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Unexpectedly strong employment data helped shield the ASX against a Wall Street sell-off after the Federal Reserve signalled US rates will rise sooner than the market consensus.

The S&P/ASX 200 arrested an initial 44-point tumble after a mid-morning report showed the unemployment rate fell to 5.1 per cent last month as the economy added 115,000 jobs.

The index trimmed its loss to 27 points or 0.37 per cent as consumer and tech stocks rallied. Banks rose as bond yields surged. Miners dragged after China ramped up efforts to depress commodity prices.

Today’s loss was the local market’s first in five sessions. The ASX 200 hit the latest in a string of all-time highs yesterday, cracking 7400 for the first time.

What moved the market

In a session dominated by the fast-changing outlook for the global economy and interest rates, the ASX followed Wall Street lower before a partial recovery. Stocks bottomed as data showed the labour market shrugged off the end of JobKeeper support in March. The seasonally-adjusted unemployment rate fell an extraordinary four basis points from 5.5 per cent to 5.1 per cent.

“Not only are the details good in absolute terms, but compared with where just about everyone thought the economy would be, the results are, frankly, spectacular,” economist Stephen Koukoulas wrote. “The better news is that these trends are set to continue for at least the next 6 months,” he added.

The strength of the report raised questions over the Reserve Bank’s expectation it will not have to raise the cash rate until 2024. The bank has previously said unemployment needs to fall to put pressure on wages, which in turn would push headline inflation towards the bank’s 2 – 3 per cent range.

“Australia’s underemployment rate has fallen to 7.4%, its lowest since early-2014,” ANZ analysts wrote. “The shrinking pool of underemployed workers will be an important catalyst for businesses to lift wages, as they have less ‘available’ labour to draw on quickly.”

The dollar bounced 0.28 per cent to 76.36 US cents, reclaiming almost a third of its overnight fall.

Reserve Bank Governor Philip Lowe this morning reassured investors the central bank will continue to pump money into the economy through its bond-buying program. Speaking before the jobs report, Mr Lowe said the bank had ruled out terminating the program in September.  

“The RBA’s bond purchase program is one of the factors underpinning the accommodative conditions necessary for our economic recovery. It is premature to be considering ceasing bond purchases,” Mr Lowe told a Queensland conference.

Today’s initial ASX sell-off came after the Fed surprised investors by indicating US rates may rise twice before the end of 2023 – sooner than the market expected. Equities, bond markets and commodities sold off as the greenback surged and treasury yields jumped. The S&P 500 dropped 0.54 per cent. The Dow shed 0.77 per cent.

US futures pared sharp initial falls as the Australian session wound up. S&P 500 futures shaved their decline to 16 points or 0.37 per cent.

Winners’ circle

Lenders were the big winners from a sharp rise in borrowing costs. The yield on ten-year Australian government bonds jumped ten basis points to 1.615 per cent, mirroring a similar move in the US overnight. Higher rates offer lenders greater wiggle room to increase margins.

Commonwealth Bank climbed 1.04 per cent to a new record. ANZ advanced 1.07 per cent, NAB 0.56 per cent and Westpac 1.47 per cent.

Wesfarmers joined CBA at an all-time high, rising 0.63 per cent as falling joblessness pointed to increased spending power in the pocket of consumers.

Other notable winners included companies with significant US operations following a jump in the greenback. Brambles gained 1.24 per cent, Transurban 0.89 per cent and Aristocrat Leisure 0.46 per cent. Afterpay added 1.72 per cent.

Seven West Media was the index’s best performer, soaring 23.75 per cent on news of a strong rebound in advertising revenue. The company expected revenue to increase more than 45 per cent this quarter, positioning it to beat the market earnings consensus.

Shipbuilder Austal bounced 4.5 per cent from yesterday’s two-and-a-half-year closing low. Nuix was another fallen star to attract bargain-hunters, rising 6.15 per cent.

Doghouse

Coles slumped 4.46 per cent after outlining plans to increase spending sharply next year. The supermarket will invest heavily in online shopping, automated fulfilment centres and self-serve checkouts.

The big three bulk metal miners fell as a surging greenback weighed on dollar-denominated commodities and China ramped up efforts to depress prices. Fortescue Metals sank 1.48 per cent, Rio Tinto 1.18 per cent and BHP 1.41 per cent. Oz Minerals shed 4.7 per cent.  

“State owned [Chinese] enterprises were ordered to control risks and limit their exposure to overseas commodity markets. This was followed by the National Food and Strategic Reserves Administration announcing it would release stockpiles of metals including copper, aluminium and zinc. The metals will be sold in batches to fabricators and manufacturers. This saw most metal prices come under pressure in trading on the Shanghai Exchange,” ANZ Senior Commodity Strategist Daniel Hynes said.

Whitehaven Coal, one of the index’s star performers over the last month, tanked 11.52 per cent following a production downgrade. The miner trimmed its full-year production outlook to 20.4 million tonnes from previous guidance of 20.6 – 21.4 million.

Gold producers followed precious metals prices lower. Northern Star shed 7.57 per cent, Evolution Mining 4.67 per cent and Newcrest 2.51 per cent.

Other markets

Asian markets mostly tracked declines on Wall Street. The Asia Dow fell 0.91 per cent. Japan’s Nikkei 225 lost 0.94 per cent. Hong Kong’s Hang Seng edged up 0.04 per cent. China’s Shanghai Composite dipped 0.05 per cent.

A surge in the US dollar in the wake of the Fed policy update sent commodity prices lower. Brent crude sagged 19 cents or 0.26 per cent to US$74.20 a barrel. Gold skidded $41.90 or 2.25 per cent to US$1,819.40 an ounce.

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