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A see-saw week for Australian shares took another turn for the worse as the tug of war between optimism over an improving economy and concerns about rising borrowing rates continued.
The S&P/ASX 200 slumped 57 points or 0.84 per cent, extending a run of daily reversals that now stretches to eight sessions. The index has not managed consecutive rises since mid-February.
A late partial recovery cut today’s final loss in half – at its low, with less than an hour to trade, the index was down 109 points.
What moved the market
A risk-off session saw nine of 11 sectors decline, led by falls in tech stocks and companies trading without the right to a dividend. The declines came as Australia’s ten-year bond yield climbed 11 basis points.
“It’s all about yields again,” ThinkMarkets analyst Carl Capolingua said. “US yields crept higher last night and that hit longer duration tech stocks. Our 10-year Government bond yields also spiked back above 1.8% mid-morning and that really knocked the wind out of our stock market today.”
Gains in the rate-sensitive banks shielded the market from a deeper fall.
“Banks do better when the yield curve steepens because they borrow at low short-term rates and lend at higher long-term rates,” Capolingua said. “You look at the banks today, they were all stronger.
“Then you have your resources which tend to do better when there’s inflation about and commodity prices are rising. That’s an interesting one today, metals prices were largely stable overnight, iron ore was even up nearly 2% today in Shanghai. But the fear is that higher interest rates might stifle the global economic recovery, so they got hit today as well.”
Upbeat domestic economic data had little impact. The trade surplus increased to $10.142 billion in January as a 6 per cent increase in exports outstripped a 2 per cent decline in imports. Retail sales increased 0.5 per cent, just short of forecast.
Hopes that Wall Street’s inflation wobble had passed were dashed when the yield on ten-year US treasuries jumped eight basis points overnight to 1.49 per cent. Stocks sensitive to higher borrowing costs plunged. The Nasdaq Composite gave up 2.7 per cent and the S&P 500 1.31 per cent.
US futures continued to lose ground this afternoon. S&P 500 futures declined 23 points or 0.6 per cent.
“Equities got hit with the inflation stick,” Stephen Innes, Chief Global Market Strategist at Axi, said. “Until a clear top lid gets put on bond yields, rate jitters amid higher volatility are going to be the order of the day,” he added.
Despite the negative reaction from equity markets, Innes says rising rates are evidence of an improving economy. The current bout of market nerves was largely down to the speed of the rise.
“It is scary when it happens too fast,” he said. “Still, higher rates are fundamentally good economic news and a natural by-product of a rebound out of financial crisis and into normalcy and reflation.”
Winners’ circle
Just six of the 20 largest listed companies by market capitalisation advanced. ANZ added 3 per cent, NAB 2.4 per cent, CBA 1.2 per cent and Westpac 1.3 per cent. Aristocrat Leisure, which depends heavily on US earnings, rallied 2.3 per cent following overnight gains in the US dollar. Property giant Goodman came good in the final minutes, rising 0.2 per cent.
Car accessory retailer ARB Corporation advanced 3 per cent after acquiring UK manufacturer Truckman for GBP 21.9 million. Truckman manufactures accessories for utes, including canopies and bed liners.
Insurer QBE climbed 2.8 per cent after announcing Andrew Horton as its new Group CEO, replacing Richard Pryce. Horton is currently CEO of UK insurer Beazley.
Diversified miner South32 claimed a second straight 52-week high, rising 0.7 per cent.
Doghouse
Four market behemoths went ex-dividend: BHP -3.1 per cent, Rio Tinto -6.2 per cent, CSL -4.2 per cent and Woolworths -2.6 per cent. ASX -2.1 per cent, Monadelphous -4.8 per cent and Nine Entertainment -2.6 per cent also traded without their dividends.
Besides firms trading without their dividends, the biggest drags were miners Newcrest -3.3 per cent and Fortescue -2.6 per cent.
Also under pressure: bond surrogates that shine when yields are low. Transurban fell 2.2 per cent, Wesfarmers 1.7 per cent and Coles 1.2 per cent. Telstra shed 0.6 per cent.
Tech stocks followed the Nasdaq lower. NextDC fell 3.5 per cent, Appen 3.1 per cent, Bravura Solutions 3.1 per cent and Nearmap 2.7 per cent. Afterpay dropped 2 per cent and Zip Co 4.4 per cent.
Xero shed 2.6 per cent after announcing the acquisition of Danish workforce management platform Planday for an upfront payment of 155.7 million euros and an earnout of 27.8 million.
A 13.1 per cent dive in half-year sales helped drag department store Myer down 10.6 per cent. Foot traffic was hit by pandemic closures and a shift to online shopping. Statutory net profit jumped 76.3 per cent to $43 million.
Synlait Milk slumped 9.8 per cent to a four-year low after scrapping its full-year guidance. The company is a major supplier to A2 Milk, which has seen demand destruction from the collapse of its diagou reseller channels. Shares in A2 eased 0.4 per cent.
Other markets
Asian markets took their cues from the US. The Asia Dow shed 2 per cent. China’s Shanghai Composite gave up 1.58 per cent, Hong Kong’s Hang Seng 2.55 per cent and Japan’s Nikkei 2.43 per cent.
Oil extended last night’s rebound ahead of tonight’s OPEC+ meeting of oil ministers. Brent crude climbed 69 cents or 1.1 per cent to $US64.75 a barrel.
Gold‘s slide continued. The yellow metal fell $3.10 or almost 0.2 per cent to $US1,712.70 an ounce.
The dollar bounced 0.52 per cent to 77.93 US cents.
