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The share market’s winning run stuttered as gains in bank and energy stocks were outweighed by declines in defensive sectors.
The S&P/ASX 200 faded to a mid-session loss of 32 points or 0.44 per cent. A 2.1 per cent plunge on Monday left the index more than 60 points underwater for the week despite three days of gains.
Woodside Petroleum and the big four banks rose for a second day. Property and health stocks retreated as a spike in bond yields dulled buying interest in alternatives to bonds. Trading volumes were impacted by a Victorian state holiday.
What’s driving the market
The market took a breather at the end of a week that began in fear and panic and ended with growing optimism after two “risk events” passed without major damage to financial markets. The Federal Reserve signalled it was preparing to reduce support for the economy, but not yet. China’s struggling property giant Evergrande met enough of its debt obligations to soothe fears of a messy collapse.
“Despite a bullish night for US stocks, the Australian share market had a lacklustre start this morning,” Kalkine Group CEO Kunal Sawhney said. “However, gains in the energy stocks seem to be offsetting losses to some extent. The energy stocks appear to be rallying on the back of a recent uptick in oil prices… The oil prices inched higher on growing fuel demand and supply concerns as production remained largely hampered in the Gulf of Mexico following two hurricanes.”
Wall Street pulled out of a five-session swan-dive on Wednesday night and added to those gains overnight. The S&P 500 rallied 1.21 per cent. The Dow ran even harder, rising 1.48 per cent or more than 500 points.
“While the situation with Evergrande continues to remain worrisome, market experts are not anticipating the outcome to be some sort of contagion or as severe as initially feared,” Mr Sawhney said. “More specifically, the markets are toning down the risk that a potential fallout of Evergrande will result in a systemic liquidity crunch or a ‘Lehman moment’.”
Here, rate-sensitive lenders rose as Australian bond yields chased their US counterparts higher. The yield on ten-year Australian government bonds jumped 12 basis points to just below 1.4 per cent, their highest since mid-July. Yields move inversely to price, so rising yields indicate falling demand for bonds and improving interest in riskier assets.
Lenders tend to rally with bond yields because higher rates lead to better margins. CBA firmed 0.32 per cent, ANZ 0.15 per cent, NAB 0.74 per cent and Westpac 0.44 per cent. Macquarie Group added 0.18 per cent.
The flipside to rising yields is declining interest in stocks that compete with bonds for investment funds when yields are low. These include real estate investment trusts and healthcare.
Growthpoint Property fell 3.2 per cent, ResMed 3.08 per cent, Mirvac 2.85 per cent, Goodman 2.19 per cent, Wesfarmers 0.54 per cent and CSL 0.19 per cent..
Going up
Energy was the best of the sectors for a second day after the global oil benchmark hit a three-year high. Brent crude settled US$1.06 or 1.4 per cent ahead at US$77.25 a barrel overnight as US output remained constrained by damage caused by Hurricane Ida.
Woodside Petroleum rallied 2.43 per cent to a two-month high. Santos gained 1.39 per cent and Oil Search 1.01 per cent.
The morning’s strongest performers were Computershare +5.82 per cent, Virgin Money UK +3.42 per cent and Premier Investments +3.18 per cent.
Going down
News of a patent infringement complaint in the US pushed Cochlear down 5.36 per cent. The hearing implant specialist said the University of Pittsburgh filed a complaint in a Texas district court over a patent covering wireless energy transfer. Cochlear will defend the lawsuit.
Industrial property investment trust Centuria sank 5.49 per cent to $3.79 after raising $300 million from institutional investors at $3.80. Proceeds will be used to fund the acquisition of eight urban infill industrial assets.
Modular building and RV manufacturer Fleetwood skidded 6.69 per cent after warning Covid lockdowns and border closures will impact its first-half result. The company said clients were being slow and conservative due to the uncertainty. The exact impact on trade was not yet clear.
Gold stocks retreated after the yellow metal faded to a six-week low. Silver Lake Resources gave up 3.65 per cent, Perseus 4.36 per cent, Ramelius 3.76 per cent and Newcrest 1.69 per cent.
BHP fell for a second day. The Big Australian dropped 2.24 per cent. Fortescue Metals shed 0.8 per cent and Rio Tinto 0.03 per cent.
Toll road operator Atlas Arteria eased 3.56 per cent as it traded ex-dividend.
Other markets
Asian markets were mixed as a 3.6 per cent decline in Evergrande kept a lid on Hong Kong. The Hang Seng was flat.
The Asia Dow rose 0.75 per cent, China’s Shanghai Composite 0.23 per cent and Japan’s Nikkei 1.86 per cent.
US futures were little changed. S&P 500 futures edged up two points or 0.03 per cent.
Oil retreated from three-year highs. Brent crude eased 15 US cents or 0.2 per cent to US$76.31 a barrel.
Gold was broadly steady at US$1,750 an ounce.
The dollar eased 0.1 per cent to 72.9 US cents.
