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The armchair ride for investors over the last week and a half ended with a sharp reversal after the US’s central bank warned interest rates were likely heading higher than market pricing implied.
After rising for seven of the last eight sessions, the S&P/ASX 200 dived 129 points or 1.84 per cent today. The fall was the heaviest since a 181-point plunge on September 14.
Ten of eleven sectors declined. Miners, consumer stocks and utilities led the retreat. Just nine of the index’s component companies gained more than 1 per cent.
What moved the market
US share prices tumbled after the Federal Reserve dashed hopes of a pivot towards more market-friendly settings. The bank raised the target federal funds rate by 75 basis points for a fourth time, as expected but it was the press conference that followed that did the damage.
Hints of a slowdown in the pace of increases briefly cheered the market before Chair Jerome Powell warned stubbornly strong economic data meant the top in rates would likely be higher than previous projections. He also said any talk of a pause in rate hikes was “very premature”.
The market interpreted his comments to mean rate hikes might be smaller in the months ahead, but the cycle was likely to be longer and higher than current priced implied.
The S&P 500 dived 2.5 per cent as the US dollar and bond yields rallied. The Nasdaq Composite, filled with companies whose valuations are tied to rates projections, sank 3.36 per cent.
The fact the RBA is on a more measured course did not protect Australian equities or bonds. The ASX plunged more than 2 per cent in opening trade and only recovered marginally. The yield on ten-year Australian government bonds jumped 10 basis points to 3.92 per cent.
Powell’s comments raise the stakes for tomorrow night’s October US jobs report.
“You get a good jobs number, in other words a good unemployment rate that doesn’t go higher, then the market is in a lot of trouble,” Guy Adami, director of advisor advocacy at Private Advisor Group, told CNBC.
Winners’ circle
Fund manager Perpetual jumped 7.14 per cent to $28.82 after rejecting an unsolicited takeover offer from a consortium including Regal Partners. Perpetual said the conditional, non-binding indicative proposal of $30 per share “materially undervalues” the business. Shares in Regal Partners rallied 4.48 per cent.
A2 Milk rose 4.17 per cent after gaining clearance from the US regulator to import infant milk formula into the US. The company said it expected to sell up to one million cans of formula this fiscal year.
The announcement of a share buyback lifted coal miner New Hope 5.91 per cent. The miner will buy back up to $300 million of its shares on-market.
Downer EDI rose 5.25 per cent after reaffirming guidance at today’s AGM despite the impact of severe weather on the east coast and in New Zealand. CEO Grant Fenn said very few of the company’s businesses had been unaffected by the big wet.
The only other stocks on the index to advance more than 1 per cent were Telstra +1.29 per cent, Computershare +1.25 per cent, Nanosonics +1.2 per cent, Inghams +1.13 per cent and Boral +1.06 per cent.
Doghouse
Gold miners took some of the biggest hits as the US dollar and bond yields – assets that compete with precious metals for investment flows – surged in the wake of this morning’s rates shock. Gold dropped US$10.40 or 0.6 per cent in recent trade to US$1,639.60.
Silver Lake Resources skidded 6.36 per cent. St Barbara shed 6.86 per cent, DE Grey 6.25 per cent and Regis Resources 5.66 per cent. Sector heavyweight Newcrest lost 3.02 per cent.
Elsewhere in the resources space, lithium miner Lake Resources gave up 5.83 per cent, uranium miner Paladin 5.17per cent and ore miner Champion Iron 5.03 per cent. Among the heavyweights, BHP lost 3.21 per cent, Fortescue Metals 2.86 per cent and Rio Tinto 2.23 per cent.
The major banks gave up between 1.15 and 1.8 per cent. Wesfarmers lost 3.78 per cent, Woodside Energy 1.37 per cent and CSL 1.55 per cent.
A broker downgrade knocked 11.71 per cent off Domino’s Pizza. Lendlease slid 8.73 per cent after a strategy briefing. Pendal slumped 10.67 per cent as Regal’s move on Perpetual put the latter’s offer for Pendal at risk.
Woolworths dropped 3.49 per cent to a two-year low after reporting a dip in Q1 food sales as inflation lifted Australian food prices by 7.3 per cent. Gains in B2B and Big W helped lift group sales 1.8 per cent.
“Inflation continued to accelerate in Q1 compared to the prior year with average prices in Australian Food increasing 7.3%, and 5.3% in New Zealand Food. We continue to see early signs of customer purchasing habits changing, but it remains unclear how much of this relates to cost-of-living pressures compared to COVID normalisation,” CEO Brad Banducci said.
Bravura Solutions saw more than half its market capitalisation evaporate following a massive earnings downgrade and the suspension of dividend payments. Shares in the management software maker plunged 52.09 per cent on news full-year earnings would be $10-$15 million. Analysts had expected a figure closer to $50 million.
Bega Cheese dropped 2.37 per cent on news the dairy producer was unhappy with the valuation offered for its 49 per cent stake in Vitasoy Australia. Hong Kong-listed Vita International offered $27.5 million as “fair value” for Bega’s stake. The sale price of Bega’s stake will now be decided by an independent expert.
Other markets
Asian markets took their cues from US weakness. The Asia Dow gave up 1.27 per cent, China’s Shanghai Composite 0.63 per cent and Hong Kong’s Hang Seng 2.82 per cent. Trade in Japan was suspended for a bank holiday.
US futures edged higher. S&P 500 futures were recently ahead seven points or 0.18 per cent.
Risk-off action drove Brent crude down 42 US cents or 0.4 per cent to US$95.74 a barrel.
The dollar regained a little of the ground it lost overnight, bouncing 0.5 per cent to 63.7 US cents.
