ASX drifts lower as world awaits US Fed hike

The Australian sharemarket started strong on Wednesday but drifted lower ahead of what many were tipping to be the largest US interest rate hike in more than two decades.

The benchmark ASX 200 jumped 0.7 per cent at the opening bell but quickly lost steam and eventually ended 11.5 points, or 0.2 per cent, lower at 7304.7 for a third straight decline.

The broader All Ordinaries finished 22.8 points, or 0.3 per cent down, at 7564.8, while strong retail and lending data supported the Australian dollar above 71 US cents.

Mining companies were particularly strong out of the gate but badly fell by the wayside with real estate firms, technology stocks and consumer discretionaries such as Woolworths, Wesfarmers, JB Hi-Fi and ARB Corp.

OANDA Asia-Pacific senior analyst Jeffrey Halley said it was a quiet day across regional markets thanks to holidays in mainland China, Japan, Malaysia, Indonesia, and Thailand, while those investors on deck were likely waiting anxiously for news from the US Fed.

Market consensus was for the US Federal Reserve to lift the official cash rate on Wednesday evening Australian time by 50 basis points from 0.5 per cent to 1 per cent as it faces a serious inflation battle.

The Fed started its rate hike cycle in March and, much like the Reserve Bank of Australia, is expected to deliver several interest rate rises over the coming months to bring consumer prices back under control.

Mr Halley said the crux of chairman Jerome Powell’s statement would be in the forward guidance and whether the Fed would taper its bond-buying program.

“Markets, perhaps like the Fed, are clinging to the hope that the terminal Fed Funds rate is mostly priced into the market now,” Mr Halley said.

“There remain definite upside risks to that point of view, as there are across much of the Anglo-Saxon world.

“Perhaps the only mitigating factor will be the start of quantitative tightening by the Fed. That may have more of an impact than Fed Fund hikes if it starts pushing the US yield curve higher once again.”

On local shores, the big miners gave up early gains and reversed lower midmorning.

City Index analyst Tony Sycamore noted that China’s damaging Covid lockdown had created a massive amount of short-term uncertainty around commodity prices and for the ASX 200 materials sector, which is now 10 per cent below its April highs.

BHP dropped 0.6 per cent to $47.40, Rio Tinto lost 0.7 per cent to $111.11, while Fortescue Metals went even further with a 2.4 per cent fall to $20.12.

Mineral Resources handed back 3.3 per cent to $54.24 and BlueScope Steel was 1.6 per cent down at $19.30.

Once again, lithium players and gold miners were weaker.

The major banks – each of which passed on the RBA’s 25 basis-point hike in full – offered support to investors, with Commonwealth Bank and Westpac each gaining 0.7 per cent to $102.98 and $24.07 respectively.

NAB rose 1 per cent to $32.44 and Macquarie Group climbed 0.6 per cent to $204.73.

ANZ rose 0.4 per cent to $27.38 after boosting its interim dividend to 72 cents despite cash profit from continuing operations being slightly lower at $3.1bn.

Technology firms tanked, with Block Inc dropping 3.6 per cent to $143.12 and rival buy now, pay later firm Zip Co plummeting 10.8 per cent to $1.03 on news a significant parcel of shares would be steadily released from voluntary escrow.

Wisetech Global, Appen, Altium, Megaport, EML Payments, NextDC, Nearmap, and Tyro Payments also fell.

Electronics giant JB Hi-Fi lost 4.8 per cent to $49.73 after telling investors it was unable to provide full-year sales and earnings guidance due to “ongoing disruption to stock availability”.

Auto accessory firm ARB Corp fell 11.2 per cent to $33.61 on higher expenses and issues ranging from a dearth of new vehicles to skills shortages.

Flight Centre was also bruised after revealing its recovery was stuttering due to staffing issues and a lack of airline carriers servicing Australia.

The travel broker lost 6.7 per cent to close at $21.19 and was joined in the dumps by Qantas, Helloworld, Corporate Travel, and Webjet.