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Despite a shaky start, the Australian share market has finished the day higher, following a big sell-off across Wall Street's major tech stocks, while commodity prices continued to surge.
Key points:
- The ASX 200 has risen 3.8pc since the year began
- Australia's 10-year bond yield has jumped to 1.65pc (back to pre-COVID levels)
- The Nasdaq was dragged down by Tesla (-8.6pc), Apple (-3pc) and tech-related stocks overnight
The benchmark ASX 200 closed 58 points higher (+0.9pc) at 6,839, but that was after swinging between positive and negative territory a few times.
The broader All Ordinaries index had also struggled for direction, but gained 49 points (+0.7pc) to end at 7,111 points.
Meanwhile, bitcoin has dropped from its record high levels, insurance giant Allianz is being prosecuted for allegedly lying about the extent of its travel insurance coverage, and Freedom Foods has been sued in a second class action by angry shareholders.
By 4:15pm AEDT, the Australian dollar went up (+0.6pc) to 79.18 US cents as the greenback slipped to an almost six-week low.
It climbed as high as 79.29 US cents overnight, the local currency's strongest level since early February 2018.
"Widespread gains in commodity prices and an increase in Australian interest rates compared to US interest rates were behind the lift in the Australian dollar," said Commonwealth Bank currency strategist Joseph Capurso.
Rising oil and metal prices have been a boon for commodity-linked currencies, which has boosted the Australian and New Zealand dollars in particular.
The price of Australia's key export, iron ore, rose (+1.4pc) to $US175.96 a tonne.
Benchmark copper prices shot above $US9,000 for the first time since 2011. Overnight, it jumped (+1.9pc) to $US9,075.50 a tonne on the London Metal Exchange.
Seek promotes ex-CBA boss; Austal under investigation
Local tech-related stocks like Afterpay (-7.2pc), Zip Co (-3.4pc), Nearmap (-6.1pc) and Xero (-2.7pc) suffered heavy falls.
However, they were among the stocks that performed best during the pandemic as investors drove up "growth stocks".
Markets are beginning to worry that a global economic recovery will bring about higher inflation, which could lead to governments winding back trillions of dollars worth of stimulus and central banks hiking interest rates again.
"A higher interest rate environment forces investors to consider the opportunity costs of investments," said Michael McCarthy, chief market strategist at CMC Markets in Sydney.
"Stocks that have significant borrowing, or produce no income for investors, may be particularly vulnerable."
Shares of Seek (-7.1pc), Domino's Pizza (-8.9pc), Lynas Rare Earths (-5.8pc) and G8 Education (-7.3pc) also dropped sharply.
Seek has revealed that it appointed Ian Narev (its operations head and former boss of Commonwealth Bank) as its new chief executive, the online jobs portal said on Tuesday.
Mr Narev left Australia's biggest bank three years ago after a money laundering scandal rocked CBA.
The job-hunting website also said it was in talks with a consortium to sell down its Chinese subsidiary, Zhaopin, for around $2.2 billion.
The talks are at an advanced stage, Seek said, adding that its stake would be reduced to around 23.5 per cent (down from 61 per cent) if the deal went ahead.
Brokerage firm Jefferies said it was "disappointed" with the $2.2 billion tag as it was 45 per cent lower than its market value.
Shipbuilder Austal was one of the worst performers, after its share price plunged (-10.9pc) to $2.20.
This was after the company said the president of its US division, Craig Perciavalle, had resigned.
Austal also said it was being investigated by three regulators in regards to "historical matters" linked with its Littoral Combat Ship Program.
Those regulators include the Australian Securities and Investments Commission (ASIC), the US Department of Justice and the US Securities Exchange Commission (SEC).
In May, the company received a $350 million lifeline from the Australian government to build six new patrol boats, with the aim to keep hundreds of local jobs afloat during the pandemic.
Oil Search profit tanks
Bank of Queensland surged (+12.7pc) to $9.21, after confirming, on Tuesday, that it will take over ME Bank for $1.3 billion.
