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Australian shares tracked falls on Wall Street after the Federal Reserve raised US interest rates and signalled more hikes next year.
The S&P/ASX 200 declined 32 points or 0.44 per cent by mid-session. The market took in its stride unexpectedly strong domestic jobs data.
Traditional havens outperformed as trade turned risk-averse. Consumer staples and utilities were the only sectors to advance. Miners were the biggest drag as an upsurge of Covid cases in China threatened demand for raw materials.
What’s driving the market
US stocks fell in volatile trade after the Fed indicated most policy-makers expect benchmark rates to rise significantly next year and stay up longer than the market anticipated. The central bank raised the target federal funds rate by half a percentage point to 4.25-4.5 per cent.
Investors were rattled by a projection that rates will top out above 5 per cent. Seven Fed policymakers saw rates going as high as 5.75 per cent. Chair Jerome Powell said he expected monetary policy to remain restrictive “for an extended period of time”.
“The Fed just put a roadblock in front of Santa’s sleigh,” Sylvia Jablonski, CEO and CIO at Defiance ETFs, told CNBC.
The S&P 500 gave up pre-announcement gains to finish 0.61 per cent lower. The Dow shed 0.42 per cent.
“Another meeting and the Fed once again took the wind out of the stock market rally’s sails. The Fed isn’t done yet,” Chris Rupkey, chief economist at FWDBONDS, said.
“They downshifted to a 50 bps rate hike, but that lower gear is only because rates need to climb even higher. The old thinking from the September 2022 forecast was the Fed funds rate would peak at 4.75% in 2023, now, as Powell has said, the peak rate is ‘somewhat higher’ at 5.25%.”
Bond and forex markets appeared less surprised by the hawkish outlook. Treasury yields and the greenback spiked briefly before resuming their earlier downward drift.
This year’s stock market has been marked by a series of failed rallies as equity investors anticipate a pivot in Fed policy-making, only to be disappointed. While inflation in the US has backed off 40-year highs, at 7.1 per cent it is still far above the central bank’s target range.
The domestic market shrugged off another unexpectedly strong jobs report. Total employment expanded by 64,000 last month, more than three times the median forecast from economists. The jobless rate held at a 48-year low of 3.4 per cent. The participation rate climbed to 66.8 per cent, matching the June record high.
“The record high participation rate continues to show that it is a tight labour market, especially when coupled with very low unemployment,” Bjorn Jarvis, head of labour statistics at the ABS, said.
Going up
Coal miners rebounded ahead of a vote on a proposed cap on coal and gas prices. The federal government was due to reconvene today to consider the legislation.
New Hope and Whitehaven Coal rallied 4.57 and 3.36 per cent, respectively, following an upgrade from Citi. Coal haulage firm Aurizon gained 1.22 per cent.
Woolworths gained 0.12 per cent after announcing it will acquire a 55 per cent stake in the owner of the PETStock chain of stores. The supermarket group will pay $586 million for a majority holding in Petspiration Group, the number two player in the pet retail segment.
“Specialty pet is a large and growing retail segment in which we have limited presence,” Woolworths Group CEO, Brad Banducci, said. “Specialty pet is a logical adjacency given the high penetration of pet ownership across Australia and New Zealand,” he added.
Other heavyweight gains included Coles +0.9 per cent, CBA +0.37 per cent and Rio Tinto +0.26 per cent.
Dan Murphy’s and BWS operator Endeavour Group bounced 3.25 per cent off a 10-month low. The drinks group slumped yesterday after major shareholder Woolworths sold part of its stake.
Appen rose 2.7 per cent after announcing CEO and Managing Director Mark Brayan will stand down after seven years helming the AI data services firm. Armughan Ahmad will take over as CEO, MD and President of the company from the end of January. Ahmad’s most recent role was President and MD of Digital at KPMG in Canada.
Going down
A lower lithium spodumene price at Pilbara Minerals’ latest auction helped pull the miner’s share down 9.89 per cent. The company sold 10,000 dry metric tonnes at an average price of US$7,552 per dry metric tonne, down from US$7,805 at last month’s auction. The downturn follows a warning from Goldman Sachs that prices were likely to soften over the next year.
The result appeared to weigh on other players in the sector. Core Lithium skidded 8.15 per cent, Liontown 5.83 per cent and Mineral Resources 5.12 per cent.
Growth stocks were another drag on the prospect of higher borrower costs for longer. Megaport shed 5.45 per cent, Imugene 5.41 per cent and BrainChip 4.11 per cent.
ASX Ltd slid 0.39 per cent after regulators ordered the exchange operator to explain how it will manage the current CHESS trade clearing and settlement system until a replacement is ready. ASIC and the Reserve Bank issued the company with notices under the Corporations Act requesting a special report following delays and problems in developing a blockchain-based alternative to the ageing system.
ANZ dipped 0.1 per cent after warning of “significant uncertainty” ahead as cost-of-living pressures increase. CEO Shayne Elliott told today’s AGM that while some in the community were doing it tough, most were in good shape.
“We can quickly identify home loans that are already in, or approaching, negative equity, actively monitor and help them as needed,” he said.
The biggest drags at the pointy end were Macquarie Group -1.53 per cent, Aristocrat Leisure -1.01 per cent and Woodside -0.98 per cent.
Other markets
The Asia Dow sagged 0.79 per cent, Hong Kong’s Hang Seng 0.31 per cent and Japan’s Nikkei 0.09 per cent. China’s Shanghai Composite inched up 0.02 per cent.
US futures rebounded in the wake of last night’s rates shock. S&P 500 futures firmed nine points or 0.22 per cent.
Gold added to last night’s 0.4 per cent decline. The yellow metals eased US$5.70 or 0.3 per cent to US$1,813 an ounce.
Brent crude shed 10 US cents or 0.1 per cent at US$82.60 a barrel.
The dollar dipped 0.05 per cent to 68.54 US cents.
