Australia Market extends losses

The Australian share market fell for straight second session on Wednesday, 12 May 2021, backing further away from Monday's record closing high, as risk aversion selloff continued on concerns that surging commodity prices and growing inflationary pressure in the United States could lead to earlier rate hikes and higher bond yields globally.

At closing bell, the benchmark S&P/ASX200 declined by 52.09 points, or 0.73%, to 7,044.87. The broader All Ordinaries fell 50.50 points, or 0.69, to 7,281.14.

Market participants appear worried over the impact rising inflation can inject into markets amid continuing upward pressure across commodities. For now, the central bank's interest rates are ultra-low and it buys billions of dollars worth of assets every month. But eventually that will change, and a prolonged increase in inflation could bring about that shift.

 

Prices are rising all over the place as commodities, shipping costs and more related categories become more expensive. The price jumps affect broader measures of inflation, which in turn could force the Federal Reserve to change its monetary policy stance sooner than expected. Adding to the inflation concerns, the Labor Department released a report showing the number of job openings reached a series high of 8.1 million on the last business day of March. The data led to worries that employers will have to raise wages to entice workers, which could carry over into higher inflation.

Most of ASX sectors declined, exception being IT and telecom issues which finished up 0.8% and 0.2%. Utilities sector was the worst performer, down 2.2%, followed by energy which fell 2% and industrials, down 1.6%. Materials sector fell 0.7% as iron ore eased 0.3 % to US$228.90 per tone.

Materials stocks declined as China's Dalian Commodity Exchange proposed certain changes in its flagship futures that could result in tempering of prices, a potential blow to Australian miners which are a major producer of high quality iron ore. Top miners BHP Group and Rio Tinto lost 0.8% and 0.4%, respectively.

Travel and tourism stocks fell after the government said international travel was not expected to resume before mid-2022. Sydney Airport dropped 4.8%, Qantas dropped 3.4% lower, and Flight Centre fell 4.5%.

Technology stocks rebounded with Nearmap up 4.5%, Link Administration up 3.3%, and Xero up 2.3%. Telcos were also stronger with TPG up 2.4% and Telstra up 0.9%.

CURRENCY NEWS: The U.S. dollar rose to trade at 90.277, up from levels near and above 91.00 in the previous week. The Australian dollar rose against the dollar to $0.7814.

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