ASX closes 0.6% lower as NZ hikes interest rates

APRA takes action, CBA falls, GQG set to list
 
The S&P/ASX200 (ASX: XJO) delivered another negative day falling 0.6% as concerns of ‘peak growth’ and stagflation continue to grow.
 
Every sector barring technology and energy were lower, with the latter so far the standout story of the second half of 2021.
 
Whitehaven Coal (ASX: WHC) continues to benefit from booming coal prices, up 3.2%, whilst the likes of Afterpay (ASX: APT) and Virgin Money (ASX: VUK) both rallied by around 3%.
 
Bond rates fell once again, but markets remain fixated on the short-term noise. It was a big day for monetary policy, with the Reserve Bank of New Zealand joining Norway among the first central bank to hike interest rates.
 
The case rate was moved from 0.25% to 0.5 and may well offer a canary in the coal mine for Australia’s economic recovery.
 
The bigger news was APRA’s decision to write to the major banks ordering them to increase the buffer on their home loan serviceability calculations by 0.5% to 3%.
 
The result is the ‘affordability’ calculation will result in lower maximum loan values for new borrowers.
 
CBA drops, A2 Milk class action, Magellan and GQG
 
Whilst APRA’s decision was a negative, sending Commonwealth Bank (ASX: CBA) down 2.3%, it didn’t go as far as limiting the debt-to-income ratio that many had predicted.
 
Shares in A2 Milk (ASX: A2M) fell by 7% after Slater and Gordon (ASX: SGH) announced they were pursuing a class action against the firm based on poor disclosures around their multiple earnings downgrades in recent years.
 
Management will defend the class action. The travel sector reversed recent gains on the worsening Victorian outbreak with Flight Centre (ASX: FLT) falling 5.7%.
 
Magellan Financial Group (ASX: MFG) reported a $4 billion fall in assets under management but remains firmly above $100 billion.
 
The majority of redemptions came from a number of large institutional investors rebalancing along with the recent restructure of their High Conviction Trust into a listed ETF.
 
The fund is in the process of cannibalising its core business in an effort to convert investors into lower cost, more consistent earning ETF structures.
 
Market reverses on jobs data, debt ceiling discussions, tech rallies
 
The US bond yield remains trapped around 1.5% after jumping significantly as investors face the dual challenge of identifying whether the economy is recovering strongly, or data is still being impacted by the pandemic.
 
The tech sector was the biggest winner, finishing 0.3% higher. The S&P500 gained 0.4, Nasdaq 0.5 and the Dow Jones, up 0.3%.
 
The solution to high prices is high prices, or so the saying goes, and this time it was the Russians who stepped in, releasing more natural gas into the market sending the price down around 10%.
 
This seems to be the ultimate outcome from the current crisis but only time will tell. The grandstanding on the debt ceiling continues, with President Biden saying an ‘American default would lead to self-inflicted wounds that risk the market tanking and wiping out retirement savings’, which given the recent history is highly unlikely.
 
Big tech drove today’s rally, Microsoft (NYSE: MSFT) and PayPal (NYSE: PYPL) both adding over 1%, with volatility continuing in the lesser-known names.
 
Interesting, despite suggestions tech is overvalued there are any number of companies well below recent highs with the likes of Mercado Libre (NASDAQ: MELI) and Electronic Arts (NYSE: EA) falling heavily overnight.

The Inside Adviser