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The share market wiped out its gains for the month with a sharp final-day retreat as long-term interest rates surged and US equity futures slumped.
The S&P/ASX 200 sank 107 points or 1.44 per cent to its heaviest loss since the start of the month.
The decline condemned the Australian benchmark to back-to-back monthly losses for the first time since last year’s initial pandemic sell-off. The index finished October with a slender loss of 8.5 points or 0.1 per cent.
All 11 sectors declined as US futures signalled possible trouble tonight. The yield on Australian government bonds hit its highest in two and a half years amid speculation about a looming change of policy at the RBA.
What moved the market
The ASX lost ground steadily as the yield on the ten-year Australian government bond pushed towards and then through 2 per cent for the first time since March 2019. Late in the session the yield had climbed an extraordinary 25 basis points to 2.11 per cent.
The Reserve Bank was nowhere to be seen as the April 2024 treasury yield – for which the bank has a target of 0.1 per cent – passed 0.5 per cent. The central bank’s failure to defend its target sharpened speculation next Tuesday’s meeting will bring a change of policy.
“Financial markets are now pricing in a hike in the official cash rate as soon as early next year amid inflationary concerns,” Kalkine Group CEO Kunal Sawhney said. “With several central banks across the globe already normalising interest rate settings, speculations are rife that the RBA may also rethink its forward guidance on interest rates.
“It will be enticing to see if persistently high inflation and firm labour market conditions will encourage the RBA to change its long-held view any time soon.”
Higher rates are generally viewed as negative for equity markets because they raise the cost of corporate borrowing while increasing the relative appeal of alternative stores of wealth, such as savings accounts, term deposits and annuities. The dollar firmed 0.28 per cent to 75.52 US cents.
It is no coincidence that the local market saw its biggest moves on the first and last of the month – occasions when institutional investors are active in rebalancing their portfolios. The second half of the month was broadly characterised by incremental increases during a generally positive AGM and quarterly reporting season.
The market was already under pressure today from a collapse in US equity futures after Apple and Amazon.com missed earnings expectations. The index megacaps slumped in extended trade after lodging quarterly updates after the end of regular trade this morning.
Apple, the US’s largest company by market capitalisation, fell 3.53 per cent after iPhone sales fell short of analysts’ expectations. Amazon shed 4.05 per cent following its biggest profit decline in four years. Both companies cited supply-chain problems as factors.
“Apple and Amazon failed to impress investors with their third-quarter report cards,” Mr Sawhney said. “While Amazon missed revenue and earnings expectations, Apple’s revenue fell short of forecasts amid larger-than-anticipated supply constraints.”
Nasdaq futures dived 118 points or 0.75 per cent. S&P 500 futures fell 17 points or almost 0.4 per cent.
The declines overshadowed a strong night in the US. The Nasdaq Composite surged 1.39 per cent to an all-time high. The Dow gained 0.68 per cent and the S&P 500 0.98 per cent.
Winners’ circle
A 20 per cent jump in Q1 revenue propelled ResMed 4.21 per cent to a one-month high. The digital health firm’s revenues rose to $904 million from $751.9 million in the prior corresponding period. Net income and diluted earnings per share grew by 14 per cent.
Car parts and swimming pool manufacturer GUD jumped 6.92 per cent after extending its footprint in lighting. The company will acquire global specialist lighting business Vision X for US$52.8 million.
Macquarie Group entered a trading halt after announcing a $1.5 billion capital raising to “invest in new opportunities”. The investment bank’s shares were near record levels in anticipation of a strong first-half result. The bank this morning reported net profit more than doubled to $2.043 billion.
Seven West Media climbed 9.64 per cent after refinancing its debt facility. Plumbing retailer Reece rallied 5.63 per cent a day after reporting a 13 per cent rise in quarterly sales.
CSL was the only stock on the elite ASX 20 to advance, rising 0.22 per cent against the trend. The defensive healthcare sector was best of a losing bunch with a fall of 0.1 per cent.
Doghouse
Crown Resorts fell 1.48 per cent after settling a class action over alleged corporate governance failures when staff in China were charged with breaches of local gaming laws. The casino group will pay claimants $125 million without admission of liability.
Vulcan Energy dived 16.54 per cent as trade resumed following a scathing attack by shortseller fund J Capital. The activist fund accused the lithium hopeful of exaggerating its prospects. Vulcan responded last night with a rebuttal, dismissing J Capital’s claims as “misleading and incorrect”.
Meal kit delivery group Marley Spoon lost almost a third of its market capitalisation after downgrading its full-year guidance. The company cut its growth target to 26-28 per cent from previous guidance of 30-35 per cent, citing “volatile consumer behaviour”. The company had been one of the big winners from pandemic lockdowns. The share price plunged 32.12 per cent to a 16-month low.
Origin Energy eased 1.37 per cent as a jump in gas prices helped offset flat production and sales last quarter. Electricity volumes increased 3 per cent, thanks to improved business volumes.
Wagering group PointsBet fell heavily for a second day, down 4.4 per cent following yesterday’s disappointing quarterly. The report showed the company lost market share in the US despite spending heavily on marketing and promotions.
The major banks and miners declined. Rio Tinto shed 2.66 per cent, Newcrest 1.46 per cent and NAB 2.51 per cent. ANZ gave up 1.61 per cent, CBA 2.04 per cent, Westpac 2.13 per cent, Fortescue Metals 0.64 per cent and BHP 1.19 per cent.
Other markets
Asian markets were mixed in afternoon trade. The Asia Dow remained 0.25 per cent in the red and Hong Kong’s Hang Seng lost 0.45 per cent. Japan’s Nikkei edged up 0.14 per cent and China’s Shanghai Composite 0.16 per cent.
Oil reversed its overnight loss. Brent crude climbed 30 US cents or 0.36 per cent to US$83.96 a barrel.
Gold eased US$6.50 or 0.36 per cent to US$1,796.10 an ounce.