It was also BoQ's first day back on the market after its shares were placed in a three-day trading halt, ahead of its deal announcement.
Energy and travel stocks were the best performers, including Oil Search (+6.4pc), Beach Energy (+7pc), Qantas (+4.4pc), Flight Centre (+6.2pc) and Sydney Airport (+6.5pc).
Oil Search reported that its full-year underlying profit tanked (-93pc), hurt by a slump in realised oil prices as demand took a dive due to the coronavirus outbreak.
The Papua New Guinea-focused explorer said its core profit after tax fell to $22 million (down from $320.9 million a year ago). It beat market expectations, as analysts were expecting the company to post a core loss of $24.7 million, according to Refinitiv IBES.
The company declared a final dividend of 50 US cents per share (a big drop from last year's $US4.50 per share).
Allianz and AWP sued for lying about travel insurance
Insurance underwriter Allianz Australia and its distributor AWP Australia have been hit with criminal charges for making false or misleading statements about the sale of domestic and international travel insurance.
The corporate regulator ASIC alleges that Allianz and AWP misled consumers about the level of coverage they would receive under those policies between 2016 and 2018.
ASIC claims that Allianz advertised, on its website, the maximum travel insurance benefits payable to customers, but failed to disclose terms, conditions or exclusions that would limit those benefits.
Allianz was indicted with seven counts of making false or misleading statements, while AWP was hit with one charge.
Representatives of both companies appeared today at the Downing Centre Local Court in Sydney, and the matter is listed for further mention on April 20.
The matter is being prosecuted by the Commonwealth Director of Public Prosecutions, on behalf of ASIC. Under the Corporations Act (section 1041E), a company that makes false or misleading statements could face these penalties:
- a maximum fine of $8.1 million
- the total value of the benefits obtained from committing the offence, multiplied by three (if the court is able to determine that amount)
- if the court is unable to calculate that amount, then 10 per cent of the company's annual turnover during the one-year period before the offence was committed
Freedom Foods sued ... again
The embattled cereal maker Freedom Foods is being sued in a second class action, for alleged breaches of the ASIC Act, along with company and consumer legislation.
Freedom Foods said this lawsuit was filed in the Victorian Supreme Court against itself, and its auditors Deloitte Touche Tohmatsu.
The aggrieved shareholders will be represented by law firm Phi Finny McDonald, and the case is being backed by litigation funder Omni Bridgeway.
The first class action was filed in December by Slater & Gordon Lawyers, also in Victoria's highest court.
The company's shares have been suspended from trading since June last year due to its accounting scandal.
It is also being investigated by the corporate regulator, after revealing that its previous financial results were inaccurate.
In particular, its full-year profit of $11.6 million (in the 2018-19) was suddenly "restated" as a massive $145.8 million loss.
It has also experienced rapid turnover among its senior leadership, with its former chief executive Rory Macleod and chief financial officer (CFO) Campbell Nicholas forced to quit in mid-2020.
Earlier this month chairman Perry Gunner, part-owner Ron Perich and non-executive director Trevor Allen stepped down from Freedom's board of directors. Its acting CFO Stephanie Graham submitted her resignation on Friday.
Bitcoin drops from record high
The volatile cryptocurrency bitcoin crashed below $US48,000 overnight, a big fall compared to Monday's record high of $US58,354.
It has since recovered much of those losses, but is still down (-11.5pc) to $US49,314 over the past 24 hours.
The value of cryptocurrencies lost a bit of their shine on Monday local time, when US Treasury Secretary Janet Yellen issued a warning about its limitations.
"I don't think that bitcoin ... is widely used as a transaction mechanism," she said at a New York Times Dealbook online event.
"To the extent it is used I fear it's often for illicit finance.
"It's an extremely inefficient way of conducting transactions, and the amount of energy that's consumed in processing those transactions is staggering."
