Australian shares have pared gains while key surveys show business activity and consumer spending are still strong despite rapid rate increases.
The ASX 200 reversed early gains and closed down 23 points or 0.3 per cent, to 6,645, with energy and real estate stocks leading the losses.
By 4:12pm AEDT, the Australian dollar was sitting below 63 US cents.
Miners reversed early gains, down 0.3 per cent, despite iron ore prices jumping on Monday due to higher demand for the steelmaking ingredient in top steel producer China.
Australia's biggest miners BHP, Rio Tinto and Fortescue, dropped between 0.4 per cent and 2.2 per cent.
Syrah Resources jumped 1.1 per cent after the graphite explorer announced a restart of its operations at the Balama project in Mozambique, two weeks after being hit by interruptions.
Healthcare stocks lost 0.3 per cent, with biotechnology giant CSL losing 0.1 per cent.
Technology stocks weakened almost 1 per cent after the Nasdaq fell to its lowest since July 2020 as investors pulled out of chipmakers on US restrictions aimed at hobbling China's semiconductor industry.
Energy stocks fell as much as 1.6 per cent after oil prices sank nearly 2 per cent overnight to snap a five-session winning streak. Woodside Energy and Santos dropped 2.4 per cent and 1.3 per cent, respectively.
Among individual stocks, retailer Baby Bunting Group fell more than 20 per cent and was set to record its worst session ever after posting a steep decline in first-quarter profit margins.
Mirvac Group said its chief executive officer Susan Lloyd-Hurwitz and chair John Mulcahy would both retire. Shares of the property company were down 2 per cent.
Among the best performers were Johns Lyng Group (+5.9 per cent), Graincorp (+4.2 per cent) and Orica (+4.4 per cent).
However, Megaport lost 4.9 per cent, Sandfire Resources was down 3.9 per cent and Ramelius Resources shed 4.6 per cent.
Business activity booms
Australian businesses reported booming sales in September as demand remained surprisingly resilient to higher interest rates, while cost pressures cooled in a hopeful sign for inflation.
Tuesday's survey from NAB showed its index of business conditions climbed 3 points to +25 in September, far above its long-run average.
The volatile measure of confidence eased 5 points to +5, leaving it around the long-run average.
"Conditions are now higher than their pre-COVID peak, which shows just how strong demand is at present," said NAB chief economist Alan Oster.
"The current level of conditions are only exceeded by the post-lockdown surge in early 2021."
"Clearly, consumers are still finding a way to keep spending, with the very strong labour market, savings buffers and a broader post-pandemic recovery all playing a role."
The NAB surveys have shown business activity beating all expectations for some months even as the Reserve Bank has lifted interest rates by a total of 2.5 percentage points, to a nine-year peak of 2.6 per cent.
However, the bank did surprise last week by shifting down to a quarter-point increase, saying it wanted to keep the economy on an even keel as it battled with inflation.
There was some early evidence that inflation could be past its worse with quarterly growth in retail prices slowing to 2.2 per cent from 3.3 per cent in September. Labour costs and purchase costs also eased back.
“Overall, the survey indicates the economy has remained resilient through recent months despite the challenges from higher inflation, rising interest rates and a gloomy global outlook, and there are signs that cost pressures may be easing," Mr Oster said.
Mixed messages on household spending
Meanwhile, household spending continued to rise in August 2022, increasing by 15.8 per cent compared to pre-pandemic August 2019, according to figures released by the Australian Bureau of Statistics (ABS).
The strongest increases over this period were in recreation and culture (+31.1 per cent), clothing and footwear (+26.3 per cent), and furnishings and household equipment (+20.1 per cent). Food also saw increased spending, with a rise of 15.8 per cent.
However, there are early signs that household spending is starting to drop off.
The Commonwealth Bank's in-house measure, the Household Spending Intentions Index, declined by 0.5 per cent in September.
