Aussie shares gave up early gains as traders weighed a bounce in battered tech stocks, a slump in iron ore and a Reserve Bank pledge to keep interest rates low until 2024.
The S&P/ASX 200 rolled over to a mid-session loss of 24 points or 0.35 per cent. Weakness in oil companies, ore producers and banks outweighed gains in technology firms and gold miners.
What’s driving the market
Buy now pay later darling Afterpay led a sharp rebound in the technology sector after a drop in US bond yield relieved weeks of down-pressure on growth stocks. The sector bounced 3.8 per cent from yesterday’s six-month low. Afterpay jumped 8.5 per cent despite news PayPal will offer Australian customers a BNPL option from June.
The tech surge mirrored overnight action in the US, where the Nasdaq Composite soared 3.69 per cent. Bargain-hunters swept up growth stocks after the ten-year US yield fell almost seven points. The Australian ten-year yield declined around six basis points this morning.
“A massive relief rally on the oversold NASDAQ unfolded due to a reprieve on the bond market rout,” Axi Chief Global Market Strategist Stephen Innes said.
Surging borrowing rates have dragged equity markets lower in recent weeks amid fears central banks might be forced to raise official rates to contain inflation. Reserve Bank Governor Philip Lowe this morning talked down the prospect the central bank will raise the cash rate before 2024.
“Over the past couple of weeks market pricing has implied an expectation of possible increases in the cash rate as early as late next year and then again in 2023. This is not an expectation that we share,” he said.
Lowe said the economy had a long way to go before the bank would consider raising rates. Wage growth would need to increase from 1.4 per cent to above 3 per cent before inflation was sustained within the bank’s 2 -3 per cent target range.
“We are a long way from a world in which wages growth is running at 3 per cent plus,” he said.
The big three iron ore producers were weighed down by a sharp retreat in the ore price after China temporarily halted heavy truck movements to reduce pollution. The spot ore price slumped $10.55 or 6.1 per cent yesterday to US$163.60 a tonne. Fortescue Metals sank 6.3 per cent, Rio Tinto 3.7 per cent and BHP 2.5 per cent.
While Afterpay made the biggest leap, the rest of the WAAAX group of tech leaders saw gains. WiseTech put on 1.8 per cent, Altium 2.2 per cent, Appen 3.8 per cent and Xero 2.2 per cent. An early bounce in Afterpay rival Z1P Co faded to a loss of 3 per cent. Sezzle inched up 0.5 per cent.
“It is interesting to see the jump in shares of BNPL giant Afterpay amid news of PayPal extending its BNPL offerings to domestic customers,” Kalkine Group CEO Kunal Sawhney said. “While investors were seen to be unwinding their positions in the tech and Buy-Now-Pay-Later space over the last few days, smart investors with a Buy-Now-Hold strategy seem to be the clear winners amid the current scenario.”
The gold sub-sector was the morning’s other big mover, bouncing 3.8 per cent off an 11-month low. Ramelius Resources flew up 10.1 per cent, Silver Lake Resource 7.3 per cent, Gold Road Resources 8 per cent and Newcrest 2.5 per cent. Overnight, gold logged its first rise in five sessions.
Bond proxies – attractive alternatives when yields are low – marched higher. CSL gained 1.5 per cent, Transurban 0.6 per cent and Coles 0.4 per cent. Goodman Group added 0.3 per cent.
A US licensing deal helped lift Treasury Wine Estates 2.8 per cent. Insurer IAG edged up 0.2 per cent following a leadership reshuffle.
A second straight drop in oil helped pull the energy sector further from Monday’s six-week high. Santos slid 2.9 per cent, Beach Energy 2.5 per cent and Woodside 1.7 per cent.
The rate-sensitive financial sector retreated with bond yields. NAB shed 1.5 per cent, Westpac 0.9 per cent, ANZ 0.9 per cent and CBA 0.6 per cent. Macquarie Group gave up 0.7 per cent. Other heavyweight drags on the index included Woolworths, Wesfarmers and Telstra, all down 0.2 per cent.
Nickel miner Western Areas dived 10.3 per cent after raising $85 million through a placement to fund several projects.
US futures declined despite solid gains on Asian markets. S&P 500 futures eased seven points or almost 0.2 per cent. China’s Shanghai Composite gained 0.78 per cent, Hong Kong’s Hang Seng 0.77 per cent and Japan’s Nikkei 0.05 per cent.
Oil trimmed two days of falls. Brent crude bounced eight cents or 0.1 per cent to $US67.60 a barrel. Gold reversed $4.60 or 0.3 per cent to $US1,712.30 an ounce.
The dollar eased 0.21 per cent to 76.99 US cents.