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Australian shares declined for a second day after New Zealand’s central bank raised its key rate, increasing pressure on the Reserve Bank to respond to rising inflationary pressures.
The S&P/ASX 200 faded to a mid-session loss of 30 points or 0.4 per cent after earlier gaining as much as 31 points.
Afterpay led a rebound in tech stocks. Multi-year highs in oil and gas boosted energy stocks. Commonwealth Bank, Rio Tinto and Wesfarmers were among the biggest weights on the index.
What’s driving the market
The market turned negative after the Reserve Bank of New Zealand raised its official cash rate by 25 basis points to 0.5 per cent. The bank said it was “appropriate to continue reducing the level of monetary stimulus so as to maintain low inflation and support maximum sustainable employment”.
The Kiwi central bank’s position presented a stark contrast to the RBA, which yesterday reaffirmed it does not expect to raise rates until 2024 at the earliest. The sell-off on the ASX implies the decision increases pressure on the Australian central bank to reduce support for the economy. The Australian dollar fell from 72.88 US cents to 72.73 cents.
“In contrast to the RBA yesterday the RBNZ sees price pressures globally as prompted at least some domestically. Whereas the RBA suggested they were ‘limited’,” Alex Joiner, chief economist at IFM Investors, tweeted.
Prior to the RBNZ announcement, the market spent the morning in a tight 24-point range, a significant change following six sessions where the index moved more than 1 per cent, including five when the index moved more than 100 points. The market is looking to build a base following four straight weeks of decline, the longest losing run of the year. The ASX 200 closed last week at its weakest since early June.
The late-morning slump confounded expectations for a rebound following a positive night on Wall Street. The S&P 500 bounced 1.05 per cent, recouping most of Monday night’s 1.3 per cent loss.
Oil and gas companies tested multi-month highs after US crude hit a seven-year high and natural gas touched a level last seen in 2008. Gas prices have surged amid tight supply going into the northern-hemisphere winter.
“Gunvor CEO, Torbjörn Törnqvist, warned that unlike oil, there is no spare capacity in the LNG market. China is ramping up its purchases coming into winter following calls from authorities to secure supply at all cost,” commodities strategist Daniel Hynes said.
Woodside Petroleum hit a seven-month high before rolling over to a loss of 0.36 per cent. Santos gained 1.38 per cent and Oil Search 1.35 per cent.
Going up
The tech sector bounced 1.5 per cent off a two-month low even as long-term rates rose to their highest since late June. The yield on ten-year Australian government bonds firmed four basis points to 1.57 per cent.
Afterpay climbed 3.47 per cent, Xero 1.53 per cent, Technology One 2.3 per cent and Appen 1.88 per cent.
Coal companies rallied following reports China had unloaded Australian coal despite an unofficial ban on Australian imports. Around 450,000 tonnes were reportedly unloaded.
Whitehaven Coal put on 3.48 per cent, New Hope 3.04 per cent and Coronado 1.71 per cent.
At the big end of the market, CSL put on 0.44 per cent and Coles 0.12 per cent.
Lithium miner Pilbara Minerals faded 0.27 per cent despite announcing a 47 per cent increase in the ore reserve at its Pilgangoora project in the Pilbara. The company said the increase reinforced the project’s “position as one of the world’s premier hard rock lithium operations”.
The morning’s best performers were Seven West Media +6.41 per cent, Eagers Automotive 3.88 per cent and Janus Henderson +3.48 per cent.
Going down
The banks and miners extended weakness as the morning wore on. Commonwealth Bank retreated 2.83 per cent following a downgrade from JPMorgan. ANZ slipped 1.08 per cent, NAB 0.94 per cent and Westpac 0.99 per cent. BHP gave up 0.25 per cent, Rio Tinto 1.08 per cent and Fortescue Metals 0.77 per cent.
News of a class action pushed A2 Milk down 5.83 per cent. The dairy company said it will vigorously defend group proceedings filed by Slater and Gordon in Victoria yesterday alleging it failed to comply with its continuous disclosure obligations.
Fund manager Magellan sank 3.18 per cent to a 19-month low after reporting net outflows of $1.527 billion last quarter. The loss reduced funds under management by 1.3 per cent. The fund said the declines were mostly due to institutional portfolio rebalancing.
The travel and tourism sub-sector met a wave of profit-taking following six weeks of strong gains ahead of ‘Freedom Day’ in NSW next Monday. Flight Centre dived almost 10 per cent before paring its fall to 5.61 per cent. Webjet dropped 5.21 per cent, Qantas 2.09 per cent, Corporate Travel Management 2.66 per cent and Crown Resorts 1.36 per cent.
Other markets
Asian markets were mixed but mostly higher. Hong Kong’s Hang Seng advanced 0.28 per cent and Japan’s Nikkei 0.13 per cent. The Asia Dow eased 0.44 per cent. Chinese markets remain closed until Friday for Golden Week holidays.
S&P 500 futures declined 13 points or 0.3 per cent.
Brent crude edged up seven US cents or 0.1 per cent to US$82.63 a barrel. Gold dropped US$3.30 or 0.2 per cent to US$1,757.50 an ounce.
