Bonds make life difficult for shares

Thursday saw a retreat from the benchmark S&P/ASX 200 Index, which dropped 69.4 points, or 1 per cent, to 6370.7 points, while the broader All Ordinaries Index surrendered 81.1 points, or 1.2 per cent, to 6,918.7. The bond market sell-off extended as benchmark risk-free US 10-year bond yields added 2 basis points to 4.15 per cent in offshore trading, to reach their highest point since July 2008.
 
The yield on two-year US treasury bills climbed to a 15-year high of 4.56 per cent, while the yield on 10-year Australian government bonds – a measure of future inflation expectations – jumped 11 basis points, to 4.08 per cent. With bond yields spiking higher, interest rate-sensitive sharemarket sectors felt the heat, with the technology index a case in point, plunging 3.8 per cent.
 
The tech cohort was led lower by troubled e-commerce marketplace Redbubble, which fell 19 cents, or 26.4 per cent, to 53 cents. Xero lost $3.96, or 5.2 per cent, to $72.46; Afterpay’s owner Block, Inc. slumped $7.31, or 7.9 per cent, to $85.51; Pro Medicus was down $2.69, or 5 per cent, to $51.32.
 
Among the big banks, Westpac was up 27 cents, or 1.1 per cent, to $23.92; Commonwealth Bank added 29 cents, or 0.3 per cent, to $100.77; National Australia Bank gained 23 cents, or 0.7 per cent, to $31.89; and ANZ was unchanged at $25.83. Investment bank Macquarie Group eased $4.65, or 2.9 per cent, to $157.69. Wesfarmers was down 34 cents, or 0.8 per cent, to $44.34; Telstra eased 3 cents, or 0.8 per cent, to $3.85; biotech giant CSL lost $5.32, or 1.9 per cent, to $271.64; and Woolworths retreated 7 cents to $33.38, but rival Coles managed a 3-cent gain, to $16.58.
 
Resources struggle, but Woodside shines
 
It was a difficult day at the top of the mining tree, with BHP falling 90 cents, or 2.3 per cent, to $38.35; Rio Tinto giving up $1.75, or 1.9 per cent, to $92.26; Fortescue Metals losing 69 cents, or 4 per cent, to $16.52; and South32 down 10 cents, or 2.7 per cent, to $3.67.
 
In coal, Whitehaven Coal lost 49 cents, or 4.7 per cent, to $10.66 and New Hope Corporation eased 4 cents to $6.89, but otherwise, New Hope had a good day, announcing that the way is clear for it to restart the New Acland coal mine in Queensland, after clearing the final hurdle in an approval battle that has taken almost 15 years. The Queensland government has granted a water licence associated with the New Acland stage 3 development.
 
In lithium, producer Allkem slid 43 cents, or 2.8 per cent, to $14.92; fellow producer Pilbara Minerals was down 11 cents, or 2.2 per cent, to $4.97; Mineral Resources, which mines iron ore as well as lithium, slid 40 cents to $71.89 and IGO, which mines lithium and nickel, dropped 59 cents, or 3.7 per cent, to $15.57. Rare earths producer Lynas Corporation fell 33 cents, or 4.2 per cent, to $7.50.
 
But the major action in the lithium space was lithium project developer Piedmont Lithium, which surged 7.5 cents, or 8.9 per cent, to 92 cents after reporting that it had been chosen for a $US141.7 million ($225 million) grant to help accelerate North America’s energy transition. The funding will support the building of the Company’s US$600 million ($950 million Tennessee lithium project in the US. Fellow battery metals company NOVONIX, which has developed a new environmentally friendly process to produce graphite anode material for lithium-ion batteries in the US, also scored a US$150 million ($238 million) from the same Department of Energy program: NVX shares jumped 15 cents, or 7 per cent, higher to $2.28 on the news.
 
Woodside Energy posted a 70 per cent increase in sales for the September quarter, from the June quarter, to $US5.86 billion ($9.3 billion), and increased its guidance for full-year production. The sales surge was boosted by a full quarter contribution from the BHP Petroleum business, which Woodside absorbed in June. The merged business secured an average price for LNG that was almost four times where it stood a year earlier, to the equivalent of $US207 per barrel of oil equivalent. Woodside lifted its production guidance for the full year by about 3 per cent. WPL shares rose $2.01, or 6.2 per cent, to $34.56 at the close. Santos added 15 cents, or 2 per cent, to $7.53; and Beach Energy gained 3 cents, or 2 per cent, to $1.56.
 
US bond rout continues
 
In the US overnight, the benchmark 10-year Treasury yield continued its march higher, reaching 4.239 per cent, a level not seen since 2008. At the US close, the 10-year yield was at 4.23 per cent, while the 2-year treasury note was at 4.55 per cent, up from 4.43 per cent. Rising rates have been a headwind for stocks all year, as the Federal Reserve continues to try to dampen inflationary pressures not seen in decades.
 
It is very difficult for stocks to advance in those conditions, and the broad S&P 500 index gave up 29.4 points, or 0.8 per cent, to 3,665.78. The 30-stock Dow Jones Industrial Average slipped 90.2 points, or 0.3 per cent, to 30,333.59 – after being up by as much as 400 points at one stage – while the technology-heavy Nasdaq Composite retreated 65.7 points, or 0.6 per cent, to close at 10,614.84. European markets were mostly higher, with even the FTSE-100 managing to ignore the now-habitual political turmoil in the UK to notch an 18.9-point gain.
 
Gold is up 63 cents at US$1,628.13 an ounce, while in energy, Brent crude oil rose 30 cents, or 0.3 per cent, to US$92.71 a barrel and West Texas Intermediate added 16 cents, or 0.2 per cent, to US$85.71 a barrel. Oil prices were helped by China signalling that it would ease some Covid restrictions, a policy that has hammered domestic oil demand. The Australian dollar is buying 62.78 US cents this morning, up from 62.64 cents at the local share market close on Thursday.

Drew Meredith

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