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A volatile week ended with a loss as investors reassessed the risks of rising costs derailing the post-pandemic global rebound.
The S&P/ASX 200 fell 67 points or 0.94 per cent today. The decline sealed a weekly loss of 47 points or almost 0.7 per cent.
A tentative rebound in mining and oil companies helped offset declines in borrowing-dependent growth stocks following the hottest US inflation report in 40 years.
What moved the market
Stocks rose and fell all week as Australian investors weighed the benefits of stronger export prices against the hit to businesses and customers from the rising cost of energy and food. The ASX 200 fell through the first half of the week, recovered, then fell away again.
“Fears loom that the ongoing spike in commodity prices can increase the input costs of businesses, squeezing the margins of downstream sectors,” Kalkine CEO Kunal Sawhney said.
“While commodity stocks have been performing quite well in the ongoing Russia-Ukraine conflict, investors could also keep a close watch on other areas of the market.”
The market turned lower today as Australian borrowing costs followed US treasury yields higher.
“It’s a bit disappointing to see the ASX trade lower today after putting up a good fight the two days prior,” City Index senior market analyst Matt Simpson said.
“But then success really depends on how it is measured. Taking into consideration the negative news flow these past two weeks, then the ASX has actually done really well to rise around 1% from its close on the 25th of February, and be back above 7,000.”
Goldman Sachs this afternoon downgraded its US growth outlook after a report last night showed US consumer prices increasing at an annual rate of 7.9 per cent. The growth rate was the largest since 1982.
The investment bank trimmed its US growth forecast to 2.9 per cent from a previous target of 3.1 per cent. The bank’s analysts put the risk of a recession in the next year at 20-35 per cent.
Petrol in Australia topped $2 per litre this week as crude surged to a 14-year peak. US pump prices hit an all-time high.
While an end-of-week retreat in crude hinted at relief for vehicle-owners, trading data showed traders expect the rally to resume. Brian Gould, head of trading at Capital.com’s Australian HQ, said traders increased their bets this week.
“Despite the pull-back in oil prices, traders remain bullish, signalling the belief that oil remains in a short-term uptrend,” Gould said. “Long trades on oil actually increased by 9% week on week, telling us that traders are happy to buy the dips.
“With noise from record oil prices easing a little, we’re also seeing traders shift their focus back to gold, which comes at a time when the United States is recording elevated levels of both core and headline inflation.”
US stocks fell overnight as inflation data increased pressure on the Federal Reserve to raise rates.
“Market sentiments were further dented by failed peace talks between Russia and Ukraine on establishing a safe or cease-fire passage for civilians fleeing the besieged port city of Mariupol,” Kalkine’s Sawhney said.
“Russian troops continued to lay siege to key Ukrainian cities even after high-level negotiations in Turkey. The failed peace talks concerned investors about the global economic outlook, reducing their appetite for riskier assets like equities.”
The S&P 500 fell 0.43 per cent to its fifth loss in six sessions. A 0.34 per cent decline kept the Dow on track for a fifth straight losing week.
Reserve Bank Governor Philip Lowe today shed further light on the outlook for rates. Lowe told a business summit this morning it would be “prudent to plan for an increase” in interest rates. A hike this year was “plausible but not guaranteed”, he added.
Winners’ circle
Iron giants Rio Tinto and Fortescue Metals cushioned the market from a deeper loss. Rio put on 0.99 per cent and Fortescue Metals 0.16 per cent. BHP dipped 0.13 per cent.
Woodside Petroleum gained 1.04 per cent as oil steadied after two days of falls. Brent crude inched up 15 US cents or 0.14 per cent this afternoon to US$109.48 a barrel.
Lithium miners Allkem and AVZ Minerals were the session’s best performers, rallying 4.96 and 7.19 per cent, respectively. Champion Iron added 4.58 per cent, Alumina 3.05 per cent and South32 2.95 per cent.
IAG operator Metcash firmed 1.2 per cent as Doug Jones took over from retiring CEO Jeff Adams. Adams will remain with the company until October to ensure a smooth transition.
Virtus Health entered a trading halt, pending an announcement on competing proposals to acquire the company. The fertility clinic operator said the halt was necessary as “the Company expects to make an announcement to the market in relation to ongoing matters pertaining to proposals to acquire Virtus Health Limited.”
Doghouse
A two-day recovery in tech stocks came to a halt as the cost of borrowing rebounded. The yield on ten-year government bonds today climbed to its highest since December 2018 in the wake of last night’s sizzling US inflation figures.
Appen dropped 6.2 per cent, Xero 5.86 per cent and EML Payments 5.93 per cent. Other rate-sensitive growth stocks to lose ground included Zip Co -7.62 per cent, Pro Medicus -6.57 per cent and PointsBet -6.08 per cent
Appliance manufacturer Breville eased 2.74 per cent on news it will acquire Italian coffee machine maker LELIT for $168.75 million. The Italian company sells mid-to-high-end home coffee machines.
Nickel Mines faded 1.64 per cent to a third straight loss after scrapping a share purchase plan. The miner said all application monies would be refunded after the share price plunged below the offer price of $1.37.
Shares in the miner fell as low as $1.12 yesterday on reports major investor and business partner Tsingshan Holding Group faced a US$8 billion loss after bets on the nickel market went wrong.
Among companies trading ex-dividend, Grange Resources fell 12.72 per cent, WiseTech 4.11 per cent, Kelsian 2.67 per cent and Deterra Royalties 4.21 per cent.
Other markets
Asian markets added to losses as the session wore on. The Asia Dow gave up 2.46 per cent, China’s Shanghai Composite 2.16 per cent, Hong Kong’s Hang Seng 3.2 per cent and Japan’s Nikkei 2.39 per cent.
US futures followed Asia lower. S&P 500 futures dropped 18 points or 0.4 per cent.
Gold retreated US$8.40 or 0.42 per cent to US$1,992 an ounce.
The dollar faded 0.41 per cent to 73.33 US cents.
