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Australian shares tracked US futures lower as the Democrats edged closer to seizing control of the Senate.
The S&P/ASX 200 slumped 75 points or 1.1 per cent, front-running potential losses in the US tonight. The decline wiped out all but 20 points of Monday’s start-of-year bull run.
What moved the market
S&P 500 futures skidded 24 points or almost 0.7 per cent after Decision Desk HQ called one of two contested Senate seats in Georgia for the Democrats. Victory in both runoffs would hand the Democrats a wafer-thin majority in the Senate, allowing President-elect Joe Biden to push through legislative changes.
“Investors may begin to price in the prospect of higher taxes and tighter regulation, which will slow economic and corporate profit growth,” Phil Orlando of Federated Hermes told CNBC. Orlando predicted a “knee-jerk reaction lower” if the Democrats win both seats.
Analysts warned a final result may not be known until tomorrow, with the second race too close to call. At time of writing, Decision Desk HQ had Republican David Perdue ahead of Democrat challenger Jon Ossoff by 50.02 per cent to 49.98 per cent.
Australian yield stocks tumbled as US treasury yields rallied. US treasury prices fell as investors priced in the possibility of a bigger stimulus package under a Democrat-controlled Senate triggering higher inflation. Treasury prices and yields have an inverse relationship.
Companies with significant US operations sank with the greenback. The US dollar hit a two and a half year low last week, delivering an earnings hit to the likes of CSL, James Hardie and Altium. The Australian dollar soared almost a cent overnight to its highest level since April 2018.
Winners’ circle
Energy was the only sector to resist the downtrend, rising 1.6 per cent after surprise Saudi production cuts helped US crude crack US$50 a barrel for the first time since the start of the pandemic. Saudi Arabia agreed to reduce its output by a million barrels a day during February and March while OPEC+ partners Russia and Kazakhstan raised their production by a combined 75,000 barrels a day.
“Oil is a function of the rest of the world recovering and a look to where we’re going,” Tim Seymour, founder of Seymour Asset Management, told CNBC.
Oil Search climbed 5.7 per cent, Origin Energy 2.1 per cent and Santos 2.1 per cent. Sector giant Woodside Petroleum was the only heavyweight on the ASX 20 to advance, rising 1.7 per cent.
Andrew Forrest’s iron ore juggernaut Fortescue Metals hit a record before fading to a loss of almost 0.6 per cent. BHP gave up 0.2 per cent and Rio Tinto 1.7 per cent. Nickel and copper miner IGO gained 4.4 per cent.
Insurer IAG rose 1.1 per cent from a three-month low after finalising its catastrophe reinsurance cover at a modest increase. The company said the overall expense was in line with expectations.
Doghouse
The tech sector bore the brunt of the selling, with many companies generating revenues in US dollars. Afterpay sank 4.5 per cent, Nanosonics 7.1 per cent and Bravura Solutions 4.7 per cent. Altium fell 2.8 per cent to a four and a half month low.
Healthcare stocks with significant US operations also took a hit. CSL sank 2.5 per cent, ResMed 1.8 per cent and Cochlear 1.9 per cent.
Among yield stocks, Goodman Group shed 2 per cent, Woolworths 1.3 per cent and Coles 1.5 per cent. Transurban, which has US toll roads, fell 1.3 per cent. Aristocrat Leisure, another firm reliant on US dollar earnings, fell 1.6 per cent. James Hardie slid 4.1 per cent.
Financials also retreated. Macquarie Group dropped 2.4 per cent. CBA fell 0.4 per cent, ANZ and Westpac 0.8 per cent, and NAB 1.2 per cent.
Packaging group Amcor declined 2.5 per cent following a broker downgrade. Retail group Premier Investments dipped 4.6 per cent as it traded without its dividend.
Other markets
Oil added to an overnight rally that lifted prices to their highest level since February. Brent crude advanced 28 cents or 0.5 per cent to $US53.88 a barrel. Gold slid $6 or 0.3 per cent to $US1,948.40 an ounce.
Asian markets turned firmly negative as the session wore on. China’s Shanghai Composite fell 0.2 per cent, Hong Kong’s Hang Seng 0.9 per cent and Japan’s Nikkei 0.3 per cent.
The dollar edged up 0.03 per cent to 77.65 US cents.
Hot today and not today
Hot today: Meditech TruScreen (ASX:TRU) offered investors stag profits upon listing today. Shares in the cervical cancer detection specialist jumped 37.1 per cent. The company sells consoles for detecting pre-cancerous or cancerous cervical cells in real time. The company’s focus is China, but it is expanding its footprint around the world. Sales last year increased by 132 per cent to NZ$1.86 million.
Not today: Infection prevention specialist Nanosonics (ASX:NAN) has been in retreat since hitting an all-time high on Monday. Profit-taking after the share price surged 63 per cent in two months has likely been compounded by currency and Covid concerns. The company is heavily dependent on US earnings at a time when the greenback is under pressure. Earnings also depend on a resumption of normal hospital activity in the US, no longer a given as a more contagious strain of Covid-19 spreads. The share price fell 7.1 per cent today to a three-week low.
