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Shares slid towards a third straight loss following a plunge in oil and a spike in bond yields.
The S&P/ASX 200 shed as much as 72 points in early action before slashing its loss to 15 points or 0.22 per cent mid-session. Bargain-hunters stepped in when the sell-off reached a level that has twice previously attracted buying over the last three weeks.
What’s driving the market
Tech stocks and bond proxies wilted at the open as the yield on ten-year Australian government bonds climbed six basis points to its highest level in almost two weeks. A retreat in yields amid soft February retail data allowed the market to mount a partial recovery.
Shares rallied through the first half of this week before reversing as strong employment data sharpened fears inflationary pressures will force the Reserve Bank to reduce stimulus spending and lift the cash rate. A report yesterday showed the unemployment rate dived from 6.3 per cent to 5.8 per cent last month as the economy created three times as many jobs as economists predicted
“The uptick in employment clearly reflects that the labour market is tightening faster than expected,” Kalkine Group CEO Kunal Sawhney said.
US stocks retreated overnight as bond yields hit a 14-month peak. The Nasdaq Composite dropped 3.02 per cent and the S&P 500 1.48 per cent.
Tech stocks have an inverse relationship with bond yields because they are generally valued on future earnings. Bond proxies compete with bonds for investments and suffer when bond returns are superior. The ASX is heavily-weighted towards typical bond proxies and has struggled for traction over the last month as the market adjusted to a strong lift in yields.
“The bond yields saga and simmering inflationary expectations driven by vaccine and stimulus fuelled economic recovery hopes have been keeping market participants jittery for some time now. Soaring COVID cases in Europe is also worrying market participants,” Sawhney said.
The energy sector hit its lowest level in almost a month following a plunge in crude oil. Brent crude skidded 6.9 per cent overnight as the US’s emerging feud with Russia added to demand worries after much of France returned to lockdown.
While this morning’s action was inescapably bearish, market bulls could take heart from the partial recovery. Today was the third time in three weeks a drop below 6680 has attracted dip-buyers and triggered a rebound.
The ten-year yield pared its advance after news of a 1.1 per cent decline in retail sales last month strengthened the argument for keeping the cash rate low to support the recovery. The result was affected by five-day lockdowns in Victoria and WA.
Going up
A mid-morning reverse in some of the banks helped the market trim a heavy initial loss. ANZ edged up 0.8 per cent, Westpac 0.7 per cent and NAB 0.4 per cent. CBA dipped 0.5 per cent.
Goodman Group also overcame early pressure, rising 0.9 per cent. Telstra rose 0.8 per cent towards a fifth advance in six sessions.
On the wider ASX 200, just four stocks gained more than 3 per cent. News Corp climbed 3.9 per cent, Clinuvel Pharmaceutical 3.4 per cent, IOOF Holdings 3.4 per cent and Computershare 3.1 per cent.
The defensive utilities sector was the pick of the sectors. AGL Energy rose 1.8 per cent after striking a five-year deal to supply electricity to Victoria’s Portland aluminium smelter. APA Group gained 0.9 per cent and Mercury NZ 2.4 per cent.
Going down
The energy sector took the biggest hit, falling 1.4 per cent to its weakest level in three weeks. Santos declined 2.2 per cent, Oil Search 1.7 per cent and Woodside 2 per cent.
Yield-sensitive BNPL and technology stocks mostly retreated. Zip Co shed 2.2 per cent and Afterpay 1.6 per cent. Bravura Solutions fell 1.5 per cent ahead of its expulsion from the ASX 200 tonight. Altium climbed 2 per cent and Xero 1.1 per cent.
Gold miner Newcrest fell 2.4 per cent, erasing most of yesterday’s advance after gold gave back most of yesterday’s rally. BHP lost 1.5 per cent, Rio Tinto 1.2 per cent and Fortescue 1 per cent.
Supermarket Coles fell 0.1 per cent after committing to reducing its greenhouse gas emissions by 75 per cent by 2030 and to zero by 2050. Rival Woolworths gained 0.4 per cent.
Other markets
Asian markets followed Wall Street lower. The Asia Dow gave up 0.74 per cent. China’s Shanghai Composite dropped 1.13 per cent. Hong Kong’s Hang Seng and Japan’s Nikkei both lost 0.84 per cent.
US futures inched higher. S&P 500 futures climbed eight points or 0.2 per cent.
Oil climbed for the first time in six sessions. Brent crude bounced 30 cents or 0.4 per cent to US$63.56 a barrel. Gold eased $4.80 or 0.3 per cent to US$1,727.90 an ounce.
The dollar continued to retreat, falling another 0.29 per cent this morning to 77.3 US cents.
