ASX 200 falls after Powell’s comments on inflation hit US stocks, bonds

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Summary

  • The Australian benchmark equity index ASX 200 opened lower on Friday, down 8.30 points or 0.12 per cent to 6,752.40.
  • Over the last five days, the index has gained 1.19 per cent and is currently 2.68 per cent short of its 52-week high.
  • Cleanaway Waste Management, Whitehaven Coal, GPT Group, and Alumina were the top gainers in the opening trade.

The Australian benchmark equity index - ASX 200 - opened lower on Friday, down 8.30 points or 0.12 per cent to 6,752.40, after US Federal Reserve Chairman Jerome Powell said that consumer prices might rise this summer and the economic recovery could take more time. The three major Wall Street indices closed lower for a third straight day due to a steep surge in the bond yields on the 10-year Treasury. 

Over the last five days, the ASX 200 has gained 1.19 per cent and is currently 2.68 per cent off its 52-week high. The broader All Ordinaries index was down 0.27 per cent, while the ASX 200 VIX Index was down 1.331 per cent. The ASX 200 VIX index fell by 1.34 per cent in the last trading session.

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What moved the Australian stock market? 

The Australian shares were trading weak in the opening trade following a sharp rise in the US bond yields. The bond yields surged after Federal Reserve Chair Jerome Powell said at an online event that the inflation would increase as the economy opened up and picked up completely, disappointing investors who were expecting a firmer stance against inflation. Powell added that the US economy and the world were in a low inflation for several decades. While the 10-year bond yields were up 5.33 per cent, the 30-year Treasury bond yields stood up 2.61 per cent.

On Thursday, while the S&P 500 fell 51.25 points, or 1.3 per cent, to 3,768.47, the Dow Jones Industrial Average declined 345.95 points, or 1.1 per cent, to 30,924.14. The tech-heavy NASDAQ fell 274.28 points, or 2.1 per cent, to 12,723.47. The Russell 2000 index of smaller companies dropped 60.87 points, or 2.8 per cent to 2,146.92.

Powell also said that the US economy would need more time to recover. The mortgage rates soared over 3 per cent for the first time since July, making borrowings expensive for new homebuyers. His comments contradicted the optimistic forecast of some latest economic data released by the officials, who had earlier said that the economic recovery would pick up with the government’s increased spending on COVID-19 relief. The US Senate recently voted to take up a US$1.9-trillion relief bill backed by President Joe Biden, setting off a debate expected to end this weekend, with the approval of the nation’s sixth stimulus package since the coronavirus pandemic-triggered lockdowns began a year ago.

Most sectors underperformed overnight, including utilities, real estate, consumer non-cyclicals, financials, technology, healthcare, industrials, consumer cyclicals, and basic materials.

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Other global markets

After falling as much 1.3 per cent, the blue-chip FTSE 100 index ended lower at 6,650.88, down 24.59 points, or 0.37 per cent on Thursday, dragged down by the weak performance of mining stocks. The pan-European Stoxx 600 ended down 0.38 per cent. Germany's DAX slid 0.17 per cent, Switzerland's SMI ended 0.2 per cent down, while France's CAC 40 edged up 0.01 per cent.

Gainers and losers

Cleanaway Waste Management, Whitehaven Coal, GPT Group, and Alumina were the top gainers in the opening trade, rising between 3 to 4 per cent. On the other hand, Pointsbet, Rio Tinto, Gold Road Resources, and Zip were the major laggards, down between 4 to 6 per cent.

Sectoral movement 

Most sectors were trading in red. While ASX 200 Information Technology was down 1.361 per cent, ASX 200 Health Care was down 0.775 per cent. ASX 200 BANKS was up 0.335 per cent. Seven of 11 sectors are higher over the last week, along with the ASX 200 Index. Although little changed, Consumer Staples is Friday's best performing sector, down 0.68 per cent for the past five days.

Australian dollar under pressure

The Australian dollar is under pressure for the second consecutive day and has declined by 0.33 per cent to 0.7727. The currency investors continued to buy the US dollar on the back of a positive economic outlook, leading to a rise in the Dollar index.

Some investors are also bothered over a likely fall in the dollar rate. These investors estimate that the improvement in the economy post coronavirus may reduce its strength. However, others worry that the continued increase in dollar value may affect recoveries from the emerging markets.

Gold under pressure

US gold futures closed lower by 0.9 per cent to US$1700.7 an ounce.  The yellow metal fell to a new nine-month low, weighed down by the gains in the dollar index and US Treasury yields after the Federal Reserve gave no signal of immediately controlling the soaring bond yields. 

Oil prices rise

The oil prices rose after the OPEC+ alliance sprung a surprise for traders as it announced to leave the output unchanged. The move signals towards a tighter crude market in the next few months. Brent oil futures surged 4.67 per cent to US$67.06 and WTI crude gained 4.50 per cent to US$64.04 per barrel.

The market had been expecting OPEC+ to ease production cuts by around 500,000 barrels per day (bpd) from April. OPEC leader Saudi Arabia was expected to end its voluntary production cut of an additional 1 million bpd. But three OPEC+ sources said on Wednesday some key OPEC members had suggested keeping the group’s output unchanged.

READ MORE: US Stocks End Lower Amid Recovery Woes, Mortgage Rate Spike

Australian 10-year bond yields 

The Australian government’s 10-year bond yields stood at 1.842, up 3.5 per cent. Meanwhile, the 30-year US Treasury bond yields were up 2.61 per cent to 2.310, while the 10-year bond yields were up 5.33 per cent to 1.548.

Bitcoin retreats

Bitcoin’s appeal as a hedge against inflation was put to test, with the popular cryptocurrency joining a dip along with other risk assets. Following the trajectory of the global markets, Bitcoin traded down 4.51 per cent to US$48,271.62.  

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