Bitcoin was still up more than 80 per cent since the year started, and its total market value has surpassed $US1 trillion. It has also skyrocketed by nearly 1,200 per cent since its lows from March 2020.
Tesla boss Elon Musk, whose tweets on bitcoin have added fuel to the digital currency's rally, said on the weekend that the price of bitcoin and rival cryptocurrency ethereum seemed high.
LoadingLast week, Mr Musk remarked that he found the prospect of holding bitcoin "adventurous" for an S&P 500 company.
But on Saturday, he tweeted: "Money is just data that allows us to avoid the inconvenience of barter ..."
Ethereum (or ether) is the second-largest cryptocurrency by market capitalisation and daily volume.
Its value dropped (-14.9pc) to $US1,580 on Tuesday afternoon, after hitting a record high of $US2,037 on the weekend.
Earlier this month, Mr Musk's electric car company Tesla said it had invested $US1.5 billion in bitcoin, and will accept the cryptocurrency as a payment method in the "near future".
Tesla is estimated to have made around $US1 billion from its bitcoin investment, according to research note from Los Angeles-based Wedbush Securities — more than it made from selling cars last year.
Gold and oil surge on COVID confidence
Spot gold rose (+2pc) to $US1,811.46 an ounce, its highest level in nearly a week — but that was after some heavy losses recently.
"Gold prices fell to an eight-month low late last week, following the surge in bond yields, but is now trending up again," ANZ's head of global economics, Brian Martin, said.
"It was well-supported throughout the pandemic as investors sought a haven for funds.
"But the tide is turning, as interest rates start to rise and investors rekindle their love of bonds."
Oil prices jumped to their highest level in more than a year, with the international benchmark (Brent) gaining 22 per cent since the year began.
Brent crude futures surged (+1.8pc) to $US66.44. That was on top of its 4.5 per cent surge overnight.
"Investors are increasingly confident that economic conditions will improve as vaccines halt the COVID-19 spread and allow movement restrictions to be eased," Mr Martin added.
"Supply is still constrained, leading to the prospect of further tightness in the global crude oil market."
Tech stocks drag Wall Street lower
In contrast, global markets fell overnight on Monday local time on bets of a faster economic recovery, and rising fixed-income, or bond, yields making share prices, which are near record highs, look over-valued in comparison.
On Wall Street, high-growth stocks — including Facebook (-0.5pc), Amazon (-2.1pc), Apple (-3pc), Netflix (-1.2pc), Google's parent company Alphabet (-1.7pc), Tesla (-8.6pc) and Microsoft (2.7pc) — pulled the Nasdaq down and weighed on the S&P.
The tech-heavy Nasdaq Composite closed sharply lower (-2.5pc) at 13,533 points overnight, while the benchmark S&P 500 index dropped (-0.8pc) to 3,876.
The Dow Jones index crept marginally higher (+0.1pc) to 31,522.
In Europe, Germany's DAX fell (-0.3pc), while Britain's FTSE 100 index retreated (-0.2pc).
Bond yields have risen sharply this month as prospects for more US fiscal stimulus have boosted hopes for a faster economic recovery globally, which would also lift inflation.
The returns for America's 10-year Treasury bonds rose to 1.369 per cent (up 2 basis points).
In comparison, the Australian equivalent lifted to 1.65 per cent (up 5 basis points), and its yields are back to pre-COVID levels.
Investors have also been buying economically sensitive cyclical stocks, such as the energy sector, and selling growth stocks like technology companies to prepare for a potential spike in inflation with the US Congress poised to pass a $US1.9 trillion stimulus bill.
"If interest rates are expected to rise, then that would reduce the intrinsic value of growth stocks," said Sam Stovall, chief investment strategist at CFRA Research.
US economic growth, as measured by GDP, is expected to run hotter than at any time in the past 35 years, and business investment is expected to run twice as fast as the broad economy, according to Credit Suisse.
ABC/Reuters