inflation Pressures Despite Slow Economy
Australian businesses faced a surge in inflation pressures in May, despite the sluggish economy. The $National Australia Bank Ltd(NAB.AU$'s monthly survey revealed that the Reserve Bank of Australia may have to increase interest rates further to control inflation.
Business confidence dropped by 4 index points, reaching minus 3 index points in May, while NAB's business conditions index also fell by 1 point to 6 index points in the same period. The survey demonstrated that labor cost growth rose to 2.3% in quarterly equivalent terms in May from 1.5% in April, and purchase cost growth increased from 1.3% to 1.9%. Product price growth increased overall from 0.8% to 1.1%, while retail price growth went up to 1.6% from 1.0%.
Rio Tinto Increases Majority Stake in Australian Aluminum Smelter Joint Venture
$Rio Tinto Ltd(RIO.AU$ is set to enhance its majority stake in an Australian aluminum smelter joint venture by acquiring an additional 11.65% interest from $Mitsubishi(8058.JP$. The joint venture operates the Boyne Island smelter in Gladstone, Australia under the name Boyne Smelters, which has an annual aluminum production capacity of over 500,000 metric tons. Rio Tinto's stake in the project will increase to 73.5% following the completion of the deal, which is anticipated in the second half of this year.
Source: Dow Jones Newswires, AFR, ASX
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