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Shares retreated and the dollar surged as traders weighed an unexpectedly large drop in unemployment, record highs on Wall Street and a jump in bond yields.     

The S&P/ASX 200 eased 18 points or 0.27 per cent by mid-session.

Companies with significant US earnings were dragged lower by a drop in the greenback after the US Federal Reserve doused any prospect of a rate rise before 2024. Growth stocks slipped as the Australian ten-year bond yield spiked five basis points. A rebound in mining stocks helped cushion the market from a deeper loss.

What’s driving the market

The morning’s big news was a huge drop in the jobless rate from a revised 6.3 per cent in January to 5.8 per cent last month. The economy added 89,000 jobs, almost three times as many as economists expected. The dollar jumped 0.3 per cent to a two-week high of 78.36 US cents.

“Very strong labour market data, smashing expectations on employment and unemployment. Could hardly be a better outcome before JobKeeper is wound back,” tweeted Alex Joiner, chief economist at IFM Investors.

However, in the topsy-turvy world of finance, good news for the economy is not always welcomed as good news for the market. The logic is that the quicker the economy rebounds, the faster the Reserve Bank will pull stimulus spending and raise rates. Hence this morning’s muted response.   

On any other day, the Fed’s monthly meeting would have set the tone for the session – and arguably many more to come. The US central bank upgraded its economic projections, left its key policy settings on hold and doused growing expectations official rates might have to rise as soon as next year to contain inflation.

The key takeaway “is that the committee expects to be extraordinarily accommodative for a very long time to come, even as the economic outlook brightens,” Eric Winograd, senior economist at AB, wrote.

The immediate results this morning were rallies in US stocks and gold. The Dow and S&P 500 rose 0.58 per cent and 0.29 per cent, respectively, to new closing highs. Gold jumped more than 1 per cent. The greenback slumped, sending the Aussie up more than half a cent before it got a second bump higher from this morning’s jobs data.     

US futures continued to improve this morning. S&P 500 futures climbed 13 points or 0.3 per cent. Dow futures gained 135 points and Nasdaq futures 0.4 per cent.

Going up

The materials sector rebounded from its weakest level in five weeks. A surge in precious metals lifted gold miner Newcrest 3.2 per cent. Fortescue Metals shrugged off its softest start since December to rise 0.3 per cent. Rio Tinto edged up 0.1 per cent. BHP faded to a half-time loss of 0.1 per cent.  

Gold stocks dominated the top of the index. Silver Lake Resources rose 7 per cent, Gold Road Resources 6.9 per cent, Ramelius 5.9 per cent and Evolution 4.5 per cent. Asset manager Platinum and Corporate Travel Management made up the rest of the top six, climbing 6 and 4.6 per cent, respectively.

Heavyweight gains outside the resources space were scarce. Telstra is on a tear, rising 1.3 per cent today towards a fifth straight gain. The telecom giant was helped by a broker upgrade yesterday from Ord Minnett. Macquarie Group edged up 0.7 per cent.

The promise of higher spending from lower unemployment helped lift Wesfarmers 0.4 per cent. Other retailers seemed to anticipate the strong data: Harvey Norman climbed 2.5 per cent to a post-GFC peak. JB Hi-Fi put on 2.8 per cent and Super Retail Group 4.1 per cent.

Interest in the speculative end of the market has picked up over the last week. The S&P/ASX Emerging Companies Index climbed 0.6 per cent towards its sixth advance in seven sessions. The speculative index slumped to a two-month low earlier this month as a sudden spike in bond yields triggered risk-off selling.

Going down

Tech stocks were pushed lower by a rise in borrowing costs. The yield on ten-year Australian bonds rose almost five basis points to 1.78 per cent. Afterpay dropped 2.1 per cent, NextDC 3.4 per cent and Bravura Solutions 2.2 per cent. Bond surrogates also suffered: Goodman Group declined 1.8 per cent, Woolworths 1.2 per cent and Coles 0.2 per cent.

The retreat in the greenback weighed on companies with significant US earnings. Transurban fell 1.7 per cent, CSL 1.1 per cent and Aristocrat Leisure 0.6 per cent.

A mixed session for the banks saw CBA shed 1 per cent, NAB 0.1 per cent and Westpac 0.3 per cent. ANZ rose 0.2 per cent.

Other markets

Gold was one of the big winners from this morning’s Fed meeting and continued to add to its gains. The yellow metal was last up $23 or 1.3 per cent at US$1,750.10 an ounce.

Oil‘s losing run extended into a fifth session. Brent crude fell 27 cents or 0.4 per cent to US$67.73 a barrel.

Japan’s export-driven Nikkei jumped 1.78 per cent. The Asia Dow put on 1.54 per cent, China’s Shanghai Composite 0.12 per cent and Hong Kong’s Hang Seng 0.98 per cent.

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