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The share market sank almost 1.5 per cent as investors responded to rising energy and borrowing costs, and a firmer dollar.

The S&P/ASX 200 dropped 109 points or 1.47 per cent. Today’s fall was the heaviest since a 155.5-point tumble last Monday.

Strong gains in energy stocks were dwarfed by declines across the rest of the market. Tech, healthcare and other sectors that thrive in a low-interest rate environment retreated as bond yields surged.

What moved the market

The easy bull-market gains of the previous 17 months seem like a distant memory as the market slogs through the dog days of September. The ASX 200 hit a record in mid-August and has since declined roughly 4.5 per cent. Seasonal factors are at play: last September was the only losing month in 17.

Today’s action continued a recent trend whereby several days of painstaking gains are erased in a single session. The market inched higher much of last week, only to see most of those gains evaporate today.

What started this morning as a two-speed market slowly turned into one-way traffic as a strengthening dollar invited overseas investors to take currency-derived profits. The dollar firmed 0.37 per cent from lunchtime to 73.08 US cents.

By the close, Woodside Petroleum was one of only two stocks among the top twenty companies to resist the rout. The energy sector jumped 4.3 per cent to its strongest since mid-June after Brent crude tested near three-year highs.

Goldman Sachs lifted its year-end forecast for crude by ten dollars to US$90 a barrel, citing falling US inventories and improving demand. Brent crude rallied 1.8 per cent overnight to US$79.53.

“While we have long held a bullish oil view, the current global supply-demand deficit is larger than we expected, with the recovery in global demand from the Delta impact even faster than our above-consensus forecast and with global supply remaining short of our below consensus forecasts,” Goldman said.

Here, Woodside Petroleum climbed 5.03 per cent, Oil Search 7.06 per cent and Santos 5.64 per cent. Beach Energy jumped 10.53 per cent after telling investors it aims to increase production by 27 per cent by FY24.

Higher energy costs loom as a headwind for the wider market at a time when borrowing costs are already on the march. The yield on ten-year Australian government bonds jumped more than six basis points today to 1.48 per cent, the highest since mid-July.

Federal Reserve Chair Jerome Powell this morning warned inflationary pressures were likely to persist longer than the central bank originally anticipated.

Inflation is elevated and will likely remain so in coming months before moderating,” Powell said in prepared remarks to be delivered tonight. “As the economy continues to reopen and spending rebounds, we are seeing upward pressure on prices, particularly due to supply bottlenecks in some sectors.

Overnight, Wall Street closed mixed but broadly weaker as declines in Big Tech outmuscled gains in cyclical sectors. The S&P 500 eased 0.28 per cent. The Nasdaq Composite fell 0.52 per cent. The cyclical stock-heavy Dow came through best with a rise of 0.21 per cent.

Back home, retail sales declined in August for a third month but by less than economists expected. Sales contracted 1.7 per cent, versus the median 2.5 per cent decline predicted by economists.  

Winners’ circle

The energy sector rose for a sixth session to levels last seen in mid-June. Aside from the oil majors, Whitehaven Coal climbed 6.51 per cent, New Hope 5.13 per cent and Energy Resources 4.17 per cent.

Origin Energy rose 5.32 per cent after announcing its investment in UK energy provider Octopus Energy had tripled in value to £3 billion. Octopus has approximately 9.5 per cent of the UK market after gaining an additional 1.1 million customers following the collapse of a rival.  

“Our exposure to Octopus’ continued success is expected to be an important avenue of growth for Origin,” CEO Frank Calabria said.

Early gains for lenders dwindled or evaporated as the session wore on. AMP advanced 4.57 per cent and Macquarie Group 0.16 per cent. Commonwealth Bank, which has led the charge of the lenders since borrowing costs took off late last week, faded to a loss of 0.56 per cent after touching its highest since mid-August. Westpac slid 0.59 per cent, NAB 0.33 per cent and ANZ 0.54 per cent.

Doghouse

Tech stocks wilted as analysts reassessed their valuations if borrowing costs continued to increase. Xero dived 6.4 per cent, Nextdc 4.81 per cent, Technology One 4.71 per cent and Appen 4.4 per cent.

Healthcare sagged for a third session since yields jumped. ResMed shed 3.13 per cent, Sonic 4.15 per cent, Cochlear 2.99 per cent and CSL 3.85 per cent.

Other bond surrogates saw solid falls. Charter Hall Group shed 6.17 per cent, Goodman Group 4.18 per cent, Metcash 2.55 per cent and AGL Energy 3.57 per cent. Supermarkets Coles and Woolworths shed 2.76 and 1.95 per cent, respectively.

The gold sub-sector traded at its weakest since the depths of the pandemic sell-off. Evolution Mining sagged 6.44 per cent, Northern Star 4.29 per cent, Perseus 3.57 per cent and Newcrest 2.72 per cent.  

Other markets

Asian markets were mixed. China’s Shanghai Composite lifted 0.63 per cent, Hong Kong’s Hang Seng 1.73 per cent and the Asia Dow 0.05 per cent. Japan’s Nikkei dipped 0.15 per cent.

S&P 500 futures lifted seven points or 0.15 per cent. Nasdaq futures declined 0.1 per cent.

Brent crude rose 82 US cents or 1.04 per cent to US$79.54 a barrel. Gold eased US$4.40 or 0.25 per cent to US$1,747.60 an ounce.

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