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A volatile start to the new year continued with the share market’s heaviest loss since 2020 after the threat of tighter monetary policy spooked Wall Street.

The S&P/ASX 200 tumbled 207.5 points or 2.74 per cent. The decline surpassed any of the market’s single-session losses last year and plunged the benchmark into the red for 2022.

The technology sector dived more than 6 per cent to a seven-month low. Just eight of the ASX 200’s component companies resisted the blood-letting.

What moved the market

Think 2021 was volatile? Hold my beer, says 2022. Three sessions into the new year the market has delivered a bigger single-day points gain than any session last year and followed it two days later with a bigger fall than any last year. The Australian volatility index jumped more than 23 per cent.

The armchair ride for investors across the holiday season ended in spectacular fashion. The benchmark lost more than half its 4.5 per cent “Santa rally” gains in one brutal session.

The catalyst for the collapse was an unexpectedly hawkish rates outlook from the US Federal Reserve. US stocks crumbled overnight after the central bank surprised investors by signalling official rates may rise as soon as March, with quantitative tightening to follow soon after.

The minutes from last month’s policy meeting showed some officials want to start reducing the bank’s bloated US$8.3 trillion balance sheet as early as possible.

“Some participants… noted that it could be appropriate to begin to reduce the size of the Federal Reserve’s balance sheet relatively soon after beginning to raise the federal funds rate,” the minutes said. 

Rate-sensitive growth stocks spearheaded selling on both sides of the Pacific. The Nasdaq Composite slumped 3.34 per cent to its heaviest loss since February. Here, Afterpay led a violent correction in tech stocks. The domestic sector has fallen almost 16.5 per cent in seven weeks as investors reposition for higher rates.

While the Reserve Bank has so far refused to countenance raising the cash rate this year, the Fed’s rapid pivot from easing to tightening policy increases pressure on the Australian central bank to follow suit.

The ASX finished near its session low as souring US futures doused hopes of a rebound tonight. S&P 500 futures reversed tentative early gains, falling 23 points or 0.5 per cent. Nasdaq futures slid 0.8 per cent.

Winners’ circle

Bulk metal miners mostly weathered the storm after iron ore sustained its 2022 rally. Rio Tinto put on 0.73 per cent. BHP added 0.12 per cent. The third of the “big three”, Fortescue Metals, shed 1.05 per cent.

Uranium was another pocket of strength as civil unrest in Kazakhstan threatened to disrupt production. Kazakhstan is responsible for roughly 40 per cent of global uranium output. The spot price to Canada jumped US$3.25 overnight to US$45.50 a pound.

Paladin Energy firmed 1.63 per cent. Lower down the food chain, Element 25 gained 16.67 per cent, Vimy Resources 9.09 per cent and Deep Yellow 7.07 per cent.

Latitude Group firmed 1.78 per cent on news it will acquire Humm’s consumer finance business for $335 million. The lender will pay $35 million cash and roughly $300 million in equity for the BNPL, instalment and credit card operation. Humm shares tacked on 2.23 per cent.  

Other winners on the ASX 200 included OZ Minerals +0.59 per cent, Clinuvel Pharmaceuticals +0.41 per cent and AusNet +0.39 per cent.

Doghouse

Growth stocks that depend most on borrowing wilted at the prospect of higher rates. The yield on ten-year Australian government bonds firmed eight basis points this afternoon to a five-week high.

The Australian tech sector fell 6.37 per cent. Afterpay, the sector’s largest company by market capitalisation, sank 10.76 per cent to its lowest since August 2020.

WiseTech shed 6.93 per cent, Megaport 6.57 per cent and Life360 8 per cent. In the BNPL space, Z1p Co gave up 6.1 per cent and Splitit 8.47 per cent.

While tech stocks suffered the biggest blow, defensive sectors that attract buying interest under low rates also declined. Real estate investment trusts fell 4.43 per cent, healthcare 3.8 per cent and utilities 1.79 per cent.

Charter Hall Group shed 6.42 per cent, Ramsay Health Care 5.68 per cent and AGL Energy 3.29 per cent. At the heavyweight end, Goodman Group dropped 6 per cent, CSL 3.65 per cent and Wesfarmers 2.88 per cent.

The threat to liquidity from quantitative tightening in the US weighed on lenders. CBA fell 3.13 per cent, ANZ 1.35 per cent, NAB 2.16 per cent and Westpac 1.65 per cent. Investment manager Pinnacle swooned 13.14 per cent.

Nickel Mines faded 1.39 per cent despite securing tax relief from the Indonesian government for a subsidiary. The concessions include a waiver on paying income tax for ten years after commercial production starts.

Other markets

In Asia, the Asia Dow declined 2 per cent, China’s Shanghai Composite 0.16 per cent, Japan’s Nikkei 2.71 per cent and Hong Kong’s Hang Seng 0.36 per cent.

Oil surrendered its overnight gains, plus more. Brent crude retreated US$1.09 or 1.35 per cent to US$79.71 a barrel.

Gold also reversed after settling higher ahead of the Fed minutes. Gold for February delivery shed US$19.30 or 1.1 per cent at US$1,805.80 an ounce.

The dollar lost ground steadily with dwindling risk appetite, trading 0.6 per cent lower at 71.78 US cents at the ASX close.

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