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The share market faded towards the second loss of a stop-start week after Commonwealth Bank tipped interest rates could rise as soon as next year.
The S&P/ASX 200 eased 22 points or 0.3 per cent by mid-session. The decline pulled the index deeper into the red for a week that began with a dive before a partial recovery yesterday.
Banks, health stocks and oil companies led the retreat. Tech stocks and miners advanced.
What’s driving the market
The outlook for interest rates is moving quickly, with Commonwealth Bank this morning joining the ranks of economists tipping the Reserve Bank will have to move much faster than current guidance to contain a resurgent economy.
“We expect the RBA to begin normalising monetary policy in late 2022 and see the cash rate at 0.5 per cent at end-2022 and then peaking at 1.25 per cent by Q3 2023,” the bank’s economists wrote.
The bank attributed the shift in thinking to a “phenomenal” tightening in the labour market. The unemployment rate dived to 5.1 per cent last month from 5.5 per cent in April despite the end of the JobKeeper support program.
“We now forecast the unemployment rate to be 4.5% at end-2021 and 4.0% by end-2022,” they wrote.
Westpac Chief Economist Bill Evans said conditions for a rate hike would be met by late next year, but he expected the RBA to hold off until early 2023.
“We now expect that the first hike will be in the first quarter of 2023 of 15 basis points,” he said. “And another one in the second quarter, and a final 25 in the fourth quarter of 2023.”
The Reserve Bank‘s official line on rates is it does not expect inflation to sit sustainably within its 2 – 3 per cent target range until 2024 – a pre-condition for hiking.
The market snubbed positive leads from the US. The S&P 500 rallied 0.51 per cent overnight as the Federal Reserve doused rate worries. The Nasdaq Composite climbed 0.79 per cent to an all-time high.
New South Wales announced new restrictions this morning after the state recorded 13 new locally-acquired Covid-19 cases since 8 pm last night. People in hot-spot local government areas will be banned from travelling outside metropolitan Sydney for non-essential activities.
“The growth in the cluster of highly infectious Delta virus variant in Sydney has become the new source of worry for the government,” Kalkine Group CEO Kunal Sawhney said. “At a time when vaccine hesitancy continues to rule over the minds of Aussies prompting many people to cancel their vaccine appointments, the emergence of fresh cases is certainly not welcome news for Australia.
“The government is now facing a double challenge of curbing the new COVID-19 spread and simultaneously regaining public trust in vaccines while keeping safety scares at bay.”
Going up
Tech stocks outperformed in the US overnight, setting up the domestic sector for market leadership. Afterpay climbed 2.99 per cent, Altium 1.67 per cent, Appen 1.6 per cent and Technology One 1.1 per cent. BNPL player Z1P Co rose 5.82 per cent.
A rebound in iron ore lifted Fortescue Metals 1.12 per cent, BHP 1.33 per cent and Rio Tinto 0.81 per cent. Gold giant Newcrest edged up 0.38 per cent.
Washington H. Soul Pattinson surged 6.54 per cent as investors warmed to a merger with rival investment house Milton Corporation, announced yesterday. Milton shares edged 6.5 cents or 1.12 per cent closer to the offer price of $6.
Fruit and veg grower Costa Group entered a trading halt to raise funds to acquire 2PH Farms, a central Queensland citrus grower. The companies have worked together more than a decade. Costa aims to raise $190 million through a capital raising. The company also said it expected its first-half performance to be “marginally ahead” of the previous half.
Also raising funds, wearable tracking technology maker Catapult was seeking $40 million through a placement and share purchase plan to acquire sports software video provider SBG Sport Software.
Going down
A broker downgrade pushed CSL lower for a second day. The share price fell 1.98 per cent this morning after Citi cut its rating to hold. The healthcare giant hit a seven-month high on Monday.
Woolworths sank 1.96 per cent after announcing $163 million in costs and impairments relating to the demerger of its Endeavour drinks business, redundancies at distribution centres and impairments at its Metro Food Store network.
Oil companies retreated after market chatter about looming production increases weighed on crude overnight. Woodside shed 1.99 per cent, Santos 2.81 per cent and Oil Search 1.4 per cent.
Westpac led a retreat in the big four banks, falling 1.52 per cent. CBA dropped 0.74 per cent, ANZ 1.12 per cent and NAB 1.14 per cent.
Other markets
Asian markets mostly advanced as US futures rallied. China’s Shanghai Composite gained 0.22 per cent, Hong Kong’s Hang Seng 0.58 per cent and Japan’s Nikkei 0.09 per cent. The Asia Dow dipped 0.12 per cent. S&P 500 futures rose six points or 0.14 per cent.
Oil pushed higher. Brent crude rallied 35 cents or 0.47 per cent to US$74.43 a barrel.
Gold bounced $3.40 or 0.19 per cent to US$1,780.80 an ounce.
The dollar retreated 0.15 per cent to 75.42 US cents.
