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The share market fell for the first time in seven sessions after US central bank officials doused speculation about a slowdown in rate hikes.
The S&P/ASX 200 declined 22 points or 0.32 per cent to 6976.
Gains in tech stocks and some of the major miners were outweighed by falls in consumer stocks, utilities and banks.
What moved the market
US stocks fell for a second night as a parade of Federal Reserve officials tempered tentative optimism about the outlook for interest rates. Chicago Fed President Mary Daly said the central bank was “far from done” with the current rate hike cycle as inflation hovers near a four-decade high.
“The number of people who can’t afford this week what they paid for with ease six months ago just means our work is far from done,” she told CNBC.
Daly pushed back against futures pricing suggesting official rates might go up no more than 1 per cent this year before falling next year.
“That’s a puzzle to me,” she said. “I don’t know where they find that in the data.”
Her colleague, Chicago Fed President Charles Evans, said another large rate hike was possible in September, even after the bank increased its benchmark rate by 2.25 percentage points in four months.
The S&P 500 dropped 0.67 per cent following the remarks. The US dollar and treasury yields jumped.
“The fall in U.S 10-year yields from 3.5% to 2.5% over the past six weeks is likely done for now. Stock markets will be forced to reacquaint themselves with the headwinds of higher yields and a stronger U.S dollar in the sessions ahead,” Tony Sycamore, market analyst at City Index, said.
The Reserve Bank raised the cash rate target by 50 basis points yesterday to 1.85 per cent. The increase was the fourth in four months and the third 50bp increase in a row.
Kunal Sawhney, the chief executive of research group Kalkine, thinks the bank may slow the pace of increases from here.
“Less hawkish tone from RBA governor Philip Lowe, cooling housing market, weakening consumer spending and global downturn are factors that will guide the central bank’s rate decision from now on,” Sawhney said.
“The RBA statement also marked a slowdown in economic growth this year and the next, and an increase in unemployment. So, we expect the RBA to ease its rate tightening cycle and return to a 0.25% rate hike from here on.
“RBA’s cash rate is expected to reach between 2.6-2.8% by December and will most probably peak at 3% by April 2023. By the end of next year, we may see the cash rate moving south again as the RBA won’t like the economy to slip into recession.”
The Australian dollar fell collateral damage to the bounce in the greenback. The Aussie dropped back under 69 US cents before paring its loss, trading lately at 69.35 US cents.
Utilities and consumer stocks led today’s ASX retreat as a rally in bond yields dulled interest in equities with similar characteristics to government bonds. The yield on ten-year Australian bonds reversed ten basis points off yesterday’s four-month low.
The ASX more than halved its initial loss as Asian markets recovered from yesterday’s Taiwan tantrum. The Shanghai Composite bounced 0.48 per cent.
The Chinese benchmark skidded 2.26 per cent yesterday as US House Speaker Nancy Pelosi pressed ahead with a visit to Taiwan. China views the self-governing island nation as a rogue province that will one day come under Beijing’s control.
Winners’ circle
Pinnacle Investment Management jumped 12.21 per cent after increasing its full-year profit and raising its dividend despite “difficult market conditions”. The asset manager’s net profit after tax improved 14 per cent to $76.4 million. Shareholders will receive a fully-franked final dividend of 17.5 cents per share, an increase of 3 per cent.
Expansion plans helped boost rare earths miner Lynas 7.55 per cent. The firm will spend $500 million to increase capacity at its Mt Weld mine and concentration plant to meet strong demand.
Lithium miner Pilbara Minerals climbed 2.19 per cent after its latest spodumene concentrate auction attracted 67 bids and a price of US$6,350/dmt. Lake Resources gained 10.56 per cent.
The tech sector shrugged off today’s bounce in the cost of borrowing. Afterpay parent Block firmed 5.02 per cent. EML Payments gained 6.97 per cent, BrainChip 6.73 per cent and Megaport 5.84 per cent. Zip Co advanced 8.61 per cent.
Bunnings landlord BWP Trust put on 1.42 per cent after reporting a 14.1 per cent increase in the value of its property portfolio to $3 billion for the 12 months to June 30. Distributions this year were flat.
Genworth Mortgage Insurance rose 2.08 per cent as the launch of a $100 million share buyback helped offset a 34.9 per cent decline in written premiums across the first half. Underlying net profit jumped 75.8 per cent to $134.3 million.
Just four of the market’s top 20 heavyweights advanced. James Hardie added 1.18 per cent, Fortescue Metals 0.67 per cent, Goodman Group 0.2 per cent and BHP 0.08 per cent.
Trade in Orica was suspended while the explosives firm taps investors for funds to acquire mining geospatial tech firm Axis. Orica will pay $260 million upfront with an additional earn-out payment of up to $90 million contingent on performance.
Doghouse
A further delay in the replacement of the aging CHESS computer system used to manage share transactions helped drive the exchange operator ASX Ltd down 3.39 per cent. The company said more development was required, pushing the go-live date to late 2024 at the earliest.
Charter Hall Retail REIT retreated 1.72 per cent after acquiring 18 service stations in New Zealand for $101.7 million.
Among the heavyweights, Santos fell 2.07 per cent, Newcrest 1.64 per cent and Woolworths 1.3 per cent. The big four banks lost 0.44-1.47 per cent.
Other markets
US futures edged higher as Pelosi’s visit to Taiwan commenced without major incident. S&P 500 futures firmed 11 points or 0.27 per cent.
“US and European futures are trading higher as investors are feeling relieved that the response from China over Pelosi’s visit to Taiwan was rather a muted one. Traders feared for a lot worse situation but in reality, what we had was just a military drill and some supply chain disruption,” Naeem Aslam, chief market analyst at AVATrade, said.
Hong Kong’s Hang Seng rallied 0.82 per cent. Japan’s Nikkei added 0.52 per cent. The Asia Dow fell 0.27 per cent.
Oil dropped back under US$100 a barrel before a recovery. Brent crude was lately up two US cents or 0.02 per cent at US$100.56 a barrel.
Gold declined US$3.90 or 0.2 per cent to US$1,785.80 an ounce.
