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Aussie shares fell for the first time in a week after the US Federal Reserve signalled the war on inflation would drive interest rates higher than markets had previously priced in.
The S&P/ASX 200 skidded 57 points or 0.77 per cent to 7308. The loss ended a run of four straight gains that had lifted the index to its highest in a fortnight.
Slender gains in defensive sectors were outweighed by falls in cyclicals exposed to weakness in the global economy. The dollar fell to a four-month low.
What moved the market
Signs that Australian interest rates may be nearing a top were overshadowed by indications US rates have significantly further to go. Wall Street slumped overnight after US Federal Reserve Chair Jerome Powell told a Congressional committee the bank was open to increasing the size of rate hikes, and recent economic data suggested the Fed had more work to do than markets anticipated.
“The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated,” Powell said.
“If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes.”
US stocks swooned as the odds on a 50 basis points rate hike this month jumped and bond yields soared through critical levels. The S&P 500 dropped 1.53 per cent.
“The probability of a 50bp rate hike at the March FOMC increased to 69% from 31% yesterday. U.S. 2yr yields closed above 5% for the first time since May 2007,” IGA analyst Tony Sycamore said.
The Australian dollar was collateral damage to a surge in the greenback. The Aussie sank more than 2 per cent to a four-month low. The local unit was lately buying 65.87 US cents.
Events in the US overshadowed confirmation this morning from Reserve Bank Governor Philip Lowe that the Australian rates cycle may be nearing its conclusion. A day after raising the cash rate target for a record tenth consecutive time, Lowe told a Sydney business summit another rate hike was likely, but rates were now in “restrictive territory”. The bank raised the cash rate yesterday by a quarter-point to 3.6 per cent.
“With monetary policy now in restrictive territory, we are closer to the point where it will be appropriate to pause interest rate increases to allow more time to assess the state of the economy,” Lowe said.
“At what point it will be appropriate to pause will be determined by the data and our assessment of the outlook.”
Australian stocks fell as several economists predicted at least one more rate hike. The Commonwealth Bank maintained its forecast of another quarter-point hike in April. NAB and Nomura tipped two more hikes, lifting the cash rate target to 4.1 per cent by May.
“Recent inflation data of Australia has shown some drop, but annual inflation was still at a high level of 7.4% in January. Labour market is also strong. The equity market realises these facts, which is why the ‘slightly more dovish than before’ RBA has not triggered any big jump in Aussie stocks,” Kunal Sawhney, CEO of research group Kalkine, said.
Winners’ circle
Significant gains were scarce as investors reduced risk. Just three ASX 200 component companies rallied more than 2 per cent. Nanosonics jumped 7.51 per cent, Iress 3.09 per cent and Qantas 2.89 per cent.
Defensive assets inched higher as investors sought havens. Sonic Healthcare advanced 1.7 per cent, IDP Education 1.59 per cent and Healius 1.15 per cent.
At the speculative end of the market, Summit Minerals surged 26.92 per cent after striking rare earths at shallow depths at its Stallion project in WA. Drilling identified a broad shallow zone of mineralisation stretching 1km x 1.25 km.
“It is early days, but the Company may have identified a significant Ion Adsorption Deposit. This is a fantastic result for the Company in its maiden drilling program since IPO, and we are looking forward to Stage 2 of the drilling campaign,” Managing Director Jonathan King said.
Fintech Doough popped 25 per cent after outlining progress in building its micro-investing savings service. The company said it had acquired around 1,200 revenue generating customers.
Carsales.com entered a trading halt to raise funds to increase its share in Brazilian automotive marketplace webmotors. The firm will pay $353 million for an additional 40 per cent of the Brazilian business from partner Santander. The purchase will increase Carsales’ interest to 70 per cent, with Santander on 30 per cent.
Doghouse
Miners sold off after a surging US dollar increased the prices of dollar-denominated commodities. The Australian gold sub-sector sank 3.4 per cent, mirroring a similar move in the US overnight.
Ramelius dived 10.91 per cent, Regis Resources 5.71 per cent and Silver Lake Resources 5.31 per cent. Industry heavyweight Newcrest shed 3.25 per cent.
A 1.4 per cent slide in Newcastle coal prices yesterday helped pull Whitehaven down 3.83 per cent to a seven-month low. New Hope dropped 2.48 per cent. Coronado shed 1.62 per cent.
Woodside Energy was among the biggest drags, falling 7.23 per cent as its shares traded without the right to the next dividend. Other heavyweight drags included Fortescue -1.42 per cent, Macquarie Group -1.12 per cent and James Hardie -0.95 per cent. The big banks lost between 0.5 and 1.16 per cent.
Software company Nuix shed 15.23 per cent after its former CEO appealed a court ruling that he was not entitled to tens of millions in damages in relation to disputed share options. Nuix said it continued to reject the claims and would defend the appeal.
Lithium miner Sayona Mining fell 2.04 per cent despite announcing the first production from its flagship Canadian operation on schedule and within budget.
InvoCare dipped 0.08 per cent after US private-equity suitor TPG increased its interest in the funeral home operator to 19.98 per cent, reducing the risk of a bidding war.
Other markets
In Asia, the Asia Dow dropped 1.31 per cent, China’s Shanghai Composite 0.48 per cent and Hong Kong’s Hang Seng 2.53 per cent. Japan’s export-driven Nikkei gained 0.43 per cent as the yen declined against the greenback.
S&P 500 futures were unchanged ahead of another Congressional appearance tonight by Fed Chair Powell.
Gold continued to lose ground in the wake of last night’s 1.9 per cent dump. The yellow metal eased another US$5 or 0.27 per cent to US$1,815 an ounce.
Oil mounted a recovery. Brent crude bounced 22 US cents or 0.26 per cent to US$83.51 a barrel.
