A rally in the battered tech sector helped shield the equity market from a sharp drop in commodity markets.
The S&P/ASX 200 slipped 32 points or 0.5% at midterm.
A night of horror for oil and other commodities put the index on course for its first loss in three sessions.
Energy producers and miners led the sale. These declines were partly offset by gains for IT, healthcare and consumer stocks in a sharply divided market.
What is driving the market
The big numbers mask the magnitude of the shifts in sector allocations. disgrace Technology the sector jumped 2.9% to a nearly four-week high. Technology companies hit a two-year low last month as valuations fell on rising borrowing costs and weaker growth prospects.
Commodity prices faded overnight as a combination of a strengthening US dollar, recession fears and a Covid outbreak in China sparked a rush out. The Invesco Commodity Index Tracking Fund in the United States plunged 6.72% to its fourth biggest loss in 16 years.
“The re-emergence of COVID-19 cases in Shanghai [called] call into question the recovery in demand from the world’s second largest consumer. Authorities have launched mass testing, while outbreaks in other areas have seen some limited restrictions enacted,” said Daniel Hynes, ANZ Senior Commodity Strategist.
Crude Brent passed out 9.5 percent. US oil fell below US$100 a barrel. Copper, seen by many analysts as an indicator of global growth, fell to its lowest level in 19 months. Natural gas, gasoline, wheat, soybeans and precious metals also fell.
“The overnight drop in crude prices indicates fears of demand destruction linked to worries of a global recession. Speculation is rife that crude could fall to $70 a barrel by the end of the year. of the year in a recession,” said Kunal Sawhney, managing director of the Kalkine Research Group.
“Rising interest rates and the continued decline in commodity prices may act as a double whammy for the Australian economy.”
Energy, the second-best performing ASX sector last month, plunged 5.1%. The heavily weighted Materials sector fell 4.2%.
Overnight, growth stocks led a remarkable intraday rally on Wall Street. The S&P500 finished 0.16% ahead after falling more than 2% in early action. The Nasdaq Composite led with a rise of 1.75%. The Dow Jones trailed with a loss of 0.42%.
To go up
Growth was back in favor as the cost of borrowing as defined by the yields paid by bondholders continued to decline. The Australian 10-year government bond yield fell 12 basis points to a five-week low.
Similar moves in the US fueled strong gains in Big Tech overnight. Technology and other growth areas of the market are particularly sensitive to changes in the cost of borrowing because their valuations depend primarily on projected future earnings.
A part of Worst Performers of Fiscal Year 22 were today’s best. Zip Co, which lost 94% of its market capitalization last year, rebounded 12.75%. PointsBet jumped 5.45%. The betting group plunged 79 percent last year.
Megaport climbed 14.39%. EML Payments added 9.34%. Xero gained 5.31%, WiseTech 4.42% and Afterpay parent Block 4.29%.
Health care and other recession-proof defensive assets also rose. CSL gained 1.91%, Cochlear 2.09% and ResMed 1.74%. Supermarkets Woolworths and Coles were betting on 2.65 and 2% respectively.
The big four banks gained between 0.4 and 1.1%.
Descent
Resource stocks crashed as the US dollar index approached its highest level in two decades. The index measures the greenback against a basket of foreign currencies. A strengthening US dollar increases the cost of dollar-denominated commodities for holders of other currencies.
Beach Energy slipped 7.43%. Woodside Energy lost 6.41%. Santos lost 4.61%.
Diverse Miner South32 fell 7.53%. Champion Iron lost 6.54%. The big guns Rio Tinto and BHP lost 5.5 and 4.67% respectively.
Gold miners slumped after the yellow metal broke through the US$1,800 per ounce level.
“Gold crossed 1800 with apparent ease, which in itself suggests that big stops were triggered. And there could be more pain ahead for gold bugs,” said Matt Simpson, senior market analyst at City Index.
“The fact that the ‘gold VIX’ (GVZ) has hit a 3 week high and prices have already fallen 2% this week suggests margin calls are being priced in as gold is clearly not behaving not as some sort of safe haven.”
St Barbara lost 7.54%, Regis Resources 7.32% and Newcrest 6 percent.
bubs australia fell 4.69% to 60 cents after raising $40.1 million from institutional investors at 52 cents to fund the expansion. Retail shareholders will have the option to purchase at the same price.
GrainCorp slid 7.1% as its shares traded without the right to the latest dividend.
Other markets
Asian markets faded as the threat of further shutdowns in China loomed. The Asia Dow lost 0.81%. China’s Shanghai Composite lost 1.13%, Hong Kong’s Hang Seng 1.08% and Japan’s Nikkei 1.36%.
US Futures Contracts struggled for leadership. S&P 500 futures recently fell four points or 0.1%.
Energy market volatility continued with a rebound oil. Brent crude jumped US$1.34 or 1.3% to US$104.11 a barrel.
Gold also reduced a strong overnight loss. The yellow metal appreciated by US$6.10 or 0.35% to reach US$1,770 an ounce.
The dollar rebounded 0.36% to 68.18 cents US after trading below 68 cents overnight.
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