"The fall in September was the first monthly decline since April this year and is clearly beginning to show the effects on the household sector of the RBA's aggressive interest rate hiking cycle — with further impact expected in the months ahead," the bank noted.
The Westpac-Melbourne Institute Index showed consumer sentiment remained in deeply pessimistic territory, at levels comparable to the lows briefly reached during the pandemic and the extended weakness experienced during the global financial crisis.
"The key drags on confidence continue to come from a surge in the cost of living, rising interest rates, and concerns about the near term outlook for the economy, " Westpac noted in the latest report.
World equities fall
The MSCI global index of stocks lost ground in a volatile session on Monday, while the dollar gained slightly as investors braced for economic data and earnings season.
Any lingering hopes that the Federal Reserve could shift to a softer stance toward monetary policy appeared to be extinguished on Friday, as the September jobs report pointed to a persistently tight labour market.
Oil futures sold off and Wall Street's stock indexes were volatile, while US bond markets were closed for the day for a federal holiday.
Weighing on investor nerves was a Russian missile attack on Ukraine that killed civilians and knocked out power and heat in cites across the country, in apparent revenge strikes for what President Vladimir Putin described as a "terrorist" attack on Russia's bridge to Crimea.
US investors, anxious about rising interest rates and signs of economic weakness, were cautious ahead of inflation data due out later in the week alongside the start of the third-quarter earnings season.
JPMorgan Chase & Co Chief Executive Jamie Dimon told CNBC the US and the global economy could tip into a recession by the middle of the next year.
Then Fed Vice Chair Lael Brainard said tighter US monetary policy has begun to be felt in an economy that may be slowing faster than expected, but that the full interest rate increases still won't be apparent for months.
"There's nothing specific in Brainard's comments that makes you say the Fed is changing its policy but there's at least some signs that the Fed is not proceeding blindly on a rate hiking restrictive path," said Steve Sosnick, chief strategist at interactive brokers in Greenwich Connecticut.
"Dimon's comments definitely didn't help. A lacklustre downward market didn't need those comments. They've been balanced out somewhat by Brainard."
Wall Street ended lower
The Dow Jones Industrial Average fell 93.91 points, or 0.32 per cent, to 29,202.88; the S&P 500 lost 27.27 points, or 0.75 per cent, at 3,612.39; and the Nasdaq Composite dropped 110.30 points, or 1.04 per cent, to 10,542.10.
Nasdaq led the declines as the chip sector sold off sharply after the Biden administration published a sweeping set of export controls on Friday, including a measure to cut off China from certain semiconductors made anywhere in the world with US equipment.
Wall Street had already declined on Friday after the upbeat payrolls report cemented expectations for another large rate hike.
Four of the biggest US banks are expected to kick off the earnings reporting season on Friday, with large lenders expected to report a decline in profits as the economy slowed and volatile markets put the brakes on dealmaking.
The MSCI All-World index ended down 1.0 per cent in its fourth straight day of losses. The pan-European STOXX 600 was down 0.4 per cent, having skimmed one-week lows.
Chicago Fed President Charles Evans also said on Monday that US Fed officials are closely aligned on the need to raise the target policy rate to around 4.5 per cent by early next year, unless data upends current projections.
Minutes of the Fed's last policy meeting will be published this week and could offer a steer on rate-setters' thinking about the likely path of monetary policy.
The Bank of England sought to ease concerns about this week's expiry of its program designed to calm turmoil in the government bond market, announcing new safety-net measures including a doubling of the maximum size of its debt buy-backs.
Oil prices extended losses after settling lower as investors weighed potentially tight supply against economic storm clouds that could foreshadow a global recession and erosion of fuel demand.
Brent crude oil was down, trading at $US95.80 a barrel, by 4:22pm AEDT.
Gold prices fell as an elevated dollar and solidifying bets for an aggressive Fed interest rate hike pushed the non-yielding bullion to its lowest level in a week.
Spot gold dropped, to $US1,664.49 an ounce, by 4:23pm AEDT.
ABC/Reuters
