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A morning of market extremes saw gains in lenders outweigh declines in mining and tech stocks after revived inflation fears triggered ructions on bond, currency and commodity markets.
The S&P/ASX 200 rose 15 points or 0.2 per cent towards a third straight gain. The Australian benchmark hit a record yesterday and remained firmly on track for a third straight weekly advance.
Mining stocks retreated with metal prices following an overnight surge in the US dollar. Banks and companies with strong US earnings rallied. Tech stocks sensitive to higher borrowing costs fell as Australian yields followed US counterparts higher.
What’s driving the market
Inflation worries flared overnight after unexpectedly strong US economic data ramped up pressure on the Federal Reserve to tighten its market-friendly policy settings. The US dollar soared. Bond yields jumped. Cyclical stocks rose. Growth stocks and miners declined as commodity prices dived.
“The US economic recovery is shifting up a gear with almost every economic data released so far in June 2021,” Kalkine Group CEO Kunal Sawhney said. “At a time when the recently released ADP’s private payroll count and weekly unemployment claims data have strengthened confidence in the labour market, higher-than-expected Markit Services PMI has lifted faith in the manufacturing industry’s rebound from the virus crisis.
“A salvo of upbeat economic data has bolstered investors’ expectations that the robust economic readings may rekindle taper talks from the US Federal Reserve. Investors seem to be closely eyeing fresh signals from the central bank to see whether the economic growth will translate into inflation and prompt withdrawal of monetary support.”
US stock indices finished modestly lower, but the headline numbers masked a sharp divide between winners and losers. The S&P 500 finished 0.36 per cent in the red after being down around 0.9 per cent. The growth stock-heavy Nasdaq Composite lost 1.03 per cent.
The ASX followed the US blueprint after the local dollar fell more than 1 per cent and the ten-year Australian yield climbed three basis points. Miners and tech stocks declined. US-facing companies rallied.
Lenders, which benefit from higher lending rates by increasing margins, also advanced. The financial sector climbed 1 per cent to its highest since January 2018. Commonwealth Bank rose 0.77 per cent to a new record.
Victoria reported four new locally-acquired coronavirus cases in the 24 hours to midnight. State health authorities reclassified two previously reported cases as “false positives”.
Going up
Winners from a three-week high in the US dollar included CSL +1.63 per cent, Cochlear +2.43 per cent, ResMed +1.66 per cent and Aristocrat Leisure +0.47 per cent. Computershare added 2.2 per cent, Breville 1.29 per cent and Bluescope Steel 1.63 per cent. Transurban gained 1.14 per cent and Brambles 1.39 per cent.
Westpac climbed 0.94 per cent to its highest since November 2019. ANZ gained 0.96 per cent. NAB added 1.18 per cent.
Telstra moved within half a cent of a 14-month peak, rising 0.99 per cent. Supermarkets Coles and Woolworths gained 1.52 and 0.93 per cent, respectively.
Going down
A sharp retreat in industrial and precious metals overnight weighed on mining stocks. Copper slumped 3.6 per cent as the US dollar surged. Gold dropped 1.9 per cent. Rio Tinto shed 2.87 per cent, Fortescue Metals 2.37 per cent and BHP 2.5 per cent.
In the gold space, Newcrest eased 2.43 per cent, Silver Lake Resources 8.09 per cent and Ramelius 8.72 per cent.
Tech stocks, whose valuations are largely predicated on future earnings, fell with bond markets. Nuix dropped 4.46 per cent, Xero 2.47 per cent, EML Payments 2.95 per cent and Afterpay 1.11 per cent.
Appen slid 6.13 per cent after CEO and Managing Director Mark Brayan cashed in almost $1.5 million in shares. The company said Mr Brayan sold 109,430 shares “to satisfy tax obligations”. Mr Brayan retained 482,032 shares in the firm, with another 294,033 performance rights subject to vesting conditions.
Discount retailer The Reject Shop slumped 6.96 per cent to a 12-month low after warning sales remained depressed by border closures, Covid lockdowns and reduced CBD foot traffic as more people worked from home. Trade remained “challenging” and “well below pre COVID-19 levels”.
Other markets
A downbeat morning on Asian markets saw the Asia Dow shed 0.27 per cent, China’s Shanghai Composite 0.17 per cent, Hong Kong’s Hang Seng 0.06 per cent and Japan’s Nikkei 0.51 per cent. S&P 500 futures faded three points or 0.08 per cent.
Oil resisted last night’s initial commodity sell-off, but succumbed this morning. Brent crude dropped 41 cents or 0.57 per cent to US$70.90 a barrel.
Gold extended a 1.9 overnight decline, falling another $8.40 or 0.45 per cent to US$1,864.90 an ounce.
The dollar remained under pressure after retreating more than 1 per cent overnight, easing 0.05 per cent to 76.57 US cents.
