The ASX fell sharply today. The index lost 91 points or 1.14%, undoing much of the gains made this month to land at 7,872.70 points.
All 11 sectors were down, with particular weakness in Energy (-1.54%), Real Estate (-1.46%), Consumer Discretionary (-1.97%) and Information Tech (-2.53%).
Both large and mid-cap tech companies followed US stocks into a slump, driven by growing uncertainty over the AI tech boom’s longevity.
WiseTech Global fell 3.06%, Xero Ltd 3.44%, NEXTDC (ASX:NXT) 2.54% and Life360 Inc 2.57%.
Commodities regained some ground after being weighed down this last month. Precious metals made small lifts of about 0.30-0.50%, except silver which remained flat, and copper (-0.87% and nickel (-0.78%) fell while tin gained 3.76%.
Worst-performing stocks on the ASX200 today were Regis Resources Ltd (ASX:RRL), down 9.16%, and Block Inc (NYSE:SQ), down 6.63%.
The index has lost 2.04% over the last five trading days, its lowest point in two weeks, and sits 2.61% off its 52-week high.
What manufacturing slump means
XTB research director Kathleen Brooks joins us to explain the impact of US manufacturing Purchasing Managers' Index (PMI) reports on the market.
“The US PMI reports for July were released on Wednesday. The manufacturing PMI slumped to 49.5, a 7-month low, while the service sector survey jumped to 56.0, a 28-month high,” Brooks writes.
“The composite index was strong at 55, which is a 27-month high.
“While this suggests that growth in the US got off to a strong start for Q3, there is a large divergence between the fortunes of the service sector and the manufacturing sector, which can also be seen in the Eurozone.
“The main takeaways from this month’s US PMI reports are employment growth is slowing and business confidence has slipped for the second straight month.
“The decline in confidence could be a sign that the political risks are starting to impact the business community. However, this may not last.
“Now that the Democrats are set to replace Joe Biden with Kamala Harris, the polls have narrowed considerably. The PreditIt poll has Trump’s victory narrowing sharply so far this week. He is now expected to win 56% of the vote in November, down from nearly 70% last week.
“Kamala Harris, if she is crowned as the Democratic nominee, is expected to win 46% of the vote. We may have to wait for next month’s survey to see if the change in candidate for the Democrats have reduced some of the political fears for business.
Why the manufacturing slump is a concern for investors
“The sharp decline in the US manufacturing sector PMI is worth noting. There was a fall in new orders, production and inventories also contributed to the decline,” Brooks explains.
“A reduced rate of employment growth also weighed on the survey this month, suggesting that the US economy will continue to rely on only a few sectors to boost non-farm payrolls, which may cause concern about the health of the US labour market.
“The drop in business confidence may also hinder hiring in the coming months.
“Overall, although the composite PMI suggests that the US economy remains robust, US growth is skewed towards the service sector, while the manufacturing sector is struggling.”
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