Hawkish Federal Reserve meeting minutes drives metals sell-off

With Federal Reserve officials indicating interest rates will likely remain higher for longer, investors took profits in commodities on Thursday.

The sharemarket fell on Thursday, booking a three-day losing streak after Federal Reserve officials concluded at their most recent meeting that interest rates would need to hold higher for longer, driving investors to take profits in commodity-related stocks.

At the closing bell, the benchmark S&P/ASX200 dropped 0.5 per cent, or 36.3 points, to reach 7811.8, while the broader All Ordinaries sank 0.4 per cent to 8083.1.

Against the greenback, the Australian dollar was higher, buying US66.27c at 4.30pm.

After hitting all-time highs during Tuesday’s sessions, the major indices retreated on Wall Street on Wednesday, with the S&P 500 falling 0.3 per cent and the tech-heavy Nasdaq off 0.2 per cent. The Dow Jones shed 0.5 per cent.

Minutes of the Fed’s most recent meeting, released on Wednesday, noted policymakers’ concerns over sticky price pressures and a willingness of some members “to tighten policy further should risks to inflation materialise in a way that such an action became appropriate”.

Reacting to the fresh minutes, analysts at Barclays said Fed officials appeared to have “less conviction” that the current level of interest rates would effectively restrain price pressures.

BHP’s third bid for UK-listed copper producer Anglo American worth $73.9bn was rejected. Picture: NewsWire / Brenton Edwards

“This suggests a reaction function that is somewhat more hawkish than previously perceived by markets, plausibly involving additional rate hikes if conditions are not taking shape for a sustained return to 2 per cent inflation in coming months,” a Barclay’s client note read.

Locally, material stocks weighed heavily on the index as the iron ore price slumped 2.7 per cent to $US119.15 per tonne on the Singapore Exchange.

After a third takeover proposal for Anglo American worth $73.9bn was rejected, BHP dropped 2.9 per cent to $44.91, however it received a one-week extension to make an improved bid for the UK-listed copper producer.

Fellow heavyweight iron ore miners Rio Tinto skidded two per cent to $133.50, while Fortescue slumped 1.1 per cent to $26.99.

Elsewhere in the sector, gold miners also pushed lower as bullion slipped 1.7 per cent to $US2368 an ounce.

Regis Resources plunged 7.6 per cent to $1.96, Bellevue Gold dived 6.7 per cent to $1.89, and Northern Star Resource fell 3.3 per cent to $14.20.

It was a similar story for copper producers, with Sandfire Resources down 6.4 per cent to $9.17 after spot prices slipped four per cent on the London Metal Exchange to $US10,395 per tonne.

The NSW Labor government inked a deal with Origin to extend the lifetime of the Eraring coal fired power plant by two years through to mid-2027. Picture: Supplied

ING head of commodities strategy Warren Patterson said following the hawkish Fed minutes metals prices had been in the broader risk-off move.

“Recent price strength in metals, particularly copper, was becoming increasingly detached from short-term fundamentals. Therefore, we would have likely seen some profit-taking from speculators,” Mr Patterson wrote in a note to clients.

Financials also weighed on the index, shedding 0.6 per cent. CBA lost 0.6 per cent to $120.73, NAB sank 1.1 per cent to $34.40, Westpac fell 0.7 per cent to $26.87 and ANZ skidded 0.8 per cent to $28.38.

Tech stocks were the top performers, led by Xero up 8.7 per cent to $134.84.

The NZ-based payroll software company posted a full year net profit after tax of NZ$174.6m ($AU161.2m), beating consensus estimates.

Shares in the Reject Shop dived 5.2 per cent to $3.50 after the discount retail stores operate unveiled earnings guidance of between $4m and $5.5m in the year to June 30, down from $13.3m last financial year.

Energy sector heavyweight Origin Energy added 1.9 per cent to $10.35 after the NSW government inked a $450m agreement with the company to extend the life of its Eraring power station through to August 2027.

Agtech firm Nufarm fell 7.1 per cent to $4.73 after its half-yearly earnings showed a 10 per cent decline in earnings, missing consensus estimates.