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Australian shares fell for the first time in five sessions as unexpectedly strong jobs data helped offset ructions on global equity, bond and commodity markets after the US central bank signalled rates may rise as soon as 2023.

Bearish US futures and declines in key commodities helped drag the S&P/ASX 200 down 12 points or 0.16 per cent. The index pared losses following a sharp drop in the unemployment rate.

Gains in lenders were comprehensively outweighed by declines in mining stocks and bond proxies as yields jumped.

What’s driving the market

The US Federal Reserve surprised investors overnight by signalling rates may rise sooner than the market consensus. The bank’s “dot plot” of economic projections showed a majority of the Federal Open Market Committee (FOMC) expect two rate increases by the end of 2023.

Equities, bond markets and commodities sold off as the greenback surged and treasury yields jumped.

“The market reaction was all about the ‘dots’, showing that 13 of the 18 person FOMC see rates rising in 2023 versus only six previously, and with the median forecasting jumping straight to two hikes from none,” NAB Head of FX Strategy Ray Attrill said.

The S&P 500 dropped 0.54 per cent. The Dow shed 0.77 per cent. The ASX initially appeared to shrug off the retreat – SPI futures actually finished the night session stronger. A dive in US futures this morning forced a rethink. S&P 500 futures were last down 18 points or 0.43 per cent, suggesting further selling tonight.

While the outlook may be shifting overseas, Reserve Bank Governor Philip Lowe said the central bank will continue to pump money into the economy through its bond-buying program. Mr Lowe said the bank had weighed several options for the program, and ruled out terminating it in September.  

“The RBA’s bond purchase program is one of the factors underpinning the accommodative conditions necessary for our economic recovery. It is premature to be considering ceasing bond purchases,” Mr Lowe told a Queensland conference.

Mr Lowe spoke before the release of data showing unemployment tumbled last month despite the end of JobKeeper support. The jobless rate fell to a seasonally-adjusted 5.1 per cent from 5.5 per cent in April. Total employment increased by 115,000.

The report raised questions over the RBA’s timeline for raising the cash rate. The bank has previously said it did not expect jobs and inflation to reach its targets until at least 2024.

“A rate hike at the end of 2021 anyone? More likely first half of 2022 but If recent trend continue[s] even for a short while, the wage / inflation surge will be obvious by Melbourne Cup day,” tweeted economist Stephen Koukoulas.

The dollar rebounded following the jobs report. The Aussie bounced 0.18 per cent to 76.27 US cents after losing around 1 per cent overnight.

Going up

Lenders were the big winners from a sharp rise in borrowing costs. The yield on ten-year Australian government bonds jumped eight basis points to 1.588 per cent, mirroring a similar move in the US overnight. Higher rates offer lenders greater wiggle room to increase margins.

Commonwealth Bank climbed 1.19 per cent to a new record. ANZ advanced 1.56 per cent, NAB 0.86 per cent and Westpac 1.86 per cent.

Wesfarmers joined CBA at an all-time high, rising 1.49 per cent as falling joblessness pointed to increased spending power in the pocket of consumers.

Other notable winners included companies with significant US operations following a jump in the greenback. Brambles gained 0.71 per cent, Transurban 0.62 per cent and Aristocrat Leisure 0.68 per cent.

Seven West Media was the index’s best performer, rising 16.88 per cent on news of a strong rebound in advertising revenue. The company expected revenue to increase more than 45 per cent this quarter, positioning it to beat the market earnings consensus.

Shipbuilder Austal bounced 5.75 per cent from yesterday’s two-and-a-half-year closing low. Nuix was another fallen star to attract bargain-hunters, rising 5.38 per cent.

Going down

Eight of eleven sectors declined as losers from the overnight ructions outweighed winners.

Coles slumped 4.6 per cent after outlining plans to increase spending sharply next year. The supermarket will invest heavily in online shopping, automated fulfilment centres and self-serve checkouts.

The big three bulk metal miners fell as a surging greenback weighed on dollar-denominated commodities and China ramped up efforts to depress prices. Fortescue Metals sank 1.8 per cent, Rio Tinto 1.8 per cent and BHP 1.41 per cent.

“State owned [Chinese] enterprises were ordered to control risks and limit their exposure to overseas commodity markets. This was followed by the National Food and Strategic Reserves Administration announcing it would release stockpiles of metals including copper, aluminium and zinc. The metals will be sold in batches to fabricators and manufacturers. This saw most metal prices come under pressure in trading on the Shanghai Exchange,” ANZ Senior Commodity Strategist Daniel Hynes said.

Whitehaven Coal, one of the index’s star performers over the last month, tanked 12 per cent following a production downgrade. The miner trimmed its full-year production outlook to 20.4 million tonnes from previous guidance of 20.6 – 21.4 million.

Gold producers followed precious metals prices lower. Northern Star shed 6.75 per cent, Ramelius 4.87 per cent and Newcrest 2.3 per cent.

Other markets

Asian markets mostly tracked declines on Wall Street. The Asia Dow fell 0.91 per cent. Japan’s Nikkei 225 lost 1.29 per cent. Hong Kong’s Hang Seng dipped 0.09 per cent. China’s Shanghai Composite edged up 0.18 per cent.

A surge in the US dollar in the wake of the Fed policy update sent commodity prices sharply lower. Brent crude sagged 68 cents or 0.91 per cent to US$73.71 a barrel. Gold skidded $37.40 or 2 per cent to US$1,824 an ounce.

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