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A risk-off down-shift on global markets pushed Australian shares to their weakest close of the year as spikes in energy prices and lending rates added to investor worries.
The S&P/ASX 200 sank 76 points or 1.03 per cent to 7333. The index last closed lower on December 20 before a “Santa rally” lifted the market briefly back towards record levels.
Energy stocks shone after crude oil touched a six-and-a-half-year high. Rate-sensitive growth stocks skidded as long-term lending rates soared.
What moved the market
An overnight jump in US treasury yields to pre-pandemic levels triggered sharp selling across equity markets as investors steeled for higher interest rates. The US Federal Reserve meets next week, with investors increasingly fearful the bank may hike official rates faster and sooner than currently priced.
US yields hit two-year highs overnight as a bond sell-off accelerated. Australian ten-year yields climbed for a third day, lately up five basis points to just below 2 per cent.
“Traders are offloading bonds like hot potatoes and they’re pushing yields so high and so fast we had wondered if they’re betting on the Fed hiking by 50 basis points at their March meeting,” Matthew Simpson, senior market analyst at City Index, said.
Higher yields means higher costs for borrowers. Growth stocks such as tech firms are particularly vulnerable to rate increases because their valuations depend on future earnings funded by borrowed money.
“Increasing bond yields have been putting pressure on stocks, prompting investors to reassess their asset allocations,” Kalkine Group CEO Kunal Sawhney said.
The Nasdaq Composite slid 2.6 per cent overnight into a technical correction. The S&P 500 shed 1.84 per cent as a new quarterly reporting season got off to a rocky start.
“Investors digested the latest batch of corporate earnings and became more cautious amid the lingering threat of the COVID-19 pandemic,” Sawhney said. “The US had a soft start to earnings season, with some financial companies reporting displeasing results.”
US equity futures faded as the afternoon wore on. S&P 500 futures retreated 24 points or 0.53 per cent. Nasdaq futures dropped almost 0.8 per cent.
Soaring energy prices have been a major contributor to inflationary pressures around the world. Oil hit a six-and-a-half-year high overnight and extended gains this afternoon following an explosion at a pipeline in Turkey. Brent crude climbed US$1.02 or 1.2 per cent to US$88.53 a barrel.
Consumer sentiment held up surprisingly well this month in the face of rising costs and Covid cases, according to Westpac’s monthly survey. The bank’s sentiment index dipped 2 per cent to 102.2 from 104.3 last month.
“This is a surprisingly solid result given the rapid spread of the omicron COVID variant over the last month,” Westpac chief economist Bill Evans said.
“The 2% decline compares to the 5.2% drop seen in the first month of the delta outbreak in NSW, a 6.1% drop heading into Victoria’s ‘second wave’ outbreak in 2020 and the epic 17.7% collapse when the pandemic first hit in early 2020.”
Winners’ circle
Energy was the best of the sectors. Santos firmed 1.84 per cent, Beach Energy 2.07 per cent and Woodside Petroleum 0.87 per cent.
The day’s best performers were tech firm Appen +3.87 per cent and retailers Harvey Norman +2.97 per cent and Premier Investments +2.83 per cent.
HUB24 climbed 2.12 per cent on record second-quarter net inflows. Total funds under administration grew to $68.3 billion.
Artificial intelligence chip-maker BrainChip hit a fresh high after securing a US patent for its work on neural networks. The patent is the company’s eighth since 2008. The share price has more than tripled since the start of the year and finished 14.52 per cent ahead at $2.13.
Bulletin Resources soared 21.74 per cent to a record. NiCo Resources hit the boards with a splash, rising 80 per cent to 36 cents.
Doghouse
BHP dipped 0.3 per cent after downgrading its metallurgical coal guidance as a result of wet weather and pandemic labour constraints. The miner reaffirmed its full-year guidance for iron ore, energy coal and nickel. Copper was trending towards the lower end of guidance.
Afterpay fell 2.18 per cent during its last session as an independent ASX-listed company. The BNPL leader left the boards at the end of the day after being acquired by US giant Block. The US tech company’s CHESS Depository Interests commence trade on the ASX tomorrow under the ticker SQ2.
Signs of a slowdown in growth helped pull interconnection services provider Megaport down 16.15 per cent to a six-month low. Monthly recurring revenue increased 7 per cent last quarter, half the growth rate through the first three months of FY22.
Other growth stocks to feel the pain included Novonix -9.7 per cent, Polynovo -4.89 per cent and Imugene -5.26 per cent.
Record quarterly sales revenue kept Lynas Rare Earths near a decade high. The miner increased sales revenue to $202.7 million from $121.6 million in the prior quarter. The share price eased 1.08 per cent.
CIMIC dipped 1.15 per cent despite announcing its third contract win in two days. The firm’s joint venture with John Holland has been selected by the NSW Government to work on the Western Harbour Tunnel.
Other markets
A deteriorating session on Asian markets saw the Asia Dow sink 1.54 per cent, Japan’s Nikkei 2.22 per cent and China’s Shanghai Composite 0.29 per cent. Hong Kong’s Hang Seng was broadly steady at +0.02 per cent.
Gold faded US$1.70 cents or 0.1 per cent to US$1,810.70 an ounce.
The dollar bounced 0.04 per cent to 71.91 US cents.
