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Australian stocks briefly plunged more than 2.5 per cent to a three-week low, joining a global sell-off as surging bond yields undercut buying interest in equities.
The S&P/ASX 200 dived as low as 6659 before trimming its loss to 144 points or 2.1 per cent at 6690. The decline pulled the index under 6700 for the first time since February 1.
The tech sector briefly lost more than 7 per cent as investors dumped companies whose financial models are most susceptible to higher rates.
What’s driving the market
Volatility spiked and US shares tumbled overnight after a surge in long-term interest rates. The yield on ten-year US treasuries soared more than 16 basis points to its highest level in a year. One strategist branded the surge a “puke move”: a dislocation so shocking traders vomit up their positions.
The surge in bond yields stripped US equities of their investment premium over treasuries. At 1.5 per cent, the return on bonds last night moved above the 1.43 per cent dividend yield offered by the S&P 500. In other words, investors can now get a better return from bonds without exposing funds to the greater volatility of equities.
The Nasdaq Composite bore the brunt of the selling, falling 3.52 per cent to its heaviest loss since October. The broader S&P 500 shed 2.45 per cent and the Dow 1.75 per cent.
“With discussions amongst the Democrats pointing to as much as US$3 trillion in infrastructure spending and the pandemic continues to normalize, bond traders wasted little time pricing in a hyper-stimulated and inflated return to normalcy,” Stephen Innes, Chief Global Market Strategist at Axi, said.
“This triggered a massive sectoral dispersion with technology stocks under the hammer given growing valuation concerns. Tech stocks are susceptible to rising yields because their value rests most heavily on future earnings, which get discounted more negatively when bond yields go up.”
The ASX saw red. All 11 sectors declined. Nineteen out of 20 heavyweights of the ASX 20 declined. Roughly six out of every seven stocks on the broader ASX 200 declined.
The tech sector swooned 7.2 per cent to its weakest level since November before paring its fall to 5.3 per cent. BNPL darling Afterpay tumbled 9.3 per cent following a capital raising.
“The global run-up in stocks driven by reflation hopes and cheap cash is under pressure,” Kalkine Group CEO Kunal Sawhney said. “It is pretty clear that the concern is more on the simmering inflation expectations amid soaring oil prices and record high copper prices.”
Going up
Just five stocks on the ASX 200 gained more than 2 per cent. Three were gold stocks, a traditional defensive asset in times of market turmoil. .
AMP enjoyed a rare day at the top of the percentage gains, rising 4.3 per cent after announcing a deal to sell US investment giant Ares a 60 per cent stake in AMP’s private markets business for $2.25 billion. Ares will assume management control of the business, with AMP retaining a 40 per cent stake in the joint venture.
A huge lift in half-year net profit made Lynas Rare Earths one of the few firms reporting earnings to rise. The REE miner’s shares edged up 2.3 per cent on news net profit surged to $40.6 million from $3.9 million in H120.
Gold stocks attracted selective interest. Silver Lake Resource added 4.4 per cent, Westgold 2.3 per cent and Ramelius 2 per cent. Heavyweight Newcrest slid 0.6 per cent.
Brambles was the only stock on the ASX 20 to advance, rising less than 0.2 per cent.
Going down
The last few companies to deliver interim earnings must have wished they reported yesterday, when investors were in a more forgiving mood. Online retailer Kogan doubled its dividend, increased gross profits by 126.2 per cent and saw its share price smashed down 10.3 per cent to an eight-month low.
Anticipation of strong earnings helped lift Harvey Norman to a 13-year high earlier this month. The retailer duly delivered, more than doubling its half-year profit, but the share price fell 2.4 per cent.
Data analytics firm Nuix, which listed in December, dived 30.4 per cent to an all-time low as a 4 per cent decline in half-year revenue raised questions over its full-year target. CEO Rod Vawdrey insisted the company would still meet its prospectus forecasts.
Explosives company Orica picked the wrong day for a profit warning. The company lost almost a fifth of its market value, falling 19.1 per cent after warning it expects to take a hit of up to $125 million from the strengthening dollar, arbitration costs and the impact of Chinese bans on coal mining.
A tough morning for BNPL players saw Afterpay tank 9.3 per cent as it resumed trade after its half-year report and a $1.5 billion raising. Sezzle slumped 12 per cent in further evidence that rapid growth and record sales are no longer enough for demanding investors. The company reported an operating loss of $27.9 million. Z1P Co dropped 5.4 per cent.
At the top of the food chain, CSL dropped 2.7 per cent, BHP 2.6 per cent and CBA 2.1 per cent. Coles fell 3.7 per cent as it went ex-dividend. Aristocrat Leisure lost 3.5 per cent despite reaffirming full-year guidance during today’s virtual AGM. Telstra gave up 2.8 per cent, Fortescue 2.7 per cent and Woodside 2.7 per cent.
Other markets
A brutal morning on Asian markets saw China’s Shanghai Composite lose 1.97 per cent, Hong Kong’s Hang Seng 2.2 per cent and Japan’s Nikkei 2.38 per cent. The Asia Dow shed 2.52 per cent.
US futures drifted lower. S&P 500 futures eased four points or 0.1 per cent. Nasdaq futures fell 66 points or 0.5 per cent.
Oil belatedly joined the overnight sell-off in risk assets. Brent crude fell 58 cents or 0.9 per cent to $US62.95 a barrel.
Gold continued to lose ground, sliding $8.40 or 0.5 per cent to $US1,767 an ounce.
The dollar‘s overnight slide continued. The Aussie declined 0.15 per cent to 78.51 US cents.
