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The share market declined as weak leads from Wall Street were compounded by slipping commodity prices and indications the Reserve Bank thinks Australians can cope with higher interest rates.

The S&P/ASX 200 dropped 37.5 points or 0.56 per cent.

Rate-sensitive tech stocks and defensive sectors led the retreat. A soft trading update from BHP and a pullback in iron ore prices weighed on the materials sector. Energy producers and utilities resisted the market reverse.

What moved the market

Selling accelerated after RBA Deputy Governor Michele Bullock told a Brisbane business lunch higher rates were unlikely to create financial instability among Australian households. Most home-owners were well placed to service higher levels of debt.

“As a whole households are in a fairly good position,” Bullock said. “The sector as a whole has large liquidity buffers, most households have substantial equity in their housing assets, and lending standards in recent years have been more prudent and have built in larger buffers for interest rate increases.”

Bond traders appeared to interpret the speech as bearish for the rates outlook. Bonds sold off, lifting yields and pressuring corners of the share market that compete with bonds for institutional fund flows. The dollar climbed 0.58 per cent to 68.49 US cents.

This year’s surge in inflation prompted the central bank to hike the cash rate target from 0.1 per cent to 1.35 per cent. Another increase is expected next month.

The minutes from this month’s Reserve Bank meeting showed policy-setters discussed increasing rates by 25 or 50 basis points before deciding the case for the latter was stronger.

“Members agreed that further steps would need to be taken to normalise monetary conditions in Australia over the months ahead,” the minutes said.

“The size and timing of future interest rate increases will continue to be guided by the incoming data and the Board’s assessment of the outlook for inflation and the labour market, including the risks to the outlook.”

Equity markets have fallen sharply this year amid fears the scramble to contain inflation will slow economies so much they fall into recession. Overnight, the S&P 500 dropped 0.84 per cent following a report Apple was preparing to slow hiring and reduce spending in anticipation of weaker demand.

Winners’ circle

Energy majors Woodside and Santos rallied with crude prices on reports US President Joe Biden’s trip to Saudi Arabia was unlikely to lead to increased production. A relief rally lifted Brent crude 5.1 per cent overnight. US oil closed above US$100 a barrel for the first time in more than a week.

Woodside climbed 3.61 per cent. Santos gained 1.12 per cent. Beach Energy tacked on 3.5 per cent. They mostly held early gains as Brent retraced this afternoon. The international benchmark was down 32 cents or 0.3 per cent at US$105.95 at the Australian close.

Fortescue Metals put on 0.71 per cent as iron ore gave back most of yesterday’s 2.2 per cent rise. The most-traded ore contract on the Dalian Commodity Exchange declined 1.5 per cent this afternoon. Rio Tinto added 0.46 per cent.  

Lithium miner Lake Resources rallied 13.6 per cent. Whitehaven Coal climbed 5.25 per cent to a new record. New Hope put on 3.49 per cent.

Fund manager Pendal Group popped 7.79 per cent after confirming it was in discussions with rival Perpetual over a possible transaction. Perpetual shares fell 1.77 per cent.

Record full-year sales and earnings lifted JB Hi-Fi 2.15 per cent. The retailer’s FY22 earnings increased 6.9 per cent, thanks in large part to a 33.4 per cent surge over the second half as sales and margins improved. Online sales increased 52.8 per cent across the year to $1.6 billion.

Doghouse

BHP dropped 0.97 per cent after warning it expects labour shortages and supply-chain issues to persist throughout this financial year. Record full-year iron ore sales volumes helped raise the share price before a late-morning fade.

The miner met full-year production guidance for ore and energy coal, as well as revised guidance for copper and metallurgical coal. Nickel volumes fell short following a smelter outage.

Bond proxies declined as yields continued to recover. The ten-year Australian government bond yield rose almost eight basis points this afternoon to its highest in a week. Supermarkets Woolworths and Coles dropped 1.02 and 0.53 per cent, respectively.

Among healthcare providers, CSL lost 2.02 per cent, ResMed 4.58 per cent and Sonic Healthcare 3.65 per cent.

In the property space, Goodman shed 2.62 per cent, Lendlease 2.11 per cent and Charter Hall Group 1.89 per cent.

Superannuation tech firm HUB24 dropped 4.97 per cent as a flat quarter took some of the shine off record annual net inflows. The company said fourth-quarter net inflows of $2.5 billion were “broadly flat” relative to the prior corresponding period, excluding large transactions. The full-year net inflow of $11.7 billion was 31.7 per cent up on FY21.

Other tech losses included WiseTech, down 4.91 per cent, and Xero, off 6.02 per cent.

Insurer QBE eased 1.11 per cent after setting aside US$75 million to make good on failures to meet a pricing promise to policyholders. The firm said it would work with ASIC to remediate affected customers.  

Paladin Energy dipped 2.36 per cent after announcing production will restart at the uranium miner’s flagship Langer Heinrich Mine in Namibia. The mine was placed on care and maintenance in 2018 when falling uranium prices made it uneconomic. First volumes are expected to be produced in early 2024.

Other markets

Asian markets were mixed but mostly lower. The Asia Dow dropped 0.11 per cent. China’s Shanghai Composite dipped 0.21 per cent. Hong Kong’s Hang Seng fell 0.83 per cent. Japan’s Nikkei gained 0.68 per cent.

S&P 500 futures rallied 11.5 points or 0.3 per cent despite a soft after-market trading update this morning from IBM.

Gold faded US$5 or 0.3 per cent to US$1,705.20 an ounce. Brent crude was unchanged at US$106.27 a barrel.

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