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A nine-month high in energy stocks cushioned the share market from a deeper loss following a tech-led retreat on Wall Street.
The S&P/ASX 200 reached mid-session 58 points or 0.8 per cent lower after earlier falling 78 points. Today’s session was the sixth in a row where the index has moved more than 1 per cent.
Gains in oil producers, Woolworths and Macquarie Bank helped offset weakness in I.T. firms and miners. Fortescue Metals fell to a 15-month low.
What’s driving the market
Energy stocks were the morning’s big winners after the Organization of the Petroleum Exporting Countries (OPEC) and allies stared down calls for a major increase in production to rein in soaring energy prices. The oil cartel stuck to a previously-announced plan to increase crude production modestly each month.
Oil traders responded by lifting US crude to a seven-year high. West Texas Intermediate climbed US$1.74 or 2.3 per cent to US$77.62 a barrel. The global benchmark, Brent crude, rose US$1.98 or 2.5 per cent to US$81.26 a barrel, its highest settlement in three years. The US energy sector jumped 1.6 per cent.
The Australian energy sector flew up 1.73 per cent to a level last seen in January. Oil Search climbed 3 per cent, Santos 2.75 per cent, Woodside Petroleum 2.07 per cent and Beach Energy 0.35 per cent.
Whitehaven Coal rose 0.59 per cent towards a two-year high after China’s energy crisis drove thermal coal to record levels. New Hope rose 0.41 per cent.
“Thermal coal prices surged to their highest level on record amid energy shortages in China,” commodities strategist Daniel Hynes of Hynes Commodities said. “High quality thermal coal loaded in the Newcastle port hit USD203/t. Earlier this week Chinese Vice Premier, Han Zheng, ordered state-owned energy companies to secure supplies at any costs.”
Rising energy costs are a positive for producers, but a headwind for the broader market. This year’s surge in the prices of raw materials has been one of the biggest contributors to soaring inflation.
“The global energy crisis meanwhile, and arguably today’s main source of broader stock market weakness, is being aggravated by the failure of OPEC+ to agree to production increases beyond the 400,000 [barrels per month] rise already slated from November,” NAB Head of FX Strategy Ray Attrill said.
Sharp declines in US tech giants set the scene for a soft session. The Nasdaq Composite sank 2.14 per cent overnight as the big five – Apple, Microsoft, Amazon, Alphabet and Facebook – all dropped at least 2 per cent. The S&P 500 lost 1.3 per cent and the Dow 0.94 per cent.
Australian losses accelerated with sharp falls in Asia. Japan’s Nikkei sank 3.28 per cent. Hong Kong’s Hang Seng shed 1.1 per cent and the Asia Dow 1.41 per cent. Trade in China was suspended until Friday for Golden Week.
Going up
Aside from the major movers at the two extremes – energy up, tech down – the morning’s action suggested a stock-picker’s market. Woolworths gained 1.11 per cent. Coles lost 0.3 per cent.
Macquarie Bank inched up 0.12 per cent. ANZ dropped 1.14 per cent, NAB 0.97 per cent, CBA 0.33 per cent and Westpac 1.16 per cent.
A broker upgrade from Jefferies helped lift Sonic Healthcare 0.11 per cent. The rest of the healthcare sector weakened. Fisher & Paykel sagged 3.64 per cent, Ramsay 1.82 per cent and CSL 0.61 per cent.
Brambles was the best of the industrial giants, rising 0.66 per cent. Transurban dropped 0.84 per cent.
The utilities sector firmed for a second day. Origin Energy climbed 3.35 per cent, AusNet 0.59 per cent and APA Group 0.57 per cent.
Gold was another pocket of strength following a third straight advance in the precious metal overnight. Silver Lake Resources put on 5.32 per cent, Gold Road Resources 6.22 per cent, St Barbara 4.63 per cent and Newcrest 0.96 per cent.
Evolution Mining advanced 2.07 per cent after announcing Navarre Minerals will purchase Evolution’s Mt Carlton gold mine for $90 million. Payment will be a mix of cash and equity. The mine represents 1.5 per cent of Evolution’s gold mineral resources.
Going down
The tech sector slumped 3.3 per cent to its weakest in two months as long-term interest rates hit their highest since early July. The yield on ten-year Australian government bonds firmed almost two basis points to 1.515 per cent. Tech stocks are particularly vulnerable to higher rates due to the way they are valued on borrowing to fund future growth.
Appen declined 5.36 per cent, Afterpay 5.38 per cent, Nearmap 4.35 per cent and EML Payments 3.96 per cent. Z1p Co shed 4.23 per cent, Splitit 6.02 per cent and Douugh 3.17 per cent.
The speculative end of the market weathered the September decline better than the big end until this morning. The S&P/ASX Emerging Companies Index sank 2.44 per cent to a two-week low.
The focus with iron ore producers has shifted from a retreat in ore prices to potential demand destruction from a default by Chinese property giant Evergrande. Fortescue Metals fell 1.81 per cent, BHP 1.43 per cent and Rio Tinto 0.53 per cent.
Other markets
US futures deteriorated with Asian losses. S&P 500 futures dropped 21 points or almost 0.5 per cent.
Oil trimmed overnight gains. Brent crude eased five US cents or 0.06 per cent to US$81.21 a barrel.
Gold backed down US$2.30 or 0.13 per cent to US$1,765.30 an ounce.
The dollar faded 0.34 per cent to 72.64 US cents as risk appetite faded.
