ASX reacts after Fed signals policy tightening: ASX closed 0.4 per cent lower

Market Reports

by Melissa Darmawan

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The Australian sharemarket snapped its four-day winning streak as investors were sunk down by the raft of news from central banks in the US and at home.

Upon waking, market participants were faced with the US Federal Reserve completing their 2-day policy meeting on news that rate rises are set to be brought forward, sooner than anticipated. The officials median projection anticipate lifting the benchmark rate to 0.6 per cent by the end of 2023. Federal Reserve Chair Jerome Powell maintained its monthly $120 billion bond purchase program until “substantial further progress” has been made in the economic recovery. The central bank held interest rates steady.

Ultra-low interest rates have been one of the main drivers for the bull-run on stockmarkets with record highs peaked in recent times. Investors reacted to the central bank’s comment which sent stocks lower while bond yields rose. The 10-year treasury yield climbed 8 basis points to 1.58 per cent while the yield on the two-year rose 4 basis points. Economists are concerned that higher inflation rates eats away the fixed yields of bonds.

The forecasts followed a rapid economic recovery and increased concerns about inflation, which has been higher than expected. The Labor Department’s consumer price index rose 5 per cent in May from a year earlier. The Fed officials signal they expect inflation to rise 3.4 per cent in the forth quarter of 2021 from a year earlier, up from a March forecast of 2.4 per cent.

Following from this, wheels turned as attention move to the RBA governor Philip’s speech “From Recovery to Expansion” and the surprising jobs data.

The dovish speech from RBA governor Philip Lowe acknowledged the economy’s recovery picked up faster than expected. Despite this, continued stimulus would be needed for some time.

Testing the waters was the jobs data from the Australian Bureau of Statistics which indicated that unemployment fell to 5.1 per cent in May back to pre-pandemic levels with 115,000 new jobs added to the economy exceeding expectations. The growth when compared to a forecast gain of 30,000 as per Westpac group economists saw the Aussie dollar lift as the 10-year treasury bond climbed.

Performance on the XJO was mixed with five sectors out of the 11 ended in positive territory. The best performing sector was Technology added 1.3 per cent followed by Financials. Banks closed in the black with Westpac Group (ASX:WBC) gained 1.5 per cent followed by ANZ (ASX:ANZ) then Commonwealth Bank (ASX:CBA).

The worst performers were neck-to-neck with Energy and Communications both down 1.9 per cent while Materials lost 1.8 per cent followed by Property and Consumer Staples both shed 1.5 per cent. Utilities skid 1.1 per cent.

On the gold front, Northern Star (ASX:NST) lost its glimmer and tumbled 7.6 per cent while Evolution Mining (ASX:EVN) fell 4.7 per cent.

A couple of standouts was Seven West Media (ASX:SWM) jumped 23.8 per cent on their FY21 guidance update while Whitehaven Coal (ASX:WHC) fell 11.6 per cent after their fourth downgrade production guidance this year. 

At the closing bell, the S&P/ASX 200 was 0.37 per cent or 27.2 points lower at 7,359.
 
Futures

The Dow Jones futures are pointing to a fall of 150.00 points.
The S&P 500 futures are pointing to a fall of 17.50 points.
The Nasdaq futures are pointing to a fall of 73.75 points.
The SPI futures are pointing to a fall of 26 points.

Company news

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Global engineering provider Worley (ASX:WOR) has inked two contracts to provide services for a Californian renewable fuels plant and a Canadian Burnaby refinery.

Whitehaven Coal (ASX:WHC) shaves its full-year production guidance to 20.4 million tonnes (Mt) from its range of 20.6 to 21.4 million tonnes after “downtime” in the Narrabri mine and a weaker performance at Gunnedah in NSW.

Grocery retail giant Coles (ASX:COL) is stepping up its innovation game, upsizing its digitisation budget by $1.4 billion in a bid to reclaim missed growth opportunities during the pandemic-induced panic buying.

Medical pathology provider Sonic Healthcare (ASX:SHL) is set to acquire Canberra Imaging Group in efforts to expand their imaging division footprint in the country.

Content producer Seven West Media (ASX:SWM) has released better-than-expected guidance for FY21 underlying profit of between $250 million and $255 million, which represents a premium of $10 million to $15 million on market speculation.

Challenger (ASX:CGF) has reaffirmed its FY21 profit guidance and expects normalised net profit before tax to be at the bottom end of its guidance range of between $390 million and $440 million.

Best and worst performers

The best-performing sector was Information Technology, up 1.26 per cent. The worst-performing sector was Communication Services, down 1.94 per cent.

The best-performing stock in the S&P/ASX 200 was Nuix (ASX:NXL), closing 6.15 per cent higher at $2.76 followed by shares in Netwealth Group (ASX:NWL) and Computershare (ASX:CPU).

The worst-performing stock in the S&P/ASX 200 was Whitehaven Coal (ASX:WHC), closing 11.52 per cent lower at $1.80 followed by shares in Redbubble (ASX:RBL) and Northern Star Resources (ASX:NST).

Asian markets

Japan's Nikkei has lost 0.93 per cent.
Hong Kong's Hang Seng has lost 0.07 per cent.
China's Shanghai Composite has gained 0.13 per cent.

Commodities and the dollar

Gold is trading at US$1813.93 an ounce.
Iron ore is 3.50 per cent lower at US$214.08 a ton.
Iron ore futures are pointing to a fall of 0.10 per cent.
Light crude is trading $0.27 lower at US$71.88 a barrel.
One Australian dollar is buying 76.19 US cents.

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