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The share market dropped 0.8 per cent following pressure on US stocks as the threat of significantly higher interest rates dampened buying interest.  

The S&P/ASX 200 declined 58 points to 7165. Tech stocks led a sell-off in sectors that are most vulnerable to increased borrowing costs.

Healthcare and other sectors that compete with government bonds for investment flows fell as bond yields improved for a third session. Energy producers and utilities advanced.

What moved the market

The outlook for interest rates was back centre stage ahead of next week’s Reserve Bank policy meeting. Canada’s central bank foreshadowed the likely trajectory of rates in much of the world by raising its benchmark by 50 basis points overnight.

While the RBA is unlikely to go as hard, the bank is widely expected to lift the cash rate target by up to 40 basis points when it meets on Tuesday. ANZ and AMP expect the bank to lift by 40 basis points to 0.75 per cent. CBA expects a steady-as-she-goes 25 basis points.

Australian government bond yields have risen steadily this week in anticipation of next week’s hike. The yield on ten-year government bonds today tested 3.5 per cent for the first time in three weeks.  

Wall Street fell for a second night as Federal Reserve officials continued to push out the message that rates need to rise fast to cool soaring inflation. San Francisco Reserve Bank President Mary Daly said the central bank had to get rates to neutral (around 2.5 per cent) “as quickly as we can”.

The S&P 500 dropped 0.75 per cent. The Dow finished 177 points or 0.54 per cent lower after being up as much as 280 points and down 400 points.

“The market remained choppy with a negative bias to start the month of June,” Rob Haworth, senior investment strategist at U.S. Bank Wealth Management, said. “Inflation remains a headline concern.”

Today’s domestic data underlined the health of the domestic economy. The ABS reported a record trade surplus.

“The trade surplus rose by $757 million to $10.5 billion in April. Australia has posted 52 successive monthly trade surpluses. In the year to April the trade surplus was a record $129 billion,” CommSec’s chief economist Craig James wrote.

Winners’ circle

Woodside Energy jumped 5.17 per cent after completing its merger with BHP’s petroleum assets and clearing a stock overhang. JPMorgan sold $1.1 billion worth of Woodside shares in a block trade overnight for BHP investors who were ineligible to take up their share from the demerger of the petroleum business. The sale removed the prospect of weeks of steady selling pressure.

Beach Energy climbed 1.72 per cent to a near two-month high. Santos firmed 1.59 per cent.

Gold miners provided some of the day’s gains as traders bought traditional havens. Sandfire added 0.55 per cent, Silver Lake Resources 1.66 per cent and Perseus 0.26 per cent.

Battery metal miners were mixed as the tremors subsided after Goldman Sachs called time on the bull market in green metals. Lithium miner Liontown Resources bounced 3.93 per cent. Nickel producer IGO rallied 3.94 per cent.

Pilbara Minerals dropped 0.87 per cent. The miner announced Chief Operating Officer Dale Henderson will step into the CEO and Managing Director’s role when Ken Brinsden steps down. Allkem shed 1.38 per cent. Piedmont Lithium slumped 11.05 per cent. Mineral Resources gave up 1.91 per cent.

A tweet from Joe Biden helped Bubs Australia bounce 5.98 per cent. The US President tweeted that 4.6 million bottles of Bubs’ infant formula would soon be on its way to help with a shortage in the US. Bubs said shipments would start on June 9.

Doghouse

Growth stocks were back in the firing line as Australian government bond yields rose. Rising yields are a headwind for growth companies whose valuations depend heavily on the outlook for future earnings.

Megaport retreated 6.04 per cent. Polynovo shed 5.86 per cent, Telix Pharmaceuticals 5.81 per cent and Afterpay parent Block 4.95 per cent.

Wesfarmers eased 0.63 per cent after warning near-term earnings at its new healthcare acquisitions will be impacted by integration and investment costs. The retail conglomerate recently acquired Australian Pharmaceutical Industries, operator of the Priceline brand. The industrial and safety division faced headwinds from Covid disruptions and inflation.  

The exchange operator, ASX Limited, dropped 0.96 per cent after announcing Helen Lofthouse will replace Dominic Stevens as CEO and Managing Director. Stevens will stand down on August 1. Lofthouse is currently the firm’s executive for markets.

A tough session for health stocks saw Pro Medicus slip 0.36 per cent despite announcing a seven-year deal worth $28 million with a US not-for-profit healthcare provider. The Australian health imaging firm’s US subsidiary will service Allina Health, which operates 11 hospitals and 90 clinics in the mid-west.

Healius declined 2.8 per cent. Sonic Healthcare lost 2.4 per cent and CSL 1.78 per cent.

Other markets

Most Asian markets tracked Wall Street lower. The Asia Dow shed 0.97 per cent. Hong Kong’s Hang Seng gave up 1.45 per cent and Japan’s Nikkei 0.2 per cent. China’s Shanghai Composite tacked on 0.27 per cent,

S&P 500 futures bounced three points or 0.1 per cent.

Oil retreated ahead of tonight’s OPEC+ meeting. Brent crude declined US$1.37 or 1.2 per cent to US$114.92 a barrel.

Gold firmed US$2.50 or 0.14 per cent to US$1,851.20 an ounce.

The dollar eased 0.2 per cent to 71.57 US cents.

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