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Australian shares skidded to a five-week low following a third straight decline on Wall Street after the Federal Reserve warned economic growth was slowing.
The S&P/ASX 200 touched 7397, its weakest level since July 30. Unlike previous sessions this week, bargain-hunters were notably absent. At mid-session, the index was still 113 points or 1.5 per cent in the red. The index has not suffered a triple-digit decline since mid-June.
All 11 sectors declined. Afterpay, Rio Tinto and Transurban were the biggest heavyweight drags on the index. Defensive sectors weathered the sell-off better than cyclicals.
What’s driving the market
A new mood of caution has gripped Wall Street this week, although the effects on US equities so far have been modest. Strength in defensive sectors limited the S&P 500’s overnight loss to 0.13 per cent and the Dow to a decline of 0.2 per cent.
NAB Head of FX Strategy Ray Attrill noted the S&P 500 is just 0.5 per cent off last week’s record high despite three straight declines. Mr Attrill said investment banks had begun to downgrade their ratings on US equities in the wake of Friday’s jobs miss.
“A couple of global investment banks have been out with ‘underweight’ recommendations, while another is reportedly suggesting that any pull-back in US stocks could be amplified by the weight of long positioning,” he said.
“This follows downgrades to 2021 US growth projections by another investment bank on Tuesday and which spawned plenty of media attention. Before we start getting too alarmed though, note the S&P 500 is back a mere 0.5% on the new record highs recorded only last Thursday.”
The Federal Reserve contributed to the risk-averse mood by warning economic growth had “downshifted slightly to a moderate pace”. The bank said the spread of the delta Covid variant had affected demand for dining, travel and tourism.
The defensive tone of US trade was reflected in this morning’s ASX action. Consumer staples was the best of a bad bunch, falling 0.66 per cent as a decline in bond yields favoured equity proxies over cyclicals. Next best were healthcare (-0.73%), REITs (-0.93%) and energy (-1.11%).
A decline in US futures deterred the kind of dip-buying that characterised ASX trade through the first half of the week. S&P 500 futures fell seven points or almost 0.2 per cent.
Going up
US-facing businesses fared better than most, bolstered by overnight strength in the greenback. ResMed gained 2.4 per cent and Amcor +0.24 per cent. Aristocrat Leisure briefly had a ninth straight rise in its sights before fading to a mid-session loss of 0.99 per cent.
The only defensive heavyweight to make headway was gold miner Newcrest +0.12 per cent. Gold Road Resources gained 1.18 per cent.
Overnight strength in coal lifted miners Whitehaven 1.9 per cent and New Hope 1.32 per cent.
“Coking coal surged above USD300/t amid supply shortages,” Daniel Hynes, strategist at Hynes Commodities, said. “Restrictions on Australian coking coal have seen China scramble to find other sources. However, Mongolia, a key supplier to China, is struggling to boost output.”
Going down
The materials sector sagged to a five-month low following declines in iron ore and copper. Rio Tinto fell 2.44 per cent, BHP 1.61 per cent and Fortescue Metals 0.39 per cent. Lithium miner Orocobre shed 5.11 per cent and Pilbara Minerals 1.84 per cent. South32 lost 4.91 per cent as it traded without its dividend.
An eight-week high in bond yields gave the big four banks fleeting support yesterday, but falling yields weighed this morning. CBA dropped 1.54 per cent, ANZ 1.46 per cent, NAB 1.46 per cent and Westpac 1.42 per cent.
Litigation funder Omni Bridgeway sank 5.92 per cent after the Supreme Court of NSW overturned a decision that dam manager Seqwater was partly responsible for a flood in Brisbane in 2011. Omni part-funded a class action against the dam manager. The company said it would assess whether to seek leave to appeal the decision to the High Court.
Oil Search eased 0.67 per cent despite securing a new line of credit. The PNG-focussed gas company has arranged a US$565 million revolving credit facility with a banking group including lenders from the US,PNG, Australia and Asia to replace a US$600 million facility due to expire next June.
Dividend payments continued to suck funds from the market. Among companies trading ex-dividend today, Nine Entertainment fell 3.61 per cent, McMillan Shakespeare 5.59 per cent, Vita Group 4.92 per cent and Monadelphous 3.66 per cent.
Other markets
Asian markets followed Wall Street lower. The Asia Dow gave up 0.78 per cent, China’s Shanghai Composite 0.03 per cent, Hong Kong’s Hang Seng 1.13 per cent and Japan’s Nikkei 0.45 per cent.
Oil recouped more than a quarter of last night’s loss. Brent crude firmed 24 US cents or 0.33 per cent to US$72.84 a barrel.
Gold eased US$1.60 or 0.1 per cent to US$1,791.90 an ounce.
The dollar dipped 0.03 per cent to 73.59 US cents.
