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The share market sank as a hawkish interest rates outlook from the US central bank outweighed signs Australian rates may be nearing a peak.
The S&P/ASX 200 slid 71 points or 0.96 per cent by mid-session. The retreat followed heavy falls in the US after Federal Reserve Chair Jerome Powell indicated US rates might rise higher than previously indicated.
A “risk off” session saw modest gains in defensive sectors comprehensively outweighed by declines across cyclicals.
What’s driving the market
The ASX 200’s four-session winning run came to a screaming halt after Fed Chair Powell poured cold water on hopes the current interest rate cycle did not have much further to run. Powell told a Congressional committee recent strength in economic data meant the top was likely further off than previously anticipated. The bank was open to a jumbo 50 basis points hike this month.
The dollar and bond yields soared. Stocks slumped. The S&P 500 dropped 1.53 per cent. The Dow fell 1.72 per cent, returning to negative territory for the year. The negative sentiment flowed into the Australian open.
“Gains of yesterday evaporated as soon as the ASX opened as if traders have completely forgotten that the RBA was less hawkish yesterday. Powell’s latest stance comes after latest inflation and jobs data in his country showed a sudden uptick, which is why in Australia as well, anything on inflation and RBA’s future moves cannot be said with certainty,” Kunal Sawhney, chief executive of research group Kalkine, said.
The Australian dollar was collateral damage to the greenback’s charge. The Aussie sank more than 2 per cent to a four-month low. The local unit was lately buying 65.95 US cents.
Events in the US overshadowed confirmation this morning from Reserve Bank Governor 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.”
Lowe acknowledged the impact of rate rises on households, but said higher rates and unemployment would be necessary if inflation was allowed to persist at current levels. The bank was committed to bringing inflation back within its 2-3 per cent target range from current levels above 7 per cent.
Much therefore depends on inflation and jobs data before the next RBA meeting in early April.
“If we see inflation come in slightly softer (ideally below 7%) and employment data holds its ground, a 25bp in April followed by a pause seems plausible,” Matt Simpson, senior market analyst at City Index, said.
“To counter that, a higher CPI number could wreak havoc for that outcome, especially if accompanied by rising unemployment and soft employment growth. And that could quash any hopes of a pause, keep calls of a 4.1% terminal rate alive and perhaps even see some calls for a 50bp hike.”
Going up
Significant gains were scarce as investors reduced risk. Just five ASX 200 component companies rallied more than 1.5 per cent. Lovisa firmed 2.11 per cent, Computershare 1.95 per cent, Qantas 1.75 per cent, Nanosonics 1.66 per cent and Webjet 1.64 per cent.
Defensive assets inched higher as investors sought havens. Sonic Healthcare advanced 1.21 per cent, IAG 0.84 per cent and GrainCorp 0.59 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 jumped 18.75 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.
Going down
Miners sold off after a surging US dollar increased the prices of dollar-denominated commodities. The Australian gold sub-sector sank more than 3 per cent, mirroring a similar move in the US overnight.
Ramelius dived 9.32 per cent, Regis Resources 5 per cent and Silver Lake Resources 4.68 per cent. Industry heavyweight Newcrest shed 3.33 per cent.
A 1.4 per cent slide in Newcastle coal prices yesterday helped pull Whitehaven down 3.69 per cent to a seven-month low. New Hope dropped 2.39 per cent. Coronado shed 1.75 per cent.
Woodside Energy was among the biggest drags, falling 7.47 per cent as its shares traded without the right to the next dividend. Other heavyweight drags included James Hardie -1.7 per cent, Fortescue -1.02 per cent and Woolworths -0.76 per cent. The big banks lost between 0.9 and 1.25 per cent.
Software company Nuix sank 17.19 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 0.7 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 1.24 per cent, China’s Shanghai Composite 0.4 per cent and Hong Kong’s Hang Seng 1.5 per cent. Japan’s export-driven Nikkei gained 0.41 per cent as the yen declined.
US futures were little changed. S&P 500 futures firmed two points or 0.05 per cent.
Gold continued to lose ground in the wake of last night’s 1.9 per cent dump. The yellow metal eased another US$3 or 0.16 per cent to US$1,817 an ounce.
Oil mounted a timid recovery. Brent crude inched up eight US cents or 0.1 per cent to US$83.39 a barrel.
