The ASX has taken a tumble as of 1:30pm AEST today, slipping 1.33% or 92.8 to 6,888.80, crossing below its 20-day moving average and dropping to its lowest levels since October last year.
US treasury yields approached a 10-year high and pushed US markets lower in overnight trading, dragging the ASX along for the ride. More on that in a moment.
The ASX200 is now down 2.08% for the year to date, although still up 2.4% since this time last year. It’s unclear whether the bourse will be able to recover much lost ground in the remainder of the calendar year, considering how heated geopolitics is becoming in the Middle East.
Energy was the only sector to make any gains today, adding a modest 0.36% and up 5.23% for the year.
Materials took the most damage with a 2.01% slide, but Real Estate, Comm Services, Info Tech, Financials, Health Care, and Consumer Discretionary all fell more than 1%.
As for commodities, crude gained on an upbeat energy sector, adding 2.51% in the strongest showing today, while only gold (+1.3%) and platinum (+0.87%) gained much ground otherwise and tin fell 1.95%.
Liontown Resources (ASX:ASX:LTR) Ltd has taken a massive tumble today, falling more than 30% following news the company is seeking A$1.18 billion in debt and share issue after Albemarle pulled out of an acquisition offer. Read more about that here.
Insignia Financial Ltd also slid a less dramatic 11.32% after earnings declined for the fifth straight year and chief executive Renato Mota announced he would step down from the company after a 20-year tenure.
US yields continue to climb as 10-year Treasury yields hit 5%
Capital.com senior financial market analyst Kyle Rodda offers some insight into the market’s reaction to tensions in the Middle East, high US bond yields and the potential for more rate hikes from the US Fed.
“When it comes to equities, tensions in the Middle East weighed on sentiment and maintained a risk-off tone to trade,” Rodda wrote.
“Things remain very precarious, and there are more reports of a looming ground incursion by Israel into the Gaza Strip.
“Fears of a spreading regional conflict are simmering, too, after news that the US had shot down a missile launch from Yemen, heading for Israel.
“World leaders continue to trek to the Middle East to – if nothing else — delay the onset of any further hostility. The West remains resolute in its support of Israel, giving some degree of legitimacy to any retaliation the country is planning.
“The markets are shuffling nervously as they await a move: gold and oil, as the most apparent indicators of sentiment towards the conflict, continue to rise.
“Beyond the potential of another supply shock caused by a broader war in the Middle East, the markets are also tackling some significant fundamental issues.
“The US 10-year yield touched 5%, the first time the note has played with those levels since mid-2007.
“We’ve been talking about the factors driving it ad nauseam, but to repeat: resilient US growth, increased issuance as the US funds growing deficits, rising energy prices, and quantitative tightening. Last night, further signs of a robust US labour market came through in jobless claims data, which fell below 200,000 and to its lowest since January.
“Arguably, we are seeing some late-cycle labour hoarding, which could be an ominous signal of things to come.
“On face value, the US economy remains robust right now, firming the higher for longer view, although the timing of the next Fed cut was brought forward based on price action in swaps markets.
US Government bonds 10-year yield:
“Expectations for further policy tightening were wound back last night after a speech from Fed Chairperson Jerome Powell.
“The message that seems to have resonated most is that policy is not "too tight" currently; however, Powell was reticent regarding signalling further rate rises.
“Yields at the front end dropped and narrowed the curve to levels not seen since When it comes to recession signals; it's typically when the yield curve reverts that a meaningful slowdown is afoot.
“However, the dynamic comes when the front end drops as markets price in imminent rate cuts, not as the long end rises to meet short-end rates.
“Last night saw a so-called bull steepening of the curve, which also sparked some US Dollar weakness. The 10-year at 5% is primarily responsible for compressing equity valuations, especially US tech.
US 100 Index:
“Asian markets round out the week with relatively little macroeconomic event risk. Futures point to the downside for the region’s major indices.
“The PBOC set its loan prime rate, but economists aren’t forecasting any change to policy settings; the one and five-year rates are expected to remain at 3.45% and 4.20%, respectively.
“Local tech names will be in focus, not only because of higher yields but also because of a mixed bag from US earnings.
“Tesla (NASDAQ:TSLA) tumbled last night after its results stoked concerns about margin pressures and the scaling up of production. Netflix (NASDAQ:NFLX) shares surged unexpectedly on higher earnings and surprisingly strong subscriber growth.”
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