Join our daily newsletter At The Bell to receive exclusive market insights
Australian shares gave up early gains as caution set in ahead of this afternoon’s keenly-awaited Reserve Bank policy update.
The S&P/ASX 200 fell 53 points or 0.72 per cent by mid-session, reversing an early advance of 25 points.
The rate-sensitive financial sector led the retreat as investors reduced their exposure ahead of an RBA announcement with significant implications for interest rates. The major miners also declined after iron ore slipped nearer to the US$100 a tonne mark.
What’s driving the market
Risk appetite drained quickly despite positive leads from the US. Uncertainty over what exactly the RBA will say at 2.30 pm AEDT ensured discretion was the better part of valour. The ASX 200 topped out in the first half hour and faded steadily from there.
The central bank is under pressure to amend its forward guidance to reflect “real rates“. The Australian ten-year government bond yield hit a two-and-a-half-year high on Friday in a sign market participants are sceptical about the RBA’s assurances it does not expect to lift the cash rate until 2024 at the earliest.
“The bond market is the best indicator and market pricing is already telling us that traders are assuming the party might be over for ultra-low rates. We’re more likely to go up sooner than expected, but not immediately,” Peter Esho, co-founder of property investment company Wealthi, said.
“We think the tone will change in today’s meeting minutes and the RBA governor will spend the next few months articulating the new case towards opening the door and reassessing options,” he added.
Commonwealth Bank said it expects the bank to abandon its three-year yield target after failing to defend the target last week.
“The RBA chose not to intervene and defend their target and so we can only assume that the RBA will announce at the Board meeting that this target is being abandoned. The difficulty for the RBA is that this will also require a change in their forward guidance on the expected timing of the first rate hike,” the bank’s economics team told clients this morning.
Wall Street showed little evidence of nerves ahead of the Federal Reserve’s two-day policy meeting, which starts tonight. The Dow and S&P 500 edged up to record closes. The Dow put on 0.26 per cent and the S&P 500 0.18 per cent.
Going up
Industrial property giant Goodman Group climbed 6.43 per cent after raising full-year guidance to reflect strong demand for warehousing. Earnings per share were now expected to grow “in excess of 15%” following a strong start to the financial year. The company is experiencing an occupancy rate of 98.4 per cent as businesses scramble for storage space.
“Customer demand for high-quality properties close to consumers has never been greater. This is resulting in rental growth, increased development activity, stronger than expected performance from our Partnerships and generally higher levels of profitability, leading to upgraded earnings guidance for FY22,” Greg Goodman, Group CEO, said.
Computershare edged up 0.58 per cent after completing the acquisition of US trust and agency services provider Wells Fargo Corporate Trust Services. The $1 billion acquisition will place Computershare among the top four corporate trust services providers in the US.
Investment manager Praemium jumped 14.86 per cent to an all-time high following a merger offer from Netwealth. Praemium shares hit $148.50, close to the implied offer valuation of $1.50 per share. The Praemium board said the unsolicited, non-binding indicative proposal undervalued the business and was not in shareholders’ interests. Netwealth shares eased 2.68 per cent.
Besides Goodman, the pick of the heavyweights this morning were Woolworths +0.72 per cent, Aristocrat Leisure +0.63 per cent and CSL +0.33 per cent.
On the wider market, Charter Hall Group added 3.11 per cent following yesterday’s earnings upgrade. Asset manager Janus Henderson rallied 3.1 per cent to a new record.
Going down
IAG dropped 6.61 per cent to an eight-month low on news last month’s severe storms blew a hole in the insurer’s natural perils allowances. The company said it raised its natural perils allowance this financial year but claims had already “exceeded the assumptions underpinning the increase”. The increase in claims forced the insurer to cut its margin guidance to 10-12 per cent from previous guidance of 13.5-15.5 per cent.
Westpac fell for a second day following a spurt of downgrades in the wake of yesterday’s full-year earnings report. The bank’s shares sagged 2.99 per cent to an eight-and-a-half month low. Goldman Sachs, Morgan Stanley and Credit Suisse were among those to issue downgrades since the report.
CBA declined 0.95 per cent, ANZ 1.3 per cent and NAB 1.07 per cent.
The bulk metals miners wilted as the price of ore plumbed its lowest level since September. Spot ore eased 3.2 per cent yesterday to US$103.30 a tonne. Fortescue Metals shed 1.64 per cent, BHP 1 per cent and Rio Tinto 0.7 per cent.
Other markets
Asian markets were mixed. The Asia Dow put on 0.5 per cent, China’s Shanghai Composite 0.2 per cent and Hong Kong’s Hang Seng 1.74 per cent. Japan’s Nikkei fell 0.4 per cent.
US futures retreated following last night’s record closes. S&P 500 futures dropped six points or 0.14 per cent.
Oil built on last night’s rebound. Brent crude firmed 26 US cents or 0.3 per cent to US$84.97 a barrel.
Gold faded US$4.20 or 0.23 per cent to US$1,791.60 an ounce.
The dollar improved 0.07 per cent to 75.26 US cents.
