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Aussie shares fell for the second time in three sessions as several states closed their borders with New South Wales and debate raged over the outlook for interest rates.
The S&P/ASX 200 fell 44 points or 0.6 per cent despite positive US leads and gains in Asia.
The market mood deteriorated as Commonwealth Bank and Westpac tipped higher interest rates as soon as next year. Travel stocks declined as Sydney’s Covid-19 cluster expanded, prompting travel bans.
Tech stocks and miners resisted the downtrend. Banks, health stocks and industrials led the selling.
What moved the market
Travel stocks retreated as states closed borders on news of a sharp increase in Sydney’s Covid-19 cluster. The NSW government today reported 16 new locally-acquired cases. Western Australia and South Australia announced immediate travel bans. Queensland, Victoria and and Tasmania placed restrictions on seven Sydney hot spots.
Flight Centre fell 3.52 per cent, Webjet 2.31 per cent and Helloworld 2.65 per cent. Sydney Airport dropped 2.2 per cent. Qantas dipped 0.21 per cent.
“The growth in the cluster of highly infectious Delta virus variant in Sydney has become the new source of worry for the government,” Kalkine Group CEO Kunal Sawhney said. “At a time when vaccine hesitancy continues to rule over the minds of Aussies prompting many people to cancel their vaccine appointments, the emergence of fresh cases is certainly not welcome news for Australia.
“The government is now facing a double challenge of curbing the new COVID-19 spread and simultaneously regaining public trust in vaccines while keeping safety scares at bay.”
Commonwealth Bank joined the ranks of economists tipping the Reserve Bank will raise interest rates sooner than the central bank’s current guidance suggests.
“We expect the RBA to begin normalising monetary policy in late 2022 and see the cash rate at 0.5 per cent at end-2022 and then peaking at 1.25 per cent by Q3 2023,” the bank’s economists wrote.
The Reserve Bank‘s official line on rates is it does not expect inflation to sit sustainably within its 2 – 3 per cent target range until 2024 – a pre-condition for hiking. Westpac Chief Economist Bill Evans said he expects the bank to wait no later than 2023, then lift three times.
RBA Assistant Governor Luci Ellis told an Adelaide audience this afternoon the bank remained committed to achieving full employment. Ms Ellis said full employment was necessary to generate the wages growth necessary to lift inflation to sustainably within the bank’s target range.
“The Board remains committed to maintaining highly supportive monetary conditions. The aim of these policy settings is to support a return to full employment and inflation consistent with the target,” she said.
The market snubbed positive leads from the US. The S&P 500 rallied 0.51 per cent overnight as the Federal Reserve doused rate concerns. The Nasdaq Composite climbed 0.79 per cent to an all-time high.
Winners’ circle
Tech stocks outperformed in the US overnight, setting up the domestic sector for market leadership. Afterpay climbed 3.17 per cent, Appen 3.28 per cent and Technology One 1.11 per cent. BNPL player Z1P Co rose 6.44 per cent.
A rebound in iron ore lifted Fortescue Metals 0.45 per cent, BHP 1.03 per cent and Rio Tinto 0.7 per cent. Gold giant Newcrest edged up 0.19 per cent.
Washington H. Soul Pattinson surged 8.46 per cent as investors warmed to a merger with rival investment house Milton Corporation, announced yesterday. Milton shares jumped 10 cents past the offer price of $6, rising 5.17 per cent.
Fruit and veg grower Costa Group entered a trading halt to raise funds to acquire 2PH Farms, a central Queensland citrus grower. The companies have worked together more than a decade. Costa aims to raise $190 million through a capital raising. The company also said it expected its first-half performance to be “marginally ahead” of the previous half.
Also raising funds, wearable tracking technology maker Catapult was seeking $40 million through a placement and share purchase plan to acquire sports software video provider SBG Sport Software.
Doghouse
A broker downgrade pushed CSL lower for a second day. The share price fell 2.09 per cent after Citi cut its rating to hold. The healthcare giant hit a seven-month high on Monday.
Woolworths sank 1.94 per cent after announcing $163 million in costs and impairments relating to the demerger of its Endeavour drinks business, redundancies at distribution centres and impairments at its Metro Food Store network.
Oil companies declined after market chatter about looming production increases weighed on crude overnight. Woodside shed 2.1 per cent, Santos 2.41 per cent and Oil Search 1.79 per cent.
Westpac led a retreat in the big four banks, falling 1.99 per cent. CBA dropped 1.03 per cent, ANZ 1.43 per cent and NAB 1.35 per cent.
Other markets
Asian markets mostly advanced as US futures rallied. China’s Shanghai Composite gained 0.42 per cent, Hong Kong’s Hang Seng 1.49 per cent and Japan’s Nikkei 0.07 per cent. The Asia Dow dipped 0.09 per cent. S&P 500 futures rose eight points or 0.19 per cent.
Oil pushed higher. Brent crude rallied 47 cents or 0.63 per cent to US$74.55 a barrel.
Gold bounced $3.70 or 0.21 per cent to US$1,781.10 an ounce.
The dollar retreated 0.13 per cent to 75.44 US cents.
