ASX set for flat start as Wall Street dips; Nvidia, Qantas results ahead

The Australian sharemarket dipped in early trade on yet another busy earnings season day, with Qantas and Wesfarmers among those reporting results, as bets firmed for another interest rate rise as early as next month.

The S&P/ASX 200 was down 47 points, or 0.5 per cent, at 9080 shortly after 11am AEST, with nine of its 11 industry sectors in the red. The ASX lost 0.4 per cent on Wednesday as shock inflation figures put another rate hike on the table. Wall Street drifted through a quiet session overnight after a report said US inflation was also a bit worse than economists expected.

Expectations of another rate rise by the Reserve Bank firmed after the Australian Bureau of Statistics said on Wednesday underlying inflation in July had unexpectedly lifted by 0.5 per cent. The gauge most watched by the RBA had been forecast to ease, but instead remained steady at 3.6 per cent.

The hot inflation data spurred economists from Goldman Sachs to Commonwealth Bank to predict another rate increase as early as next month, abandoning expectations of no change for the remainder of the year. CBA, the nation’s biggest lender, said this morning the inflation data would cause the RBA to “lose patience” and predicted a quarter-point hike to 4.6 per cent - the highest level in 15 years - in November, with the risk of a move at next month’s meeting.

Deutsche Bank’s Phil O’Donaghoe, who was first to change his call after the data, went further and forecast a hike at the September meeting, saying underlying inflation is “intolerably high.” National Australia Bank’s Sally Auld also switched to calling a September hike, with the risk “biased towards an additional hike in November, especially if activity data shows resilience in coming months.”

Rising interest increase borrowing costs for consumers and companies, weighing on company profits and share prices. Sectors dependent on consumer demand and tech companies borrowing heavily to grow are among those vulnerable to rate hikes, while banks - while often seeing a short-term boost to profit margins - can be hit by a rise in loan defaults and bad debts.

Financial stocks were mixed in early trade, with CBA flat, NAB down 0.1 per cent, Westpac up 0.3 per cent and ANZ Bank down 0.6 per cent. Tech stocks pulled lower, with software makers Xero and WiseTech down 1.1 per cent and 3.1 per cent, respectively, and AI data centre operator NEXTDC down 1.2 per cent. Real estate investment trusts also struggled, with Goodman Group losing 0.8 per cent and Westfield shopping centre landlord Scentre falling 1 per cent.

Gold producers weighed on mining stocks as gold prices eased over the spectre of rising rates, which typically reduce the appeal of non-yielding gold as an investment. Northern Star was down 0.4 per cent, Evolution Mining lost 2.7 per cent and Newmont shed 0.8 per cent. Consumer staples also declined, with Woolworths (down 1.6 per cent) and Coles (down 1 per cent) giving back some of their gains from the past session.

On the company earnings front, Qantas rose 2.4 per cent despite saying its profits have taken a hit as rising fuel costs outpaced the benefit of sustained demand for international travel.