Although expected, rate rise weakens market

The Australian share market eased on Tuesday as the eighth consecutive rate hike from the Reserve Bank saw the cash rate lifted by 0.25 percentage points, to 3.1 per cent – up from 0.1 per cent in just seven months.
 
The rate hike was mostly expected, and the central bank indicated that further tightening was in store in 2023. The benchmark S&P/ASX 200 index gave up 34.3 points, or 0.5 per cent, to 7,291.3, while the 500-stock All Ordinaries index eased 40.1 points, also 0.5 per cent, to 7,487.7
 
Utilities, industrials, consumer staples and energy were the only sub-indices to rise, on a day when red outweighed green.
 
Gold miners were softer, reflecting a weaker gold price. Names feeling the pain were St Barbara, which dropped 6 cents, or 8.8 per cent, to 62 cents; West African Resources, which fell 10 cents, or 8.4 per cent, to $1.09; and Ramelius Resources shed 7.5 cents, or 7.4 per cent, to 94 cents.
 
Coal stocks, in contrast, were generally higher, as coal prices strengthened, with higher-quality thermal coal, in particular, breaking through $US400 a tonne on Monday night. Whitehaven Coal gained 26 cents, or 2.7 per cent, to $9.81; Coronado Global Resources added 5 cents, or 2.6 per cent to $2.00, and New Hope Corporation added 12 cents, or 2.1 per cent, to $5.77.
 
Hefty price rise predicted for iron ore
 
In iron ore, broker Citi came out with a prediction that the gradual reopening of China’s economy through looser COVID-19 restrictions could push iron ore prices as high as $US150 a tonne by June next year, up from current levels of US$100-US$110 a tonne. The rosy view on the price did not help Fortescue Metals, however, with the iron ore giant sliding 35 cents, or 1.7 per cent, to $20.68 on Tuesday, while BHP eased 18 cents, or 0.4 per cent, to $46.59, and Rio Tinto lost 30 cents, or 0.3 per cent, to $115.83.
 
In lithium, producer Allkem eased 11 cents, or 0.8 per cent, to $14.00, while project developer Liontown Resources lost 6.5 cents, or 3.2 per cent, to $1.96; Lake Resources was down 3 cents, or 3 per cent, to 97 cents; and US-based Piedmont Lithium lost 2.5 cents, or 2.9 per cent, to 84 cents.
 
Mineral Resources, which mines iron ore and lithium, was down $1.24, or 1.4 per cent, to $89.40, while rare earths producer Lynas Rare Earths gained 4 cents to $8.68.
 
In energy, Beach Energy shed 7.5 cents, or 4 per cent, to $1.82, amid worries over its ability to deliver the Waitsia gas project in Western Australia following the collapse of chief contractor Clough. Woodside Energy was up 34 cents, or 0.9 per cent, to $36.75, while Santos was down 9 cents, or 1.2 per cent, to $7.25 and Brazilian-based producer Karoon Energy lost 8 cents, or 3.3 per cent, to $2.32.
 
In the big-bank world, ANZ lost 19 cents, or 0.8 per cent, to $24.38; National Australia Bank shed 23 cents, or 0.7 per cent, to $31.03; and Commonwealth Bank surrendered 50 cents, or 0.5 per cent, to $106.44; but Westpac went against the trend of its peers, eking out a gain of 3 cents, to $23.75. Investment bank Macquarie Group was down $3.73, or 2.1 per cent, to $176.74.  
 
Recession fears won’t let go of US stocks
 
In the US overnight, the broad S&P 500 index notched its fourth straight losing day as investors chased safe-haven assets amid recession worries and increased market volatility. The US benchmark lost 57.6 points, or 1.4 per cent, to 3,941.3, while the 30-stock Dow Jones Industrial Average shed 350.8 points, or 1 per cent, to 33,596.3, while the tech-heavy Nasdaq Composite Index fell 225 points, or 2 per cent, to 11,014.9.
 
Markets mostly expect the Federal Reserve to slow the pace of its interest-rate hikes to a half-percentage-point increase when it meets next week. But US investors appear increasingly concerned that the Fed’s hiking trajectory will not be enough to stop the economy from entering a recession in 2023.
 
On the bond market, the US 10-year yield rose slightly to 3.532 per cent, while the more policy-sensitive 2-year yield came in marginally, to 4.368 per cent.
 
Oil prices continued their recent slide, with the global benchmark Brent crude losing US$3.12, or 3.8 per cent, to US$79.56 a barrel and West Texas Intermediate crude dropping US$2.58, or 3.3 per cent, to US$74.35 a barrel. Gold rebounded US$1.26 higher overnight, to US$1,770.67 an ounce.
 
The Australian dollar is buying 66.88 US cents this morning, down from 67.3 US cents at the local close yesterday.
 

Drew Meredith

Drew is publisher of the Inside Network's mastheads and a principal adviser at Wattle Partners.