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Aussie shares fell for a fourth session after the Reserve Bank warned inflation could near 7 per cent this year, prompting a series of aggressive interest rate rises.

The S&P/ASX 200 declined 25 points or 0.37 per cent by mid-session.

A rebound in mining stocks helped the market trim an opening 47-point fall. Tech and healthcare stocks were among major drags following a mixed close on Wall Street.

What’s driving the market

Bond yields surged after RBA Governor Philip Lowe indicated rates could go much higher as inflation nears 7 per cent. Lowe said the bank will “do what’s necessary” to bring inflation back to the bank’s 2-3 per cent target range.

“I think by the end of the year inflation will get too close to 7 per cent, and we need to chart a course to bring it back down,” he told the ABC’s 7.30 program.

“It’s unclear at the moment how far interest rates will need to go up to get that,” he added.

The yield on ten-year Australian government bonds soared above 4 per cent for the first time since 2014. The ten-year yield was this morning near 4.1 per cent, up around 18 basis points. The ten-year yield traded under 1.1 per cent as recently as last year.  

“Market participants are now speculating an aggressive policy tightening path in Australia, with bond futures indicating the cash rate to reach 3.6 per cent by 2022-end. On Monday, this expectation was at 3 per cent,” Kalkine Group CEO Kunal Sawhney said.

The ASX 200 has fallen more than 550 points since the RBA surprised the market by raising the cash rate target by 50 basis points last Tuesday.

“Investors typically become less willing to pay a higher price for risky assets when interest rates go up. So, some of the top performers of the pandemic-era are now the worst hit in this market rout, including high-growth technology stocks,” Sawhney said.

Worries about the domestic outlook have been exacerbated by similar concerns about an aggressive rate-hike cycle in the States. US stocks finished mixed overnight in see-saw trade ahead of tonight’s interest rate decision.

The S&P 500 sank 0.38 per cent to a fifth straight loss, the index’s worst run since January. The Dow shed 0.5 per cent. The Nasdaq bounced 0.18 per cent.

Back home, consumers turned increasingly pessimistic following last week’s 50-basis-points interest rate hike. The weekly ANZ-Roy Morgan confidence index slumped 7.6 per cent to 80.4, its weakest reading since April 2020. Just ten per cent of survey respondents expected “good times” for the economy – a record low.

Westpac‘s monthly measure declined 4.5 per cent this month to 86.4.

“Over the 46-year history of the survey, we have only seen Index reads at or below this level during major economic dislocations. The record lows have been during COVID-19 (75.6); the Global Financial Crisis (79.0); early 1990s recession (64.6); the mid-1980s slowdown (78.7) and the early 1980s recession (75.5),” Westpac chief economist Bill Evans wrote.

“Those last three episodes were associated with high inflation; rising interest rates; and a contracting economy – a mix that may be threatening to repeat.”

Going up

Upbeat Chinese economic data helped the materials sector overcome early weakness. Fortescue Metals bounced 2.45 per cent, Rio Tinto 1.17 per cent and BHP 0.5 per cent.

Consumer staples rallied in a sign of lingering caution following yesterday’s 3.55 per cent market plunge. Agribusinesses GrainCorp and Elders put on 4.45 and 3.33 per cent, respectively. Drinks retailer Endeavour rose 2.17 per cent, poultry farmer Inghams 2.06 per cent and wine maker Treasury 1.75 per cent.

A mixed morning for financials saw IAG gain 3.84 per cent, Suncorp 3.29 per cent and Bank of Queensland 1.07 per cent. Among the majors, Macquarie Group firmed 1.38 per cent. NAB dropped 0.71 per cent, CBA 0.33 per cent, ANZ 0.86 per cent and Westpac 1.4 per cent.

Other market-movers to advance included Telstra +1.6 per cent, Coles +0.73 per cent and Newcrest +0.39 per cent.

Lithium Plus Minerals jumped 35.59 per cent after Northern Territory authorities signed off on a management plan for the firm’s flagship project. Drilling will commence early next month.

Chase Mining climbed 28.57 per cent after acquiring a graphite project in Halls Creek, WA. The miner said the McIntosh project was the third-largest graphite project listed on the ASX.

Going down

Companies that generate much of their income in the US were under pressure for a second day. Fiber cement manufacturer James Hardie fell 5.17 per cent to its lowest level since September 2020. CSL shed 1.33 per cent, Cochlear 3.24 per cent and PointsBet 0.24 per cent.

A torrid week for the out-of-favour BNPL sub-sector continued. Sezzle shed 10.81 per cent. Splitit dropped 5.88 per cent. Afterpay parent Block declined 5.26 per cent to a fresh ASX low. Zip Co shed 3.27 per cent.

Last night’s tepid bounce on the Nasdaq failed to encourage tech investors. Novonix sagged 8.39 per cent, Megaport 7.5 per cent and Appen 3.89 per cent.

Energy stocks were also weak. Paladin Energy gave up 5.88 per cent, Woodside 1.68 per cent and Santos 0.37 per cent.

Other markets

Chinese stocks rose after factory output unexpectedly expanded last month and unemployment fell. The Shanghai Composite rallied 0.97 per cent. Hong Kong’s Hang Seng jumped 1.01 per cent. The Asia Dow dipped 0.12 per cent. Japan’s Nikkei retreated 0.65 per cent.

S&P 500 futures bounced 18 points or 0.48 per cent.

Oil reversed around a quarter of last night’s loss. Brent crude climbed 35 US cents or 0.4 per cent to US$121.60 a barrel.

Gold firmed US$5 or 0.3 per cent to US$1,818.50 an ounce.

The Chinese data surprise helped the dollar bounce 0.4 per cent to 69.15 US cents.

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