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The ASX 200 turned negative for the week as gains in energy and banking stocks were outweighed by declines across the wider market.

The Australian benchmark reversed yesterday’s rally, falling 69 points or 0.94 per cent.

Commonwealth Bank hit a seven-week high. Oil companies rallied as crude traded at a level last seen in October 2018. Technology, healthcare and mining stocks declined.

What’s driving the market

As in the US overnight, a major shift in bond markets over the last few sessions set the tone for a two-speed market. The yield on ten-year Australian government bonds firmed more than three basis points this morning to 1.45 per cent, the highest since early July. Rising yields broadly reflect expectations for stronger economic growth as the impact of the delta Covid wave lessens, and for higher inflation as supply-chain issues in Asia drive up the price of raw materials.

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.

“These effects have been larger and longer lasting than anticipated, but they will abate, and as they do, inflation is expected to drop back toward our longer-run 2 percent goal.”

Higher borrowing costs are a plus for lenders, but a broad negative for tech firms and other high-growth companies that depend on cheap lending to fund operations. They are also a headwind for companies that attract investment funds when returns from bonds are weak.

Here, the energy and financial sectors rallied. Tech, healthcare, real estate investment trusts and other bond proxies declined.

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.  

Going up

The energy sector rose for a sixth session to levels last seen in mid-June after Goldman Sachs predicted Brent crude will touch US$90 a barrel by year-end. The global benchmark neared US$80 overnight.

Beach Energy jumped 8.1 per cent after telling investors it aims to increase production by 27 per cent by FY24. Woodside Petroleum climbed 4.39 per cent, Oil Search 5.35 per cent and Santos 5.27 per cent.

Origin Energy rose 3.88 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.

Commonwealth Bank has led the charge of the lenders since borrowing costs took off late last week. The largest of the big four rallied 1.11 per cent to its highest since mid-August. Westpac firmed 0.16 per cent and NAB 0.04 per cent. ANZ dipped 0.18 per cent. AMP advanced 3.3 per cent and Macquarie Group 0.38 per cent.

Going down

Tech stocks wilted as analysts reassessed their valuations if borrowing costs continued to increase. Megaport dived 6.22 per cent, Xero 4.53 per cent, Nextdc 4.01 per cent and Appen 3.2 per cent.

Healthcare sagged for a third session since yields jumped. ResMed shed 2.92 per cent, Sonic 3.35 per cent, Cochlear 2.41 per cent and CSL 3.16 per cent.

Other bond surrogates saw solid falls. Charter Hall Group shed 4.18 per cent, Goodman Group 3.2 per cent, Metcash 2.55 per cent and Growthpoint Property 2.25 per cent. Supermarkets Coles and Woolworths shed 2.18 and 1.48 per cent, respectively.

The gold sub-sector traded at its weakest since the depths of the pandemic sell-off. Evolution Mining sagged 5.88 per cent, Northern Star 4.23 per cent, Perseus 3.21 per cent and Newcrest 2.5 per cent.  

Other markets

Asian markets were mixed. China’s Shanghai Composite lifted 0.07 per cent and Hong Kong’s Hang Seng 1.21 per cent. The Asia Dow gave up 0.1 per cent and Japan’s Nikkei 0.44 per cent.

US futures were flat. S&P 500 futures inched up half a point or 0.01 per cent.

Brent crude rose 29 US cents or 0.37 per cent to US$79.01 a barrel. Gold edged up US$1.10 or 0.06 per cent to US$1,753.10 an ounce.

The dollar was steady at 72.81 US cents.

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