A recovery in the beaten-down tech sector helped cushion the share market against a severe plunge on commodity markets.
The S&P/ASX 200 slid 32 points or 0.5 per cent by mid-session.
A horror night for oil and other commodities put the index on course for its first loss in three sessions.
Energy producers and miners led the sell-off. Those falls were partly offset by gains for I.T., healthcare and consumer stocks in a sharply-divided market.
What’s driving the market
The headline figures mask the scale of the shifts in sector allocations. The out-of-favour technology sector jumped 2.9 per cent to a near four-week high. Tech companies hit two-year lows last month as valuations sank in line with higher borrowing costs and lower growth prospects.
Commodity prices wilted overnight as a combination of a strengthening US dollar, recession fears and a Covid outbreak in China triggered a rush to the exits. The Invesco Commodity Index Tracking Fund in the US plunged 6.72 per cent to its fourth-biggest loss in 16 years.
“The re-emergence of COVID-19 cases in Shanghai [called] into question the demand recovery of the world’s second largest consumer. Authorities launched mass testing, while outbreaks in other regions saw some limited restrictions enacted,” ANZ senior commodity strategist Daniel Hynes said.
Brent crude swooned 9.5 per cent. US oil fell below US$100 a barrel. Copper, viewed by many analysts as a bellwether for global growth, dropped to a 19-month low. Natural gas, gasoline, wheat, soybeans and precious metals also declined.
“The overnight fall in crude prices indicates fears of demand destruction linked to concerns about a global recession. Speculations are rife that crude could slide to $US70 a barrel level by the end of the year in a recessionary situation,” Kunal Sawhney, chief executive of research group Kalkine, said.
“Rising interest rates and a continued decline in commodity prices may act as a double whammy for the Australian economy.”
Energy, last month’s second-best performing ASX sector, dived 5.1 per cent. The heavily-weighted materials sector dropped 4.2 per cent.
Overnight, growth stocks led a remarkable intraday recovery on Wall Street. The S&P 500 finished 0.16 per cent ahead after falling more than 2 per cent in early action. The Nasdaq Composite led with a rise of 1.75 per cent. The Dow trailled with a loss of 0.42 per cent.
Growth was back in favour as the cost of borrowing as defined by the returns paid by bondholders continued to back down. The yield on ten-year Australian government bonds fell 12 basis points to a five-week low.
Similar moves in the US fed strong gains in Big Tech overnight. Tech and other growth areas of the market are particularly susceptible to changes in the cost of borrowing because their valuations depend mostly on projected future earnings.
Some of FY22’s worst performers were today’s best. Zip Co, which lost 94 per cent of its market capitalisation last year, bounced 12.75 per cent. PointsBet jumped 5.45 per cent. The wagering group dived 79 per cent last fiscal year.
Megaport soared 14.39 per cent. EML Payments added 9.34 per cent. Xero gained 5.31 per cent, WiseTech 4.42 per cent and Afterpay parent Block 4.29 per cent.
Healthcare and other recession-resistant defensive assets also rose. CSL gained 1.91 per cent, Cochlear 2.09 per cent and ResMed 1.74 per cent. Supermarkets Woolworths and Coles put on 2.65 and 2 per cent, respectively.
The big four banks gained between 0.4 and 1.1 per cent.
Resource stocks slumped as the US dollar index neared its highest level in two decades. The index measures the greenback against a basket of foreign currencies. A strengthening US dollar raises the cost of dollar-denominated commodities for holders of other currencies.
Beach Energy skidded 7.43 per cent. Woodside Energy shed 6.41 per cent. Santos gave up 4.61 per cent.
Diversified miner South32 sank 7.53 per cent. Champion Iron lost 6.54 per cent. Big guns Rio Tinto and BHP shed 5.5 and 4.67 per cent, respectively.
Gold miners wilted after the yellow metal smashed through the US$1,800 an ounce level.
“Gold blew through 1800 with apparent ease which itself suggests big stops were triggered. And there could be more pain ahead for gold bugs,” City Index senior market analyst Matt Simpson said.
“That the ‘gold VIX’ (GVZ) rose to a 3-week high and prices are already down 2% this week suggests margin calls are being attended to, as gold is clearly not behaving as any sort of safe haven.”
St Barbara shed 7.54 per cent, Regis Resources 7.32 per cent and Newcrest 6 per cent.
Bubs Australia eased 4.69 per cent to 60 cents after raising $40.1 million from institutional investors at 52 cents to fund expansion. Retail shareholders will get the chance to buy at the same price.
GrainCorp slid 7.1 per cent as its shares traded without the right to the latest dividend.
Asian markets faded as the threat of further lockdowns in China weighed. The Asia Dow shed 0.81 per cent. China’s Shanghai Composite lost 1.13 per cent, Hong Kong’s Hang Seng 1.08 per cent and Japan’s Nikkei 1.36 per cent.
US futures struggled for direction. S&P 500 futures were recently down four points or 0.1 per cent.
Volatility in energy markets continued with a rebound in oil. Brent crude bounced US$1.34 or 1.3 per cent to US$104.11 a barrel.
Gold also pared a steep overnight loss. The yellow metal rallied US$6.10 or 0.35 per cent to US$1,770 an ounce.
The dollar bounced 0.36 per cent to 68.18 US cents after trading below 68 cents overnight.