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Australian shares slipped on Wednesday, joining a decline in other regional markets as investor sentiment soured over the likelihood of more aggressive tightening by central banks around the world.
The benchmark S&P/ASX200 index closed down 37.8 points, or 0.5 per cent, to 7490.1 on Wednesday. The index pared losses after dropping more than 1.0 per cent in early trading.
The All Ordinaries index lost 44.9 points, or 0.57 per cent, to 7788.3.
Traders took their cue from an overnight selloff on Wall Street after US Federal Reserve Governor Lael Brainard, known for her dovish views, spooked investors by flagging a rapid tightening that could include a combination of interest rate rises and a rapid reduction of the Fed’s balance sheet.
It played into the rate hike narrative in Australia too, after the Reserve Bank on Tuesday dropped a pledge to be patient on policy amid accelerating inflation. The market now expects the RBA to lift rates as soon as June.
IG market analyst Kyle Rodda said the likelihood of a rapid unwind of the US Fed’s balance sheet is already putting pressure on bond yields and is making stock valuations unappealing.
The Fed will release minutes from its last policy meeting tonight (Thursday AEST), which could offer clues on the prospects of a 50-basis point increase at the US central bank’s next meeting in May.
“We also have the RBA starting to come around to the notion that it’ll have to tighten policy as well raise interest rates pretty quickly because inflation is clearly becoming a problem locally,” he said.
“Some concerns about Chinese growth don’t help either.”
Data on Wednesday showed activity in China’s services sector shrank at the fastest rate in two years in March as a surge of coronavirus infections restricted mobility and weighed on demand.
Chinese authorities this week extended a COVID-19 lockdown in Shanghai to cover all of the financial centre’s 26 million people.
In the local market, technology shares as well as the heavyweight materials sector were the worst performers, with industrials and energy stocks also proving to be a drag.
ASX-listed shares of US payments firm Block and battery materials maker Novonix were the biggest drag on the tech sector, each sliding nearly 7 per cent. Accounting software firm Xero fell nearly 3.0 per cent.
Among materials shares, battery minerals and rare earths stocks such as Pilbara Minerals, Lynas and AVZ Minerals dived more than 5 per cent each, while gold stocks including Newcrest, North Star and Evolution also sustained heavy losses.
Weak Chinese data also seemed to weigh on top miners, with BHP and Rio Tinto falling more than 1.0 per cent each, while Fortescue Metals slipped 0.3 per cent.
Energy stocks slipped following weaker global oil prices overnight, with sector heavyweights Woodside Petroleum and Santos down 0.6 per cent and 1.0 per cent, respectively.
The financials sector bucked the negative trend, with each of the Big Four banks trading around 1.0 per cent higher.
Shares in in-vitro fertilisation (IVF) service provider Virtus Health ended 1.0 per cent higher at $8.15 after the company received a revised $8 per share buyout offer from private equity firm BGH Capital.
Meanwhile, the Australian dollar was buying 75.89 US cents at 1700 AEST, lower from 76.25 US cents at Tuesday’s close.
ON THE ASX
* The benchmark S&P/ASX200 index closed down 37.8 points, or 0.5 per cent, to 7490.1 on Wednesday.
* The All Ordinaries index lost 44.9 points, or 0.57 per cent, to 7788.3.
* At 1700 AEST, the SPI200 futures index was even at 7455 points.
One Australian dollar buys:
* 75.89 US cents, from 76.25 cents on Tuesday
* 94.13 Japanese yen, from 93.54 yen
* 69.72 Euro cents, from 69.48 cents
* 58.11 British pence, from 58.04 pence
* 109.09 NZ cents, from 108.99 cents.
(Australian Associated Press)