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Tech stocks led declines for a second day as investors rotated out of sectors most at risk from higher rates into defensive value plays.
The S&P/ASX 200 dropped 34 points or 0.46 per cent by mid-session.
Technology, banking and mining stocks fell. Supermarkets, gold miners and healthcare providers rallied.
What’s driving the market
A retreat from risk continued overnight as investors positioned for a tougher year for equities as the global economy slows in the face of increased borrowing costs. The minutes from the latest Federal Reserve meeting indicated the US central bank was preparing to go hard to rein in inflation.
“Many participants noted that one or more 50 basis point increases in the target range could be appropriate at future meetings, particularly if inflation pressures remained elevated or intensified,” the minutes said.
The S&P 500 dropped 0.97 per cent. The rate-sensitive Nasdaq Composite lost roughly 2.2 per cent for a second straight night. The pan-European Stoxx 600 shed 1.53 per cent.
While the Reserve Bank has yet to join a global shift towards higher rates, this week’s policy meeting cleared the way for a hike in the next few months.
Westpac this morning brought forward its prediction for the first rise to June. The bank expects the RBA to lift the cash rate by 15 basis points that month, then by 25 basis points at subsequent meetings, reaching 1.25 per cent by year-end. Home-owners with mortgages should prepare for significantly higher rates.
“Under our scenario the standard discounted variable rate for owner occupiers will be around 5.5% by mid-2023,” the bank’s chief economist, Bill Evans, said.
Australian investors this morning favoured value plays with stable earnings. Consumer staples, property trusts and healthcare stocks resisted the broader market downtrend.
“Things are heating up in Australia. The Australian dollar gains based on high commodity prices and some sentiment of safe-haven are now complete. That was it, folks. Expect a period of consolidation at first, but there are real challenges ahead,” Clifford Bennett, chief economist at ACY Securities, said.
“Having had a fantastic run on the back of remarkable commodity price rises the story could be about to turn a little more mixed. There is no doubt the global inflation trend, which RBA Governor Lowe kept saying was not showing up on our shores, has indeed arrived,” he added.
Going up
The morning’s best performer was Magellan, up 10.28 per cent as positive market movements helped funds under management increase despite net outflows. Funds under management climbed to $70 billion by the end of March from 69.1 billion on March 11. Net outflows slowed to $1.1 billion.
Also notably strong were uranium miner Paladin +5.16 per cent and agribusiness GrainCorp +3.57 per cent.
The morning’s best-performing defensive plays were ResMed +2.61 per cent, AGL Energy +2.29 per cent and Viva Energy +2.24 per cent. At the pointy end, property giant Goodman Group rose 1.21 per cent, Coles 0.61 per cent and Telstra 0.64 per cent.
Gold miners also benefitted from interest in havens. Newcrest firmed 1.01 per cent, Perseus 0.56 per cent and Evolution 0.24 per cent.
Fortescue Metals rose 0.78 per cent after raising $2 billion through a bond issue. More than half the proceeds will go towards green projects.
Theme park operator Ardent Leisure gained 7.34 per cent after selling its US-focussed Main Event business to Nasdaq-listed Dave & Buster’s Entertainment for $1.097 billion. Ardent will return roughly $430 million to shareholders and direct the rest to paying down debt and funding growth at its theme parks.
Navigator Global entered a trading halt to raise funds to buy a stake in US real estate investor Marble Capital. Navigator will pay US$100 million for a 19.8 per cent interest in Marble. The asset manager intends to raise $57 million through a placement to institutional investors and retail equity raising.
Takeover target Virtus Health entered a trading halt pending a revised offer from CapVest. The company has been the subject of a fierce bidding war between BGH Capital and UK-based CapVest.
Going down
Tech and other borrowing-dependent growth stocks fell for a second day. Life360 shed 5.1 per cent, WiseTech 5.45 per cent and Novonix 5.03 percent.
Retailers faced selling pressure at the prospect of consumers having less in their pockets. City Chic fell 5.52 per cent, JB Hi-Fi 1.77 per cent and Premier Investments 2.31 per cent.
Bank stocks also weighed. CBA retreated 0.79 per cent, ANZ 0.9 per cent, NAB 0.88 per cent and Westpac 0.95 per cent.
Other markets
In Asia, the Dow fell 1.09 per cent, China’s Shanghai Composite 0.4 per cent, Hong Kong’s Hang Seng 0.04 per cent and Japan’s Nikkei 1.97 per cent.
US futures continued to lose ground. S&P 500 futures dropped eight points or 0.18 per cent.
Oil mounted a partial recovery from last night’s 5.2 per cent slump. Brent crude bounced US$1.59 or 1.6 per cent to US$102.66 a barrel.
Gold rose US$1.60 or 0.1 per cent to US$1,924.70 an ounce.
The dollar eased 0.17 per cent to 74.92 US cents.
