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All four big banks traded lower, weighing down the financial sector (down 1 per cent), with CBA shedding 0.4 per cent, NAB losing 1 per cent, ANZ dropping 1.1 per cent and Westpac slipping 2.7 per cent, having rallied on Monday after it revealed a $7.2 billion profit.
Energy companies (down 0.8 per cent) were also weaker as oil heavyweights Woodside (down 0.6 per cent) and Santos (down 0.8 per cent) slipped lower alongside Whitehaven (down three per cent) and Yancoal (down 1.3 per cent).
Lithium miners Allkem (down 4.4 per cent) and Pilbara Minerals (down 3.7 per cent) were the biggest large-cap decliners.
The lowdown
Australian Eagle Asset Management chief investment manager Sean Sequeira said the market had moved strongly against how it would normally react to an interest rate rise and that the decision was “expected and necessary”.
“The market retraced its losses once people digested that the RBA board is going to be more data-dependent and await further information, and after it realised this might the last interest rate rise for a while,” he said.
Sequeira said the possibility this could be the last rate rise had brought down the long end of the rate curve with longer-term bond yields coming off. He said this drove valuations for longer duration assets including IT, healthcare and infrastructure companies.
The local market decline comes after US stocks drifted to a mixed finish overnight as Wall Street’s wild recent moves calmed a bit.
The S&P 500 added 0.2 per cent even though the majority of stocks within it and across Wall Street weakened. The index was coming off its best week of the year, which itself came on the heels of several months of sharp losses. The Dow Jones rose 0.1 per cent and the Nasdaq composite gained 0.3 per cent.
The flashpoint for the stock market’s movements in both directions has been what the bond market is doing, and it regressed on Monday following its own extreme moves.
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The yield on the 10-year Treasury rose to 4.64 per cent. That’s up from 4.57 per cent late on Friday, but it’s still below the perch above five per cent that it reached last month, its highest level since 2007. High yields hurt prices for stocks and other investments, while slowing the economy and raising the pressure on the financial system.
This coming week looks to have fewer big events on the calendar that could shake financial markets. It’s a slower week for corporate profit reports, with roughly 50 companies in the S&P 500 set to say how much they earned during the summer. That’s down from about 150 a week before.
Constellation Energy rose 6.5 per cent after it reported better results for the latest quarter than analysts expected.
Berkshire Hathaway’s Class B stock fell 1.5 per cent after it reported a loss for its latest quarter over the weekend. Much of the loss was because of drops in the value of some of Berkshire Hathaway’s investments on paper. Looking only at its operating profit, Warren Buffett’s company beat analysts’ expectations.
Even more companies than usual in the S&P 500 have been beating Wall Street’s profit forecasts this reporting season. The index looks to be on pace to deliver its first growth in earnings per share in a year.
Trading of WeWork’s stock was halted amid speculation about its financial health. The SoftBank Group-backed start-up, whose meteoric rise and fall reshaped the office sector globally, sought US bankruptcy protection after the close of Wall Street trading on Monday. Its stock has plunged 98.5 per cent this year to less than $US1.
The events with perhaps the most potential to shake markets this week are speeches on the schedule by officials from the Federal Reserve.
Perhaps more importantly for markets, Fed chair Jerome Powell also hinted that a swift rise in Treasury yields since the summer — and the tumult that created in financial markets — could act as substitutes for further rises to rates if they remain “persistent”. That’s because they could be slowing the economy and putting downward pressure on the economy by themselves.
Powell’s comments last week ignited hopes that the Fed may be done hiking interest rates. Traders also increased bets that the central bank could begin cutting rates by this upcoming summer. Cuts to rates can act like steroids for financial markets.
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Over the past couple of years, Wall Street has built up hopes several times that cuts to interest rates may be on the horizon, only for them to get dashed by Fed officials pledging to keep interest rates high for a long time to ensure inflation goes down.
At the end of this week will come a preliminary report showing how much inflation US households are preparing for. Such inflation expectations have been key for the Fed, which fears too-high expectations could trigger a vicious cycle that keeps inflation high.
In the oil market, crude prices gained after Saudi Arabia and Russia reiterated their commitment to maintaining oil supply cuts of more than one million barrels a day until the end of the year.
A barrel of benchmark US crude rose US31¢ to settle at $US80.82. Brent crude, the international standard, rose US29¢ to $US85.18 a barrel.
In stock markets abroad, indexes were mostly lower in Europe after jumping across much of Asia.
South Korean stocks leaped 5.7 per cent after the government restored a ban to prevent investors from betting on stock prices will fall by borrowing shares and selling them.
Japan’s Nikkei 225 index gained 2.4 per cent, and Hong Kong’s Hang Seng jumped 1.7 per cent.
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“Due to engine availability as a result of the P&W maintenance issues, the airline will have up to four aircraft grounded at any one time,” said Air New Zealand chief executive Greg Foran as the ASX dual-listed airline deals with a maintenance issue involving up to 17 of its aircraft.
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