ASX Close: Bond proxies lead rebound as miners sink

Aussie stocks logged their second rise in three days as a decline in bond yields encouraged buyers to scoop up companies offering superior returns.

The S&P/ASX 200 climbed 20 points or 0.31 per cent.  

Today’s rally was only the second in a two-week spell that knocked the index down 11 per cent from above 7200 to as low as 6407. Today’s close at 6528 was the strongest in a week.

What moved the market

The hunt for yield helped battered real estate investment trusts and banks recover some of this month’s heavy losses. Strength in “bond proxies” (stocks offering safe, predictable returns) offset pressure on commodity stocks as demand fears pummelled prices for iron ore, crude oil and industrial metals.

With interest rates set to rise sharply this year, “recession” was the key theme directing flows on financial markets overnight. The S&P 500 dipped 0.13 per cent after Citigroup estimated the odds on a global recession at 50 per cent.

“The experience of history indicates that disinflation often carries meaningful costs for growth and we see the aggregate probability of recession as now approaching 50%,” Citigroup economists wrote.

A collapse in copper prices was another red flag for the global economy. Prices have fallen almost 25 per cent in four months.

“One of the traditional measures of global economic health and recession is the price of copper,” Tony Sycamore, market analyst at City Index, said.

“Demand for copper increases during an expansionary economic cycle, while demand for copper drops when global growth is slowing. Overnight the price of copper futures fell to a 15-month low.”

Buyers retreated to the safety of government bonds, driving yields lower. The yield on ten-year Australian government bonds declined 14 basis points this afternoon.

Falling bond yields increase the appeal of dividend payments from equities. The REIT sector jumped 2.7 per cent this session. The sector lost more than a quarter of its value this year over concerns about the impact of increased borrowing costs on valuations.

Interest in the speculative end of the market continued to erode. The S&P/ASX Emerging Companies index sagged 1.6 per cent to a 15-month low. The index nearly quadrupled in value during the pandemic but has shed almost a third of its value since April.

“When it comes to the stock market, one thing is pretty clear: investors have become a lot more attentive to fundamentals and are no longer willing to place bets just because of momentum. Free money has left town, the era of meme stock is over, and now investors are forming a model around valuation, and paying attention to the geopolitical situation have started to command more importance,” Naeem Aslam, chief market analyst at AVATrade, said.

Data this morning confirmed recent interest rate rises have yet to seriously undermine the health of the economy. S&P Global’s preliminary composite gauge of Australian private-sector activity eased to 52.6 from 52.9. While this month’s reading was the lowest in five months, it was still comfortably above the 50-point level that separates contraction from expansion.  

The manufacturing PMI edged up to 55.8 from 55.7 last month. The services-sector PMI dipped to 52.6 from 53.2.

Winners’ circle

Property was back in vogue following a horror six months. A guidance upgrade from Growthpoint Properties gave the sector a shot in the arm. The industrial and office investment trust raised its guidance for funds from operations to at least 27.7 cents per share. The share price responded by rising 2.95 per cent.

Goodman Group climbed 4.87 per cent. Centuria REIT added 4.21 per cent, Arena REIT 3.45 per cent and BWP Trust 3.08 per cent.

The big four banks added bulk to the upswing. CBA firmed 0.2 per cent, ANZ 1.1 per cent, NAB 0.52 per cent and Westpac 0.46 per cent.

Wesfarmers gained 0.94 per cent. Supermarkets Woolworths and Coles jumped 1.83 and 2.26 per cent, respectively.

Bubs Australia firmed 1.61 per cent on news two more planeloads of infant formula will leave for the States shortly. One plane containing 90,270 tins of Bubs formula will arrive in Los Angeles on Sunday. Another containing 90,195 tins will reach Philadelphia on July 5.

Shareholders in APA Group will receive a final distribution of 28 cents per security. The share price rose 2.42 per cent.

Doghouse

The bulk metal majors tested multi-week lows before iron ore turned higher for the first time in ten sessions. The most-traded futures contract on the Dalian Commodity Exchange was up 1.6 per cent by the Australian close.

Fortescue Metals halved its decline to 2.1 per cent. Rio Tinto shed 1.79 per cent and BHP 1.29 per cent. Champion Iron gave up 7.3 per cent.

OZ Minerals sank 4.84 per cent after copper fell to a 15-month low in London trade. Chalice Mining lost 6.18 per cent.

The lithium boom continued to unwind with heavy falls among ASX 200 miners. Recent addition Lake Resources crumbled 16.67 per cent. Liontown Resources dropped 9.28 per cent. Underlining the current weakness, Leo Lithium skidded 25.71 per cent upon listing today.

A one-month low in Brent crude helped pull Woodside down 2.6 per cent, Santos 2 per cent and Beach Energy 2.4 per cent.

AGL eased 1.34 per cent after telling shareholders it is still months from completing a strategic overhaul following an investor revolt against a proposed demerger. The energy giant said it would present initial outcomes of a review in September.

Bravura Solutions dipped 3.81 per cent on news CEO Nick Parsons will stand down in August. Libby Roy, currently Managing Director of Optus Business, will take over.

A tough week for leading gold miners continued with a production downgrade from Ramelius Resources. The share price sank 8.72 per cent to a two-year low after persistent rain and labour shortages prompted a warning full-year production would fall “marginally short” of guidance.

Meanwhile, St Barbara slumped another 13.51 per cent after yesterday deferring a decision on a mine expansion. Sandfire shed 7.79 per cent, Regis Resources 8.72 per cent and Silver Lake Resources 4.23 per cent.

Other markets

Asian markets turned positive in afternoon trade. China’s Shanghai Composite swung to a gain of 1.13 per cent. Hong Kong’s Hang Seng led with a rise of 1.66 per cent. Japan’s Nikkei added 0.18 per cent. The Asia Dow inched up 0.04 per cent.

US futures pared early losses. S&P 500 futures were recently down 2.5 points or 0.07 per cent.

Oil continued to lose altitude. Brent crude slid US$1.71 or 1.6 per cent to US$107.03 a barrel.

Gold retreated US$3.20 or 0.17 per cent to US$1,835.20 an ounce.

The dollar slipped back under 69 US cents, lately down 0.1 per cent at 68.99 US cents.