- 01Sept swoon worsens as rates and oil rise.
- 02ASX 200 down ~4% in Sep; 8,665.
- 03Defensive staples gain; Coles/Woolworths up.
- 04US yields at two-decade highs; tech sags.
The Australian share market’s September swoon continued to gather pace as a combination of the war in the Middle East, rising bond yields, rising interest rates and stubborn inflation continued to hammer share prices.
With Australia’s ASX 200 index already down more than 4% in September, the ASX 200 index fell 37 points, or 0.4%, to 8,665 points.
Defensive stocks swim against the tide
One of the few signs of hope was the defensive consumer staples sector, one of only two of the 11 sectors to end in positive territory.
If the negative trend continues for September, it will be the worst month of the year since March, which occurred at the outbreak of the war when oil prices initially spiked higher.
September has a long history of being a bad month with a worst of the year average of a 0.6% loss over the past 25 years, although this year is shaping as one of the worst months over that time.
Oil markets depress stocks
A lot of the negativity has leaked across from oil markets which have seen the price of Brent crude rise more than 50% to more than US$105 a barrel since the war between Iran and America really got started.
Those higher oil prices have kept inflation on a steady rise, leading global central banks to lean into official rate rises while Artificial Intelligence absorbs large amounts of capital when they become available.
Higher rates here for the long term
With the US Federal Reserve raising interest rates last week and most other developed economies looking at higher rates that could remain for some time, the bond market has been busily pushing government bond yields to new highs, which has really put the squeeze on share prices.
That saw the ASX 200 index fall 37 points, or 0.4%, to 8,665 points on Friday even after the S&P 500 and the Nasdaq both held steady.
US borrowing costs touched two-decade highs as the 30-year US Treasury yield rose 0.1 percentage points to 5.5%, its highest level since 2004, while the 10-year yield touched 5.2%, its highest since 2007.
With the risk-free yield so high, rate sensitive sectors such as technology and real estate faced significant headwinds.
That left the ASX consumer staples sector as a winner, gaining 0.7% as shares in grocer Coles (ASX: COL) rose 1.3% to $23.19 while Woolworths shares (ASX: WOW) were up 0.5% to $38.47.
Tech feels the pain
Technology slid by 1.7% with shares in WiseTech Global (ASX: WST) down 2.3% to $31.33, Xero shares (ASX: XRO) down 2.8% to $57.36 and Technology One shares (ASX: TNE) fell 1.2% to $29.29.
Miners were also weaker with the index falling 0.8% as BHP shares (ASX: BHP) dropped 0.5% to $60.72 while Rio Tinto shares (ASX: RIO) fell 1% to $164.85.
The big banks made marginal gains with ANZ shares (ASX: ANZ) up 1.1% to $37.84 and Westpac shares (ASX: WBC) rose 1.1% to $34.49 while NAB shares (ASX: NAB) rose 1% to $38.54 and CBA shares (ASX: CBA) rose 0.6% to $150.83.
Court actions aplenty
Shares in IAG (ASX: IAG) rose 0.5% to $7.84 after announcing it would settle a claim over the collapse of Greensill Capital brought by Credit Suisse for $2.8 billion.
Shares in Netwealth (ASX: NWL) fell 8.2% to $17.02 after the company announced it would defend a class action from jilted customers after it was served with a claim over the $460 million failure of the First Guardian Master Fund.
Shares in Healius (ASX: HLS) rose 5.6% to $0.38 after announcing it had sold Agilex Biolabs to Novotech for $160 million.
Inghams shares (ASX: ING) rose 3.92% to $2.12 after a 5% stake in the company was bought by Canadian pension fund PSP Investments.
Meeka Metals shares (ASX: MEK) fell 25.9% to 10c after raising $40 million with fresh equity that will help the gold developer pay a $10 million deferred payment due for the April acquisition of tenements in Mount Holland.
The week ahead
There is no secret that the Reserve Bank occupies central stage for the coming week with its interest rate decision announced on Tuesday set to create the atmosphere for the week.
Anything other than a 25-basis point rise to lift the cash rate to 4.6% would be a major surprise with the market pricing in an 87% chance of a rate rise and also anticipating a further two rate rises this year.
Just a day after that decision on Wednesday the Consumer Price Index data for August is released with the likelihood being that it will remain stubbornly well above the RBA’s target range of 2-3%.
In the US, the release of the Core PCE Index and non-farm payrolls should give us some clues as to the health of the US economy and the outlook for US Federal Reserve interest rates.
Locally, many companies will again start to trade without their dividends, which will put downward pressure on share prices, although the host of paid dividends, including heavyweights such as Commonwealth, QBE, CSL, and Fortescue, could provide some buying pressure if shareholders want to plough back some of their earnings.
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The ASX small-cap stories that matter, filed before 9am AEST. Curated by the Small Caps desk.