The share market fell below 7000 for the first time in three weeks as iron ore futures plunged and a Wall Street inflation tantrum sent tech stocks to seven-month lows.
The S&P/ASX 200 slumped 62 points or 0.88 per cent to its weakest close in a month.
The Dow's worst night since January left the local market nowhere to go but lower for a third day. Losses accelerated mid-session after Chinese iron ore futures skidded more than 7 per cent.
Afterpay and the bulk metals majors led the retreat. NAB and Westpac added to down-pressure as they traded without the right to a dividend. CSL,ANZ and Newcrest were the best of the heavyweights, with support from CBA.
What moved the market
The spectre of inflation that has haunted equity markets all week blew into a full-scale panic overnight after US consumer prices rose three times faster in April than economists predicted. Growth stocks led the rout as the Nasdaq Composite tanked 2.67 per cent. The S&P 500 lost 2.14 per cent, its heaviest fall since February. The Dow's 682-point collapse was its worst since the first month of the year.
“Last week the S&P 500 ended near all-time record highs and today, three days later, it is off by more than 4%!” Jim Paulsen, chief investment strategist of The Leuthold Group, wrote.
“Investors are not only dumping growth stocks which traditionally have not held up well during bouts of higher inflation, but later in the day began unloading nearly all stocks as fears increased that the [Federal Reserve] may be forced to bring tapering and perhaps rate hikes forward,” he added.
A horror month for Australian tech investors continued as the sector slumped 4.7 per cent. Last year's best-performing sector has given up more than 17 per cent since the start of the month as inflationary pressures prompted institutional investors to re-evaluate future earnings.
Accounting platform Xero, the sector's second-largest company by market capitalisation, plunged 12.97 per cent after reporting a slowdown in growth rates in its key US and UK markets. Afterpay, the poster boy for the pandemic market recovery, fell 5.39 per cent. NextDC fell 3.36 per cent, Nanosonics 2.01 per cent and WiseTech 2.02 per cent.
The yield on ten-year Australian government bonds hit a five-week high this morning and was lately up four basis points at 1.766 per cent. US yields jumped eight points overnight.
CSL climbed 1.19 per cent after the federal budget included tax breaks to encourage innovation. The "patent box" announced on Tuesday night effectively means income from products made with Australian patents will be taxed at 17 per cent, instead of the current rate of 25-30 per cent. ResMed, another potential winner from the change, rose 1.7 per cent.
Treasury Wine Estates rose 2.71 per cent after raising earnings guidance. The company said it expected full-year earnings of $495-$515 million, ahead of the current market consensus. Earnings were expected to bounce 33 per cent this half from the prior corresponding period despite the destruction of the company's Chinese business after China imposed punitive tariffs.
A profit upgrade lifted GrainCorp 5.23 per cent. The agribusiness raised its full-year earnings outlook to $255-$285 million from previous guidance of $230-$270 million. A strong first half meant full-year net profit was now expected to be $80-$105 million, up from $60-$85 million.
“This result and the outlook, reflect a positive rebound in growing conditions on the east coast of Australia and the operating initiatives now embedded in our business," Managing Director & CEO Robert Spurway said.
ANZ rose 0.85 per cent as bond yields rallied. (Higher rates allow lenders more scope to increase margins.) CBA gained 0.43 per cent. NAB and Westpac fell 2.19 and 2.25 per cent, respectively, as they traded without the right to a dividend.
The iron ore majors turned lower as a breakneck rally in the price of ore showed the first sign of cracking. Reuters reported the most actively traded contract on China's Dalian Commodity Exchanged tumbled as much as 7.2 per cent this morning. Coking coal and other steel-making ingredients also declined. Steel rebars fell 2.6 per cent.
Dalian ore prices had jumped 23 per cent this month. Other ore benchmarks had put on as much as 25 per cent. Fortescue Metals fell 4.05 per cent, Rio Tinto 1.57 per cent and BHP 1.27 per cent. Champion Iron eased 2.78 per cent.
The dollar declined with the deterioration in the nation's most valuable export. The Aussie sagged another 0.28 per cent to 77.1 US cents after tumbling more than a cent overnight.
Mining services company Perenti Global lost more than a quarter of its market capitalisation after reporting a downturn in revenue and operating margins. The company warned it expected Covid and labour market headwinds to continue for at least 12-18 months. The share price dived 29.23 per cent to its lowest level in 13 months.
A 54 per cent slump in statutory half-year profit pulled Orica down 0.6 per cent. Underlying earnings declined 51 per cent to $152 million. The company said the result was affected by Covid disruptions, geopolitical tensions with China and unfavourable currency movements.
Managing Director and CEO Sanjeev Gandhi said: “While the factors that impacted us in the first half are expected to largely reverse over time, and the fundamentals of our business remain sound, we remain cautious about the short-term outlook."
Bond proxies mostly weakened as yields rallied. Transurban fell 2.47 per cent, Goodman Group 1.96 per cent, Wesfarmers 0.74 per cent and Woolworths 0.52 per cent.
Asian markets deteriorated as the session wore on. The Asia Dow lost 1.47 per cent, China's Shanghai Composite 1.22 per cent, Hong Kong's Hang Seng 1.49 per cent and Japan's Nikkei 2.41 per cent.
US futures unwound earlier gains as Asian losses increased. S&P 500 futures were recently flat after being up 0.4 per cent.
Oil reversed all of its overnight advance, plus more. Brent crude declined 92 cents or 1.33 per cent to US$68.40 a barrel. Gold faded $6.20 or 0.34 per cent to US$1,816.60 an ounce.