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Australian shares declined for the first time in three sessions as surging energy prices helped drive the dollar and long-term interest rates higher.
The S&P/ASX 200 fell as much as 70 points before more than halving its loss to 20 points or 0.28 per cent.
Gains in energy and mining stocks were outweighed by declines in rate-sensitive growth stocks and bond proxies. Star Entertainment dived more than 20 per cent following allegations of compliance failures at its casinos.
What moved the market
The market unwound most of Friday’s gains as surging energy prices sharpened inflation fears. Crude prices hit fresh seven-year highs as a new trading week began. The US benchmark climbed US$1.56 or 1.97 per cent this afternoon to US$80.91 a barrel. The global benchmark, Brent crude, rose US$1.30 or 1.58 per cent to US$83.69.
ING raised its Brent forecast for the final quarter to reflect expectations of a switch from gas to oil for power generation after European gas prices jumped 94 per cent last month to a record.
“We are already seeing this happen in several countries where there is capacity,” ING Head of Commodities Strategy Warren Patterson said. However, Mr Patterson believes crude prices will settle below current levels next year as fresh supply comes on-line.
“The market is expected to be much more balanced next year due to the expectation of strong non-OPEC supply growth. In fact, there could be periods next year when OPEC+ may need to delay further easing, with the market in surplus in some months,” he said.
The Australian dollar – a so-called ‘commodity currency’ because of our economic dependence on exporting raw materials – firmed 0.31 per cent to 73.16 US cents.
The yield on long-term Australian government bonds jumped above 1.7 per cent for the first time since May. The ten-year yield was last up almost eight basis points at 1.728 per cent in the wake of a similar surge in the US on Friday.
Rising yields are a broad indicator of inflation expectations. A similar rally back in February triggered a month-long bout of jitters on equity markets as investors pared exposure to growth stocks and rotated into cyclical sectors whose valuations depend less on the cost of borrowing.
US futures drifted lower in the wake of Friday’s September employment report. S&P 500 futures dropped eight points or almost 0.2 per cent. On Friday, the index eased 0.19 per cent after investors concluded there was not enough in the jobs data to deter the Federal Open Market Committee (FOMC) from reducing support for the economy.
“Overall, despite the headline payroll disappointment, there is enough strength and possibility in the underlying data to warrant the FOMC formally announcing a taper at their November meeting,” Westpac senior economist Elliot Clarke said today.
Winners’ circle
The energy sector rallied 1.3 per cent to its highest since January. Whitehaven Coal put on 6.19 per cent, Beach Energy 1.73 per cent, Oil Search 2 per cent and Woodside 0.43 per cent.
Ampol climbed 2.85 per cent after striking a deal to buy New Zealand’s Z Energy for $2 billion. The company announced it had secured the unanimous support of the Z Energy board to acquire all of the shares in the Kiwi firm for NZ$3.78 per share, a 35 per cent premium to the share price before news of the approach broke. Z Energy shares firmed 5.9 per cent today in Australian trade.
Most insurers rose after the Federal Court found largely in their favour in a test case over whether business interruption claims were valid if caused by Covid-19. The court ruled insuring clauses were not triggered in eight of nine matters contained in the case. Time has been set aside in November for any appeal.
IAG jumped 3.08 per cent. Suncorp gained 0.63 per cent. QBE dropped 2.37 per cent.
The mining majors strengthened as the session advanced. Fortescue Metals built to a gain of 5.26 per cent as the market warmed to the miner’s plans to develop green energy and hydrogen projects in Queensland. Rio Tinto added 1.85 per cent, BHP 0.9 per cent and Champion Iron 3.48 per cent.
Collins Foods lifted 1.06 per cent to an all-time high, boosted by last week’s announcement the group had secured the right to operate the KFC brand in the Netherlands.
A good news/bad news day for investors in takeover target API saw the pharmaceutical wholesaler announce a profit upgrade and a class action. The company said it expected to beat previous guidance announced in July and will defend a class action filed in Victoria’s Supreme Court brought by Priceline franchisees. The company is currently subject to a bidding war between Wesfarmers and Sigma Healthcare. The share price edged up 0.66 per cent.
Doghouse
Casino group Star Entertainment lost more than a fifth of its value following allegations its anti-money laundering controls were inadequate, potentially allowing organised crime and fraudsters to exploit gaps in procedures. A joint investigation by 60 Minutes, the Sydney Morning Herald and The Age accused the group of failings similar to those that resulted in Royal Commissions into Crown Resorts.
Star said it considered “a number” of assertions within the media reports misleading, but will address the allegations with regulators. The share price dived 22.9 per cent to an 11-month low.
The rate-sensitive tech sector sold off as yields rallied. Afterpay sank 4.16 per cent, Xero 3.95 per cent and WiseTech 3.37 per cent.
Also under pressure were stocks whose appeal diminishes when yields strengthen. Goodman Group fell 1.65 per cent, Wesfarmers 1.13 per cent, CSL 1.02 per cent and Telstra 1.03 per cent.
The big four banks took finished near session highs with improved margin opportunities under higher rates. CBA edged up 0.23 per cent, ANZ 0.46 per cent, NAB 0.07 per cent and Westpac 0.39 per cent.
Other markets
The mood on Asian markets was brighter. The Asia Dow climbed 1.63 per cent, China’s Shanghai Composite 0.38 per cent, Hong Kong’s Hang Seng 2.23 per cent and Japan’s Nikkei 1.54 per cent.
Gold eased 90 US cents or less than 0.1 per cent to US$1,756.50 an ounce.
