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The share market held on for a fifth straight month of gains despite a brutal final session as a global sell-off swept through Asia.

February saved its worst for last. The S&P/ASX 200 skidded 161 points or 2.35 per cent today, its heaviest loss since a 187-point dive in September. The decline mirrored falls in the US and Asia as a spike in borrowing costs sharpened inflation fears.

Today’s plunge stripped some of the gloss off a month that began at a sprint and reached a 50-week peak just seven sessions ago. The ASX 200 finished with a monthly tally of 66 points or 1 per cent. The advance continues an uptrend that has seen the index rise for ten of the last eleven months.  

What moved the market

Simmering worries about borrowing costs and inflation exploded overnight as US bond yields spiked more than 16 basis points to a year high. Wall Street’s fear gauge, the VIX, soared 35.4 per cent. The Nasdaq Composite, which is heavily weighted towards tech companies that borrow to fund growth, tanked 3.52 per cent. The broader S&P 500 fell 2.45 per cent.

Australian yields followed suit. The ten-year yield hit 1.9 per cent, according to ThinkMarkets analyst Carl Capolingua.

“Don’t forget, yields started the week at 1.4%, so that’s a 50 basis point increase in just five sessions,” he said. “The speed of the increase has caught many in the stock market off guard. Rising rates weren’t such a big deal as they slowly crept up from around 0.75% at the November lows to just over 1% at the start of this month. But February has seen a rocket put under yields.

“Rising yields increase borrowing costs and this hurts company profits,” he added. “Also, it impacts the rate that many institutional investors use to value stocks. They use that rate to discount cashflows, so ultimately, higher rates lead to lower stock valuations. It’s a double whammy, lower profits, and lower tolerance of investors to higher stock prices.”

All 11 ASX sectors declined. Nineteen of the 20 heavyweights of the ASX 20 lost ground. The tech sector followed the Nasdaq sharply lower, falling 5.3 per cent to a three-month nadir. Sector leader Afterpay plunged 11 per cent.

The carnage extended into Asia, where the Asia Dow slumped 3.17 per cent. China’s Shanghai Composite lost 1.89 per cent, Hong Kong’s Hang Seng 2.69 per cent and Japan’s Nikkei 3.28 per cent.

The bloodbath overshadowed the last day of a broadly positive earnings season. Investors proved willing to overlook short-term pain in the hope of long-term gain as the rollout of vaccines allows the economy to regain momentum.

“The market cheered some encouraging earnings updates from BHP, Brambles, NAB and Coles Group that drove the market scenario during the season,” Kalkine Group CEO Kunal Sawhney said. “Interestingly, the earnings results seem to have placed the ASX in good stead for a full-year earnings recovery in FY 2021 that looked highly dubious a few months ago.”

Winners’ circle

Gold stocks, a traditional defensive asset in times of market turmoil, dominated today’s leader board. Silver Lake Resources climbed 7 per cent, Perseus Mining 4.5 per cent and Gold Road Resources 3 per cent. Heavyweight Newcrest trimmed early weakness to finish less than 0.2 per cent in the red.

AMP enjoyed a rare day at the top of the percentage gains, rising 7.5 per cent after announcing a deal to sell US investment giant Ares a 60 per cent stake in AMP’s private markets business for $2.25 billion. Ares will assume management control of the business, with AMP retaining a 40 per cent stake in the joint venture.

A huge lift in half-year net profit made Lynas Rare Earths one of the few firms reporting earnings to rise. The REE miner’s shares firmed 5.7 per cent on news net profit surged to $40.6 million from $3.9 million in H120.

Transurban was the best of the heavyweights, rebounding 1.3 per cent from an early ten-month low. Brambles was next best with a loss of 0.1 per cent.

Doghouse

The last few companies to deliver interim earnings must have wished they reported yesterday, when investors were in a more forgiving mood. Online retailer Kogan doubled its dividend, increased gross profits by 126.2 per cent and saw its share price smashed down 10.4 per cent to an eight-month low.

Anticipation of strong earnings helped lift Harvey Norman to a 13-year high earlier this month. The retailer duly delivered, more than doubling its half-year profit, but the share price fell 1.1 per cent.

Data analytics firm Nuix, which listed in December, dived 32.4 per cent to an all-time low as a 4 per cent decline in half-year revenue raised questions over its full-year target. CEO Rod Vawdrey insisted the company would still meet its prospectus forecasts.

Explosives company Orica picked the wrong day for a profit warning. The company lost almost a fifth of its market value, falling 18.1 per cent after warning it expects to take a hit of up to $125 million from the strengthening dollar, arbitration costs and the impact of Chinese bans on coal mining.  

A tough session for BNPL players saw Afterpay tank 11 per cent as it resumed trade after its half-year report and a $1.5 billion raising. Z1P Co dropped 5 per cent. Sezzle trimmed a 12 per cent slump after reporting an operating loss of $27.9 million to just 2.9 per cent by the close.

At the top of the food chain, CSL dropped 2.8 per cent, BHP 2.6 per cent and CBA 2.6 per cent. Coles fell 4.3 per cent as it went ex-dividend. Aristocrat Leisure lost 4.6 per cent after reaffirming full-year guidance during today’s virtual AGM. Fortescue gave up 4.5 per cent, Woodside 3.4 per cent and Telstra 2.8 per cent.  

Other markets

US futures trended lower. S&P 500 futures faded 15 points or 0.4 per cent. Nasdaq futures fell 100 points or 0.8 per cent.

Oil belatedly joined the overnight sell-off in risk assets. Brent crude fell 65 cents or 1 per cent to $US62.46 a barrel.

Gold continued to lose ground, retreating $9.60 or 0.5 per cent to $US1,765.80 an ounce.

The dollar‘s overnight slide continued. The Aussie declined 0.36 per cent to 78.35 US cents.

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