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Stocks retreated ahead of the second interest rate rise of the year as declines in banks, miners and tech stocks outweighed advances in energy and healthcare providers.

The S&P/ASX 200 eased 32.5 points or 0.45 per cent in cautious trade counting down to to tomorrow’s Reserve Bank policy meeting.

Woodside Energy and Santos rose as Brent crude regained US$120 a barrel. The big four banks and major miners fell.

What moved the market

Weak leads from Wall Street and rate rise worries saw the local market start the week in retreat. The benchmark dropped as low as 7195 before paring its loss to 7206.

The setback came after Wall Street resumed a long run of weekly declines. Recession fears dragged the Dow Jones Industrial Average to its ninth losing week from ten after strong jobs data gave the Federal Reserve more cause to lift rates aggressively.

The Dow fell 1.05 per cent. The broader S&P 500 shed 1.63 per cent and the tech-heavy Nasdaq 2.47 per cent.

Interest rates were also top of mind here on the eve of what is certain to be the second increase in the cash rate target of 2022. The only unknown about tomorrow’s meeting is whether the central bank raises by the standard 25 basis points or goes harder. Economists are divided.

“This time around, two-thirds are calling for a 25bp hike, one (Goldman) is calling for a 50bp hike, and the remaining respondents are forecasting a 40bp increase. Elsewhere the interest rate market is priced for 36bps of rate hikes next week and for the cash rate to reach 2.50% by year-end,” City Index market analyst Tony Sycamore said.

Clifford Bennet, chief economist at ACY Securities, believes the RBA delayed too long and needs to raise by more than 25 points to rein in inflation.

“It needs to be hiking rates by 50 or 75 points to head off inflation,” he said. “This should have been done a year ago when the economy was expanding strongly. Then, they would not need to be raising rates now in the midst of this clear period of consumer and business caution.”

Job advertising data this morning underlined the strength of the labour market. Total employment ads increased by 0.4 per cent month-on-month, according to ANZ.

“It remains close to the March peak, indicating significant unmet demand for labour,” ANZ senior economist Catherine Birch said.

Winners’ circle

Energy was the day’s best-performing sector, rising 2.1 per cent amid scepticism about OPEC’s ability to increase output enough to offset embargoes against Russia. Woodside Energy climbed 3.24 per cent to a six-week high. Beach Energy put on 1.37 per cent. Santos added 2.02 per cent.

A 0.69 per cent increase in sector giant CSL lifted healthcare. Clinuvel Pharmaceuticals firmed 4.52 per cent. Pro Medicus edged up 0.34 per cent. 

Tabcorp jumped 5.32 per cent after the Queensland government announced it will level the playing field for wagering operators by reforming its licensing system. The move will benefit Tabcorp, which was paying twice the fees paid by some other operators, according to Managing Director and CEO Adam Rytenskild.

Tabcorp also announced it had settled a fees dispute with Racing Queensland. The gaming group will pay the racing authority $150 million to settle proceedings related to the introduction of a state consumption tax in 2018.

Production and sales upgrades lifted gas producer Cooper Energy 7.41 per cent. Improved processing rates and rising wholesale prices prompted the firm to revise its outlook to the upper half of previous guidance.

Doghouse

Declines in the heavily-weighted mining and banking sectors kept the index underwater. Newcrest dropped 1.1 per cent, BHP 0.9 per cent and Fortescue Metals 0.28 per cent. The big four banks lost between 0.33 and 0.8 per cent.

Ongoing outflows of funds under management (FUM) drove Magellan down 13.93 per cent to a fresh eight-year low. The investment manager’s FUM slumped by $3.6 billion last month to $65 billion.  

Lithium miner Liontown Resources announced it had executed a binding supply deal with Tesla. The five-year off-take agreement is expected to commence in 2024. The share price dipped 2.76 per cent.

Tech stocks dragged after an increase in long-term borrowing costs dulled the appeal of future equity earnings. Tyro Payments slid 8.37 per cent, Codan 3.63 per cent and Afterpay parent Block 3.18 per cent.

Link Administration eased 0.92 per cent on news the competition regulator needs more time to assess a takeover proposal from Dye & Durham. The Australian Competition and Consumer Commission delayed a decision until June 16.

VGI Partners faded 2.2 per cent after completing a merger with Regal Funds Management. The company name has changed to Regal Partners Limited and will soon trade under the ticker code RPL (date to be announced).

Growthpoint Properties retreated 0.51 per cent after confirming media reports it was running the ruler over privately-owned property investment group Fortius Funds Management. Growthpoint said it was “in discussions with Fortius regarding a potential transaction”, but “there is no certainty that a transaction will result”.

Among companies trading ex-dividend, Incitec Pivot dropped 2.71 per cent, Champion Iron 2.55 per cent and ALS Limited 1.25 per cent.

A tough session for investors in junior energy explorers saw heavy declines following disappointing drilling results. Global Oil & Gas plunged 80.95 per cent after the Sasanof-1 well off the coast of WA reached total depth without intersecting commercial hydrocarbons. Prominence Energy dived 75 per cent.

Other markets

Asian markets overcame early weakness. The Asia Dow gained 0.31 per cent. China’s Shanghai Composite advanced 0.91 per cent, Hong Kong’s Hang Seng 1.41 per cent and Japan’s Nikkei 0.63 per cent.

Rising US futures hinted at a recovery tonight. S&P 500 futures improved 20 points or 0.5 per cent.

Oil‘s seemingly unstoppable rise continued. Brent crude climbed 82 US cents or 0.7 per cent to US$120.54 a barrel.

Gold bounced back from its worst session in three weeks. The yellow metal firmed US$7.20 or 0.4 per cent to US$1,857.40 an ounce.

The dollar was steady at 72.02 US cents.

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