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Tech stocks steered the share market lower for a second day following sharp falls on Wall Street ahead of higher rates this year.

The S&P/ASX 200 retreated 98 points or 1.3 per cent by mid-session.

The technology sector skidded to a near seven-month low, weighed down by a 10 per cent fall in sector giant Afterpay. The decline followed the Nasdaq Composite’s heaviest fall in ten months. Gains in iron ore producers cushioned the market from a deeper loss.

What’s driving the market

The festive party that raged across financial markets during the holiday season came to an abrupt end overnight after the Federal Reserve signalled it is preparing to remove the punch bowl.

Stocks and bonds sold off as the US central bank indicated official interest rates may rise as soon as March. The minutes from the December policy meeting showed some Fed officials think the bank should start to unwind its groaning balance sheet soon after.

“Some participants… noted that it could be appropriate to begin to reduce the size of the Federal Reserve’s balance sheet relatively soon after beginning to raise the federal funds rate,” the minutes said. 

The Dow surrendered its hold on record levels, falling 1.07 per cent. The S&P 500 shed 1.94 per cent. The Nasdaq Composite dived 3.34 per cent to its biggest loss since last February.

Bitcoin dropped to a three-month low. The VIX or Volatility Index (sometimes described as Wall Street’s “fear gauge”) jumped 16.7 per cent.

“If you ride a wave of liquidity to the upside and that liquidity starts to go away, I don’t think it’s terribly surprising that you’re going to see a reaction,” Kathy Jones, head of fixed income at Charles Schwab said.

“This was the year we were going to transition from extremely easy monetary policy and fiscal policy to less easy monetary and less expansive fiscal policy. That has to have some impact on risk assets,” she added.

Growth stocks that depend most on borrowing wilted at the prospect of higher rates. The yield on ten-year Australian government bonds firmed almost five basis points this morning to a five-week high.

The Australian tech sector fell 5 per cent. Afterpay, the sector’s largest company by market capitalisation, sank 10.02 per cent to its lowest since August 2020.

WiseTech shed 5.52 per cent, Megaport 5.56 per cent and Life360 5.37 per cent. In the BNPL space, Z1p Co gave up 4.39 per cent and Splitit 6.78 per cent.

Going up

Bulk metal miners weathered the storm after iron ore sustained its 2022 rally. Rio Tinto put on 2.1 per cent, BHP 1.43 per cent and Fortescue Metals 0.9 per cent.

Uranium was another pocket of strength as civil unrest in Kazakhstan threatened to disrupt production. Kazakhstan is responsible for roughly 40 per cent of global uranium output. The spot price to Canada jumped US$3.25 overnight to US$45.50 a pound.

Paladin Energy firmed 3.8 per cent. Lower down the food chain, Element 25 gained 17.5 per cent, Vimy Resources 10.23 per cent and Deep Yellow 7.07 per cent.

Latitude Group firmed 2.29 per cent on news it will acquire Humm’s consumer finance business for $335 million. The lender will pay $35 million cash and roughly $300 million in equity for the BNPL, instalment and credit card operation. Humm shares dipped 0.84 per cent.  

Nickel Mines firmed 0.17 per cent after securing tax relief from the Indonesian government for a subsidiary. The concessions include a waiver on paying income tax for ten years after commercial production starts.

Going down

Ten of eleven sectors declined. While tech stocks suffered the biggest blow, defensive sectors that attract buying interest under low rates also declined. Real estate investment trusts fell 2.68 per cent, healthcare 2.1 per cent and utilities 0.58 per cent.

Charter Hall Group shed 4.05 per cent, Ramsay Health Care 4.63 per cent and AGL Energy 0.86 per cent. At the heavyweight end, Goodman Group dropped 3.99 per cent, CSL 1.88 per cent and Wesfarmers 1.66 per cent.

The threat to liquidity from quantitative tightening in the US weighed on lenders. CBA fell 1.13 per cent, ANZ 0.14 per cent, NAB 0.84 per cent and Westpac 0.6 per cent.

Other markets

US futures rebounded, raising hopes for a recovery tonight. S&P 500 futures firmed seven points or 0.14 per cent.

The Asia Dow declined 0.97 per cent, China’s Shanghai Composite 0.21 per cent and Japan’s Nikkei 1.39 per cent. Hong Kong’s Hang Seng rose 0.3 per cent.

Oil surrendered most of its overnight gains. Brent crude retreated 73 US cents or 0.9 per cent to US$80.07 a barrel.

Gold also reversed after settling higher ahead of the Fed minutes. Gold for February delivery shed US$14.50 or 0.79 per cent to US$1,810.60 an ounce.

The dollar eased 0.12 per cent to 72.11 US cents.

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