ASX slumps despite AI rebound on Wall Street; NAB and BHP decline

The Australian stock market started the day on a downward trend on Tuesday, with both the mining and banking sectors experiencing significant losses, while technology shares benefited from a rebound in artificial intelligence (AI) stocks on Wall Street. As of 11:30 AM AEDT, the S&P/ASX 200 index had fallen by 70.2 points, or 0.8 percent, to reach 8,775.50, with six out of eleven sectors showing declines. This follows a modest gain of 0.4 percent from the previous trading day. The Australian dollar also showed strength, trading at US69.81 cents.

Mining companies were particularly affected, with BHP, the largest company on the ASX, experiencing a 2.2 percent drop after reporting a nearly 20 percent decrease in copper production for the September quarter. National Australia Bank (NAB) saw a decline of 2.6 percent following its announcement of plans to eliminate up to 2,500 jobs, which represents around 6 percent of its workforce, over the course of this financial year.

BHP has set an ambitious target to more than double its copper production in Australia by 2040, as it shifts its focus towards metals that are essential for the global transition to clean energy. The decline in output during the September quarter was attributed to adverse weather conditions and lower-quality ore at key mines in Chile, though the company has maintained its production forecasts for the year.

Challenges in the mining sector are compounded by decreasing ore grades at aging mines, while the discovery of new copper deposits is becoming increasingly difficult. This comes at a time when copper prices are on the rise, driven by strong demand from the AI sector and the ongoing expansion of renewable energy and electrification efforts.

“Global markets remain volatile, with geopolitical tensions, trade uncertainty, and high energy and freight costs continuing to create challenges across the industry,” stated BHP’s CEO, Brandon Craig, in the company’s quarterly report.

Shares of Rio Tinto, BHP’s closest competitor, fell by 1.1 percent, while Fortescue Metals Group, an iron ore miner, dropped 0.6 percent. Gold mining stocks also faced downturns, with Northern Star Resources declining by 2 percent and Evolution Mining experiencing a drop of 3.3 percent. The price of gold has come under pressure due to rising bond yields, which typically hinder gold's appeal as it does not yield interest for investors.

The financial sector, which, along with mining, constitutes over half of the Australian market, also saw declines. NAB’s job cuts echo a similar move by ANZ Bank last year, which resulted in the layoffs of 3,500 employees and 1,000 contractors. Commonwealth Bank of Australia (CBA), the country’s largest lender, also reduced its workforce earlier this year. All four major banks reported losses, with CBA down 1.5 percent, Westpac down 1.4 percent, and ANZ falling by 1.1 percent.

Energy stocks were also negatively impacted as oil prices fluctuated. Traders were weighing the potential for escalating conflicts involving Iran in the Strait of Hormuz against steady crude supply from the Persian Gulf. Brent crude oil began the day at $109.55 per barrel, close to a five-month high, but later eased to $109.35. Woodside, Australia’s largest oil and gas company, saw its shares decrease by 0.7 percent, while Santos dropped 1 percent. Refiner Ampol's stock fell by 4 percent, despite reporting a more than doubling of its refining margins to $23.92 per gallon in the September quarter, attributed to disruptions in global fuel and crude supplies due to the conflict in Iran. Viva Energy shares fell by 1.9 percent.

In contrast, local technology stocks showed resilience, benefiting from a rebound in their U.S. counterparts. Software companies WiseTech Global and Xero recorded gains of 2.2 percent and 2 percent, respectively, while the family tracking app Life360 rose by 3.4 percent. However, Megaport, a network service provider, saw its shares decline by 4.5 percent.

Consumer staples also saw positive movement, with supermarket chains Woolworths and Coles increasing by 1 percent and 0.8 percent, respectively. Endeavour, a company that operates bottle shops and hotels, also rose by 1 percent.

On Wall Street, the S&P 500 gained 0.4 percent, recovering from its worst week since June, while the Nasdaq composite, which is heavily weighted with technology stocks, climbed by 1.1 percent. However, most U.S. stocks outside of the AI and tech sectors saw declines, and the Dow Jones Industrial Average fluctuated before closing down 36 points, or 0.1 percent.

In Europe, stock indexes experienced sharper declines of over 1 percent, influenced by violent protests that could pressure the French government to increase spending in response to voter discontent, potentially impacting bond markets and raising yields globally.

Despite the mixed signals from the financial markets, AI stocks remained a focal point, continuing to attract significant investment and driving upward trends in the market. The heightened spending on AI technology has pushed these stocks to record levels, even as concerns about rising borrowing costs loom. Nvidia, a major player in the AI sector, rose by 1.4 percent, contributing significantly to the S&P 500’s gains, while SpaceX, which oversees the xAI business, increased by 1.3 percent to $147.96. Elon Musk announced plans to give one share of SpaceX to “every kid in America” next year, following a commitment by Anthropic to allocate 5 percent of its upcoming IPO shares to a public benefit fund.

However, the AI sector remains volatile, as illustrated by CoreWeave, a company that has borrowed to acquire AI chips for cloud rental services. After initially surging over 7 percent in the morning, its shares reversed course, ultimately closing down by 0.4 percent.