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Advances in banks and industrials helped steer the ASX towards back-to-back gains for the first time in three weeks despite a brutal sell-off in the BNPL sub-sector.  

The S&P/ASX 200 rallied 15 points or 0.22 per cent by mid-session. An early advance of 70 points withered as mining stocks joined the technology sector in retreat.

What’s driving the market

The market weathered a temporary spike in bond yields as gains in rate-sensitive financials and cyclical sectors outweighed down-pressure on tech stocks. The big four banks gained between 0.7 and 1.8 per cent. Companies with significant US earnings benefitted from strength in the greenback.

The market temporarily extended its gains after NAB’s monthly survey showed business confidence climbed last month to a ten-year high. The confidence measure improved four points to 16 points. Conditions held steady at 15 points.

“Businesses are the most optimistic they’ve been since 2010. This says the economy recovery has very strong momentum and even though government support is tapering, businesses are increasingly confident the economy will continue to improve,” Alan Oster, NAB Group Chief Economist, said.

The tech sector dived 3.6 per cent to its weakest level since October after the yield on ten-year Australian bonds jumped almost four basis points to 1.83 per cent. Sector leader Afterpay plunged more than 10 per cent before a partial recovery as yields fell back to 1.79 per cent. Tech stocks are particularly vulnerable to rising borrowing costs because their valuations are leveraged to future earnings.  

Overnight, a bifurcated US market saw the Dow hit an all-time high even as the Nasdaq Composite fell into a technical correction. The Dow gained 0.97 per cent. The Nasdaq shed 2.41 per cent. The performance gulf between the indices underlined the rotation underway from growth stocks that outperformed during the pandemic to cyclical stocks expected to excel during the recovery.

“While rising US bond yields are crushing the high valuation mega-cap tech stocks on the NASDAQ, improving activity data and positive vaccine news are making investors extremely comfortable lapping up value stocks, suggesting that not all equity counters are created equal for this phase of the economic recovery,” Stephen Innes, Chief Global Market Strategist at Axi, said.

“It’s still very much a stimulus-induced rally and rotation in US equities. Yet, until US yields stop rising, investors will continue to shun any longer duration assets, and tech stocks might continue to roil under the heat of higher rates.”

A dip in the ten-year US rate this morning helped Nasdaq futures join a broader rally in US futures. Nasdaq futures climbed almost 0.4 per cent, outpacing gains of 0.25 per cent for the Dow and S&P 500.

Going up

The financial sector, which benefits from higher rates through margin opportunities, rallied 1.6 per cent to its strongest level in 13 months. ANZ climbed 1.8 per cent, NAB 1.5 per cent, Westpac 1.3 per cent and CBA 0.7 per cent.

Macquarie Group, which got a leg up from the greenback, put on 2.5 per cent. Other companies to get a tailwind from strength in the US dollar included Aristocrat Leisure +0.4 per cent, Transurban +2.1 per cent and CSL +1 per cent.

Rio Tinto was the best of the major iron ore producers, climbing 0.5 per cent. BHP faded 1 per cent and Fortescue 0.6 per cent.

In the consumer space, Wesfarmers improved 1.5 per cent and Coles 0.1 per cent. Prime Media surged 11.9 per cent on news the CEO of Australian Community Media Antony Catalano had increased his stake in the group.

Vocus Group was the index’s best performer. The networks company jumped 8.6 per cent after agreeing to a takeover offer from a consortium headed by Macquarie Infrastructure.  

Travel and tourism stocks caught some of the halo effect from a jump in their US counterparts. Corporate Travel Management climbed 5.6 per cent, Webjet 3.8 per cent, Qantas 2.6 per cent, Star Entertainment 2.3 per cent and Flight Centre 2.3 per cent.

Going down

The air continued to seep from the BNPL sub-sector. Afterpay slumped 7.8 per cent to its lowest level in almost three months. Z1p Co, which more than doubled in market value in a month, slid 5.4 per cent. Sezzle dipped 6.1 per cent and Laybuy 4.4 per cent.

On the wider tech spectrum, Megaport shed 6.5 per cent, Xero 5.4 per cent and WiseTech 3.1 per cent. Altium dropped 3.1 per cent and Bravura Solutions 1.3 per cent.

IAG plunged 10.1 per cent before trading was paused. Questions have been raised this week about the insurer’s exposure to troubled finance house Greensill.  

Gold miners wallowed near 11-month lows. Newcrest fell 2 per cent, Gold Road Resources 5 per cent and Northern Star 2.9 per cent.

Property giant Goodman Group slipped 1.5 per cent and supply-chain logistics specialist Brambles 0.8 per cent. Telstra shed 0.6 per cent and Woolworths 0.2 per cent.

Other markets

A mixed morning on Asian markets saw the Asia Dow ease 0.37 per cent as China’s Shanghai Composite dropped 0.18 per cent. Hong Kong’s Hang Seng gained 0.44 per cent and Japan’s Nikkei 0.27 per cent.

Oil rebounded from overnight weakness. Brent crude rallied 25 cents or 0.4 per cent to $US68.49 a barrel. Gold edged up $2 or 0.1 per cent to $US1,680 an ounce.

The dollar faded 0.43 per cent to 76.22 US cents.

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