ASX closes in the red as banks, energy stocks slump

Welcome to your five-minute recap of the trading day.

The numbers

The Australian sharemarket declined on Thursday after Wall Street slumped overnight under the weight of pressure from the bond market, where Treasury yields climbed on worries about the US government’s spiralling debt and other concerns.

The S&P/ASX 200 fell by 38.10 points, or 0.5 per cent, to 8348.70, ending its two-day winning streak that was driven by the Reserve Bank’s latest interest rate cut on Tuesday. Ten of the bourse’s 11 sectors declined, led lower by energy stocks, retailers, tech stocks and banks. The Australian dollar ground higher overnight, and was fetching 64.42 US cents at the time the sharemarket closed.

Wall Street slumped overnight, setting the scene for losses on the Australian market.Credit: AP

The lifters

It was a sea of red across the local bourse, except for a few bright glimmers – one of them being the materials sector, which was sent higher once again by the gold miners. Northern Star Resources (up 5.4 per cent), Evolution Mining (up 2.2 per cent) and Newmont (up 2.3 per cent) all performed strongly as spot prices for the safe-haven investment gold continued to rise.

Insurance companies also did well, with IAG up 2.7 per cent after the competition watchdog cleared its planned takeover of the Queensland-based motor insurance provider the Royal Automobile Club of Queensland Limited (RACQ). QBE Insurance was up 1.4 per cent and Suncorp added 0.6 per cent.

Premium Wagyu producer Australian Agricultural Company’s (AACo) share price rose 0.7 per cent after the company revealed improvements in operating profit and revenue. CEO David Harris said US President Donald Trump’s tariffs haven’t had a significant impact on the business to date, with global demand for beef set to increase as domestic beef production in the northern hemisphere comes under pressure.

Bitcoin briefly hit an all-time high of $US109,856 (about $170,545) after the advancement of stablecoin legislation in the US stoked hopes of regulatory clarity for cryptocurrencies under Trump.

The laggards

Financial stocks weighed on the local market. Commonwealth Bank – the nation’s biggest bank and also the biggest stock on the ASX – dropped 1.3 per cent, having touched a fresh all-time high during Wednesday’s session. National Australia Bank was down 0.7 per cent, Westpac lost 0.8 per cent, and ANZ Bank ended flat. Investment banking giant Macquarie Group shed 2.2 per cent.

Energy stocks also retreated, following oil prices down as higher US crude stockpiles reinforced worries about an oversupplied market, with geopolitical concerns also in focus. Oil and gas giants Woodside and Santos shed 1.3 per cent and 0.9 per cent, respectively, while refiner Ampol dropped 3.4 per cent. West Texas Intermediate fell towards $US61 a barrel overnight after shedding almost 2 per cent over the previous two sessions, with Brent crude closing below $US65.

Along with energy stocks, some of Wednesday’s other big winners – defensive utilities and healthcare – declined, yet the renewed risk-off sentiment made investors also avoid cyclical sectors such as tech stocks and businesses dependent on consumers’ discretionary spending, such as retailers.

The ASX’s two biggest tech stocks, WiseTech Global and Xero, lost 2.3 per cent and 1 per cent, respectively. Bunnings- and Kmart-owner Wesfarmers was down 1.2 per cent, while electronics retailer JB Hi-Fi and furniture seller Harvey Norman both shed 0.7 per cent.

Real estate investment trusts, often viewed as an alternative to bonds with their annuities-style rental incomes, declined as bond yields rose. Warehouse and data centre owner Goodman Group fell 0.4 per cent, while shopping centre landlord Scentre was down 0.5 per cent and 1.8 per cent.

The lowdown

It was a day of profit-taking on the local sharemarket after some sizeable losses on Wall Street overnight, where the S&P 500 fell 1.6 per cent for a second straight drop after breaking a six-day winning streak. The Dow Jones lost 1.9 per cent, while the Nasdaq composite sank 1.4 per cent.

“Without much good trade news to chase any more, it seems like the market’s poised to pull back a little bit,” said Capital.com market analyst Kyle Rodda.

US stocks had been drifting only modestly lower early in the day, after Target and other retailers gave mixed profit forecasts amid uncertainty caused by Trump’s trade war. But the market turned sharply lower after the US government released the results for its latest auction of 20-year bonds.

The government regularly sells such bonds, which is how it borrows money to pay its bills. In this auction, the US government had to pay a yield as high as 5.047 per cent to attract enough buyers to lend it a total of $US16 billion over 20 years.

That helped push up yields for all kinds of other Treasury bonds, including the more widely followed 10-year Treasury. Its yield climbed to 4.59 per cent from 4.48 per cent late on Tuesday and from just 4.01 per cent early last month. That’s a notable move in the bond market.

“Bonds finally appear to be getting equities’ attention,” according to Jonathan Krinsky, chief market technician at BTIG.

Treasury yields have been on the rise in part because of concerns that tax cuts under consideration in Washington could pile trillions more dollars onto the US government’s debt. Concerns are also still brewing about how much Trump’s tariffs will push up inflation.

Moody’s Ratings became the last of the three major ratings agencies last week to lower the US government’s credit rating on concerns it may be heading toward unsustainable debt levels.

“We do not think that the downgrade matters by itself,” Bank of America strategists wrote in a research report, “but it has served as a wake-up call for those investors who had been ignoring the ongoing fiscal discussion.”

On Wall Street, Target sank 5.2 per cent after the retailer slashed its earnings forecast. It felt some pain from boycotts by customers after it scaled back many diversity, equity and inclusion initiatives following criticism by the White House and conservative activists.

With AP, AAP, Bloomberg

The Market Recap newsletter is a wrap of the day’s trading. Get it each weekday afternoon.