ASX drops as US Fed hints at further rate rises

Communication services (down 2.2 per cent) also fell with listings companies Carsales.com (down 4.5 per cent) and REA Group (down 2.3 per cent) sliding, along with Telstra (down 1.8 per cent) and TPG (down 2.7 per cent) after their deal to share infrastructure in regional Australia was knocked back on Wednesday.

Miners (down 1.9 per cent) were also weaker, with heavyweights BHP (down 2.4 per cent), Fortescue (down 2.2 per cent) and Rio Tinto (down 1.2 per cent) all declining after a 1.8 per cent drop in the iron ore price. Gold miners including Northern Star (down 3.2 per cent) and Newcrest (down 1.3 per cent) fell as Northern Star approved the development of a $1.5 billion expansion of its Kalgoorlie gold mine.

The lowdown

Morgans investment adviser Nick Sale said there was a broad sell-off across the market on Thursday following suggestions of further rate rises in the US overnight.

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“There weren’t too many green screens today,” Sale said. “Overnight, the Federal Reserve chair Jerome Powell talked about rates continuing to go higher and said they still had a long way to go to lower inflation. That’s flowed into some negative sentiment in Australian markets.”

Sale said information technology companies were particularly impacted as their valuations tend to decrease as rates increase.

Meanwhile, potential softening demand from China for Australia’s resources weighed on the mining sector, Sale said, while several utilities stocks such as AGL were more resilient after it provided a positive earnings upgrade this week.

On Wall Street, the US sharemarket extended its sell-off overnight after Federal Reserve Chairman Jerome Powell said the inflation fight still had a “long way to go”.

All three major US stock indexes notched their third straight daily declines, with interest rate sensitive momentum stocks weighing the Nasdaq down the most. Tesla, alongside AI-related stocks such as Microsoft and Nvidia, were the heaviest drags.

In his testimony before the US House Financial Services Committee, Powell reiterated that the central bank remained “strongly committed to bringing inflation back down to our 2 per cent goal”. He said it would be “a pretty good guess” that future interest rate hikes would be on the cards if the economy continued on its current path.

“Powell is not going to diverge from what he said at the press conference last week; the Fed is going to be hawkish until inflation reaches 2 per cent,” said Peter Cardillo, chief market economist at Spartan Capital Securities in New York. “The Fed is keeping this tough talk going because they don’t want the markets to get over enthusiastic.”

At last glance, financial markets have priced in a 79 per cent likelihood of another 25 basis point interest rate hike at the conclusion of July’s monetary policy meeting, according to CME’s FedWatch tool.

The Dow Jones Industrial Average fell 0.3 per cent to 33,951.52, the S&P 500 lost 0.5 per cent and the Nasdaq Composite dropped 1.2 per cent.

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“It seems the market is catching its breath after a huge start to the month,” said Ryan Detrick, chief market strategist at Carson Group in Omaha. “Historically, June isn’t a very strong month for stocks, but this year could go down as one of the strongest Junes ever; so a small break in the run stocks have had is perfectly normal.”

Among the 11 major sectors of the S&P 500, energy stocks led the gainers, rebounding from its biggest daily plunge in over a month. Communication services and tech suffered the largest percentage drops.

Tesla was the biggest drag on the S&P 500 and the Nasdaq, sliding 5.5 per cent. Barclays downgraded its rating on the stock to “equal weight” from “overweight,” saying the electric automaker’s recent rally was too sharp relative to its earnings fundamentals.

Package delivery firms FedEx and United Parcel Service dropped 2.5 per cent and 2.1 per cent, respectively, after FedEx posted disappointing quarterly earnings and said waning global demand is pressuring its profit margins.

Crypto firms, including Coinbase, Riot Platforms, Marathon Digital and Bit Digital, gained between 1.8 per cent and 4.2 per cent as Bitcon breached the $US30,000 level.

Tweet of the day:

Quote of the day:

“To move faster than our decarbonisation pathway, we will be reliant on the availability of technology that is still under development,” said BHP head of carbon management, sustainability and climate change Graham Winkelman as the company warned its carbon emissions will rise in the short term as it looks to hit its 2050 net zero target.

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With Reuters

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