ASX on track for correction territory from August peak, plunges 2% at lunch

Market Reports

by Melissa Darmawan

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The early rally was short-lived as the local bourse swung from highs to lows as jitters kicked in on the prospect of several interest rate hikes this year to suppress hot inflation.  After investors witnessed a volatile session at Wall St on the hawkish tilt from Jerome Powell during his press conference, the local market defied the negative SPI futures to jump at the open but pared back gains mimicking Wall St and is now on track to close in correction territory from its August peak.

The Fed’s latest hawkish tilt followed the local trimmed inflation figures which climbed to seven year highs at 2.6 per cent annually in the September quarter, with economists forecasting interest rate hikes to be brought forward from 2024 and the end of the bond purchase program in the first board meeting of 2022 next Tuesday. Playing to the inflation narrative, traders also digested New Zealand’s annual inflation rate jump to 5.9 per cent, its highest since June 1990 as pressure looms on the NZ Reserve Bank to continue hiking interest rates.

Energy stocks were supported by a boost in crude price amid mounting tension in Ukraine and Russia. The sector is the best performer of the session by over 3 per cent. Beach Energy (ASX:BPT) surging 7.7 per cent at $1.40, Woodside Petroleum (ASX:WPL) soared 2.9 per cent at $24.84, while shares in Santos (ASX:STO) are trading 2.5 per cent higher at $6.94.

The utilities sector is also lifting while the rest are deep in the red with information technology leading the declines by 3.7 per cent, followed by healthcare, and consumer discretionary. The materials group is shedding the least by 0.5 per cent. Aussie treasury yields are climbing with the 10-year up 9 basis points.

Meanwhile, investors monitored moves by China’s Evergrande after they unveiled their plans to present an initial debt restructuring plan in six months on an investor call late yesterday, which included making all onshore and offshore debt creditors be considered equal. The debt-laden company has plagued the property sector for months and weighed on local steel-making ingredient miners.

Amid a stronger iron ore price, Rio Tinto (ASX:RIO) is up 1.2 per cent higher at $108.32, BHP Group (ASX:BHP) added 0.5 per cent at $45.26 while Fortescue Metals Group (ASX:FMG) is bucking the trend, down 0.3 per cent at $19.43.

Banks are mixed at the moment with shares in Macquarie Group (ASX:MQG) weighing on the financial sector by 2.7 per cent at $180.56, while shares in Commonwealth Bank (ASX:CBA) are backtracking 0.4 per cent at $95.06. ANZ Banking (ASX:ANZ) is leading the gains by 1.5 per cent at $27.17, followed by Westpac Banking Corp (ASX:WBC), up 0.7 per cent, and National Aust. Bank (ASX:NAB), adding 0.3 per cent at $27.42.

Meanwhile, CSL (ASX:CSL) did a U turn from a 1.5 per cent jump to a 3 per cent tumble while the US futures reversed a rise to a fall.

At 1pm, the S&P/ASX 200 plunged 2 per cent or 114 points lower at 6,835.

The SPI futures are pointing to a fall of 234 points.

Company news

Bank of America and its related company bodies have snapped up a five per cent stake in Zip Co (ASX:Z1P) according to a regulatory filing. The American banking giant became a substantial investor on Monday buying around $95 million worth of shares at $3.21 a pop. Shares have sank 8.6 per cent at $2.93.

Children returning to school and the easing of Covid-19 restrictions helped Premier Investments (ASX:PMV) post a surge in half year profits despite store closures. The owner of Smiggle, Just Jeans and three other brands expects pre-tax earnings to rise up to 5.3 per cent. Shares are trading 2.1 per cent higher at $27.11.

Continued supply chain interruptions and flickering demand dragged on Kogan’s (ASX:KGN) profit, resulting in a fall of just over 4 per cent over the year to $112.4 million. Increased operational costs were also to blame, though on a positive note, active customers grew more than 10 per cent on an annual basis. Shares have continued to trade lower by 10.1 per cent at $6.30

Best and worst performers

The best-performing sector is energy, up 3.1 per cent. The worst-performing sector is healthcare, down 2.2 per cent.

The best-performing stock in the S&P/ASX 200 is Beach Energy (ASX:BPT), trading 9.6 per cent higher at $1.43. It is followed by shares in Virgin Money UK (ASX:VUK) and Premier Investments (ASX:PMV).

The worst-performing stock in the S&P/ASX 200 is Evolution Mining (ASX:EVN), trading 9.2 per cent lower at $3.54. It is followed by shares in Codan (ASX:CDA) and Silver Lake Resources (ASX:SLR).

Commodities and the dollar

Gold is trading at US$1820.33 an ounce.
Iron ore is 0.2 per cent higher at US$138.10 a ton.
Iron ore futures are pointing to a rise of 1.04 per cent.
One Australian dollar is buying 71.01 US cents.

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