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Shares retreated for a second day as strong jobs figures sharpened speculation interest rates will rise much sooner than the Reserve Bank currently projects.
The S&P/ASX 200 sank 49 points or 0.73 per cent, weighed down by bond surrogates as surges in the dollar and bond yields overshadowed positive US leads. Gold miners provided a little sparkle after precious metals rose.
What moved the market
A record night on Wall Street counted for little after an unexpected plunge in unemployment pointed towards rate hikes as soon as next year. The jobless rate dived from 6.3 per cent to 5.8 per cent last month, according to the Australian Bureau of Statistics. The economy created 89,000 jobs, almost three times as many as the median prediction from economists.
Speculation immediately turned to the outlook for interest rates. The RBA spent the first half of this week reiterating its conviction it will not have to raise the cash rate until 2024 at the earliest. Jumps today in bond yields and the dollar suggested the central bank will have its work cut out convincing markets the jobs news has not changed that timeline.
“Implications huge for the monetary policy outlook. It was always dubious that the RBA would be on hold till 2024. A bit more of this news and it will be hiking within 12 months,” Stephen Koukoulas, Managing Director of Market Economics, tweeted.
The RBA had previously said it would hold the cash rate at a record low until inflation is sustainably above 2 per cent. Wages would have to rise considerably to meet that goal.
“Headline CPI [consumer price index] will be near 4% later this year, a real chance underlying will be near 2% by year end. If wages are also on the up (which is now a real risk), firstly we should celebrate & then get set for the RBA hiking 2,3 or 4 times,” Koukoulas added.
The dollar got a double caffeine hit in the space of a few hours, firstly from a slump in the greenback after the US Federal Reserve reassured American investors it did not expect to raise rates until 2024, then from the jobs report. The Aussie climbed more than a cent in two hops to 78.36 US cents.
US stocks cheered the prospect of low rates and continued Fed support. The Dow and S&P 500 both hit new peaks, rising 0.58 and 0.29 per cent, respectively.
Winners’ circle
The materials sector inched off its weakest level in five weeks, thanks almost entirely to gold stocks. The index’s top three performers were all gold miners. Silver Lake Resources rose 8 per cent, Ramelius 7.9 per cent and Gold Road Resources 7.3 per cent. Sector giant Newcrest gained 3.7 per cent.
Besides Newcrest, just two other heavyweights from the ASX 20 made gains. Supermarket Coles edged up 0.3 per cent. Macquarie Group added less than 0.1 per cent. Telstra has been on a tear, but missed out on fifth straight gain by finishing flat. The telecom giant got a boost yesterday from a broker upgrade from Ord Minnett.
The promise of higher spending from lower unemployment helped retailers. Harvey Norman climbed 1.9 per cent to a post-GFC peak. JB Hi-Fi put on 2.6 per cent and Super Retail Group 3.8 per cent.
Interest in the speculative end of the market has picked up over the last week. The S&P/ASX Emerging Companies Index climbed 1 per cent to its sixth advance in seven sessions. The speculative index slumped to a two-month low earlier this month as a sudden spike in bond yields triggered risk-off selling.
Doghouse
Tech stocks were pushed lower by a rise in borrowing costs. The yield on ten-year Australian bonds rose ten basis points to 1.83 per cent. Afterpay dropped 1.8 per cent, NextDC 3.4 per cent and Iress 2.7 per cent. Bond surrogates also suffered: Goodman Group declined 1.2 per cent, Woolworths 1.5 per cent and Brambles 1.4 per cent.
The retreat in the greenback weighed on companies with significant US earnings. Transurban fell 2.1 per cent, CSL 1.9 per cent and Aristocrat Leisure 0.5 per cent.
The banks finished at or near session lows. CBA shed 1.6 per cent, NAB 0.9 per cent, Westpac 0.9 per cent and ANZ 0.8 per cent.
Fortescue Metals faded 0.5 per cent to its softest close since December. Rio Tinto shed 0.9 per cent and BHP 0.8 per cent.
Other markets
Gold was one of the big winners from this morning’s Fed meeting and held onto most of its initial gains. The yellow metal was last up $21.10 or 1.2 per cent at US$1,748.20 an ounce.
Oil‘s losing run extended into a fifth session. Brent crude fell 37 cents or 0.5 per cent to US$67.63 a barrel.
Japan’s export-driven Nikkei advanced 0.87 per cent. The Asia Dow put on 1.35 per cent, China’s Shanghai Composite 0.55 per cent and Hong Kong’s Hang Seng 1.51 per cent.
US futures trimmed gains this afternoon as bond yields resumed their up-trend. S&P 500 futures were ahead two points or less than 0.1 per cent. Nasdaq futures eased less than 0.1 per cent. Dow futures rose 78 points or 0.24 per cent.
