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The ASX skidded towards its heaviest loss in at least a month after the fast-changing outlook for interest rates triggered the Dow’s worst week since October.
The S&P/ASX 200 slipped 115 points or 1.57 per cent by mid-session. The index has not recorded a triple-digit loss since a 134-point dive on May 19. Today’s decline briefly threatened to be the worst since a 161-point collapse on February 26.
The big four banks led the selling. CBA dropped more than 4 per cent. Afterpay and Coles were the only companies in the ASX 20 index of heavyweights to avoid the dump.
What’s driving the market
All 11 sectors saw red as the market narrowed a performance gap with the US that blew out badly at the end of last week. Friday’s 533-point plunge in the Dow extended the US blue-chip index’s weekly loss to 3.45 per cent. The S&P 500 lost 1.31 per cent on the day and 1.9 per cent for the week.
Those figures made the ASX 200’s 0.8 per cent advance last week look bold. Australian investors wasted no time this morning pulling the local market back into line as US futures suggested the market mood had not improved over the weekend. S&P 500 futures sagged 17 points or 0.4 per cent.
The prime culprit for US falls was once again the fluctuating outlook for rates. Wall Street panicked on Wednesday when the Federal Reserve signalled most committee members expect two rate rises by the end of 2023. The Street shuddered again on Friday when St Louis Fed president James Bullard said he expected rates to rise even sooner, late next year.
Influential Westpac economist Bill Evans joined the increasing number of market observers tipping the Reserve Bank will be forced to move earlier than its current projection of 2024. Mr Evans said he expected rates to rise from record lows in the first three months of 2023.
Mr Evans described last week’s employment report as “a major game changer for policy”. The unemployment rate dived to 5.1 per cent last month from 5.5 per cent in April.
The shifting rates outlook has rocket-charged the US dollar, sending commodity prices and commodity-linked currencies like the Australian dollar sharply lower. The Aussie dropped 1 per cent to below 75 US cents for the first time since December.
“Commodity linked currencies were the underperformers on Friday with both the NZD and AUD printing fresh year-to-date lows. Both antipodean currencies fell close to 1%,” NAB Currency Strategist Rodrigo Catril said. “Metal prices [were] the big underperformers on the day and copper was the notable underperformer on the week, down over 8%,” he added.
The dollar bounced 0.21 per cent this morning to 75.16 US cents.
Today only significant piece of domestic economic data showed retail sales increased a smaller-than-expected 0.1 per cent last month. Coronavirus restrictions in Victoria accounted for some of the slowdown in growth following four months of 1%+ increases.
Going up
Winners were scarce during a rugged start to the week. Afterpay climbed 1.26 per cent. Coles added 1.22 per cent.
REITs picked up some defensive buying. Charter Hall Retail gained 2.32 per cent, Dexus 1.03 per cent and Mirvac 1.2 per cent.
Health stocks also saw selective buying. Ramsay Health Care put on 0.7 per cent, Fisher & Paykel Healthcare 1.05 per cent and Medibank Private 0.16 per cent.
In the tech space, Afterpay was joined in the winners’ circle by Megaport +3.41 per cent and Altium +1.24 per cent.
Going down
CBA fell 4.25 per cent as the financial sector bore the brunt of the sell-off. The largest of the big four announced it will offload its general insurance business to the privately-owned Hollard Group for $625 million, plus deferred milestone payments. The asking price was reportedly lower than some analysts anticipated.
ANZ dropped 2.62 per cent, NAB 2.16 per cent and Westpac 2.38 per cent.
Bank of Queensland announced the state government had cleared the way for it to acquire Members Equity (ME) Bank. The acquisition, for $1.325 billion in cash, is scheduled to complete on July 1. Shares in the bank fell 3.79 per cent.
BOQ Group Managing Director and CEO Mr George Frazis said, “The addition of ME Bank to the BOQ Group will further strengthen our multi-brand strategy, deliver material scale, broadly double the size of our Retail bank, and provide us with geographic diversification.”
The miners followed iron ore and metals lower. Rio Tinto lost 2.41 per cent, Fortescue 1.78 per cent, Newcrest 0.33 per cent and BHP 1.38 per cent.
AusNet sank 2.19 per cent after admitting it may have underpaid some employees. Remedial costs were not expected to have a material impact on earnings.
Starpharma skidded 8.82 per cent after the UK regulator objected to promotional claims about the biotech’s antiviral nasal spray, prompting a pause in sales. Starpharma said the dispute related to promotional references to Covid-19, not the spray’s safety or quality. Sales would continue in mainland Europe and India.
The launch of an oral contraceptive in the US helped lift Mayne Pharma briefly before its shares faded 2.14 per cent. Nextstellis was approved in April. The company also announced it had licensed the Australian rights to treatments for solar keratosis.
Other markets
Asian markets saw red for the most part. The Asia Dow slumped 1.91 per cent, Japan’s Nikkei 3.48 per cent and Hong Kong’s Hang Seng 0.76 per cent. China’s maverick Shanghai Composite climbed 0.34 per cent.
Oil has resisted down-pressure across the broader commodities complex. Brent crude rallied 64 cents or 0.87 per cent to US$74.15 a barrel.
Gold rebounded $5.70 or 0.32 per cent to US$1,774.70 an ounce.
