Global markets were lower overnight, as US markets (S&P 500 index -1.9%) fell sharply as bond yields continue to surge.
The closely watched US 2-year yield broke above 1% for the first time since February 2020, the month before the pandemic declaration that sent the US economy into recession. The 2-year Treasury is seen as a gauge of where the Federal Reserve will set short-term borrowing rates, with the market seeing the Fed as not moving fast enough with their hiking. Rates rose across the board, with the benchmark 10-year note hitting 1.86%, its highest since January 2020 – the 10-year yield started 2022 around 1.5%. There was no clear trigger or catalyst behind for the moves, but it seems as if interest rates are following the typical historical pattern of increasing into the first Fed hike of the cycle. The market is now pricing more than four Fed hikes this year (and around a 15% chance of a 5th hike).
All sectors traded lower, with 90% of the market trading lower in the biggest broad based sell off since November for the S&P 500 US market index. Tech and financials led losses with the tech heavy NASDAQ falling -2.5% and down 7.3% since the start of the year being most sensitive to rising interest rates, with big names like Tesla (-2.5%), Meta Platforms (Facebook) (-3.7%), and Amazon (-2.5%) also trading lower.
Goldman Sachs slumped -7% leading financials lower, after the bank’s fourth quarter result missed expectations, with management citing expenses surging +23% on increased pay for Wall Street employees, dragging other banking stocks lower.
On the flipside, gaming company Activision shares surged +27.1% after Microsoft announced it would acquire the company for $68.7 billion in cash. The news saw French gaming publisher Ubisoft rise +11.9%, as well as handful of other gaming stocks perform strongly.
European Markets (Stoxx 600 index -1%) fell as higher bond rates caused most sectors to trade lower, with tech names leading losses. Oil and gas shares were up on the back of rising oil prices amid rising tensions in the Middle East.
Rio Tinto (RIO:ASX)
Rio Tinto shares slipped -0.4% yesterday after reporting its weakest annual iron ore production since 2015. For the three months ended 31 December, Rio Tinto reported a 5% decline in Pilbara iron ore shipments to 84.1Mt, bringing its full year shipments to 321.6Mt, which was down 3% year on year.
The lower production was attributed to above average rainfall in the first half of the year, cultural heritage management, and delays in growth and brownfield mine replacement tie-in projects
RIO shares have recovered over the past few months – we remain BUY rated on RIO as they provide an attractive dividend at current and based on iron ore prices remaining supportive at current levels, however with a high-risk caveat due to volatility in iron ore prices.
Australia & New Zealand Market Movers
The Australian market edged lower yesterday (ASX 200 index -0.1%) on the back of softer economic data and record covid -19 related deaths.
Australian consumer confidence fell -7.6% last week, its lowest level since October 2020 with the fall broad based across states as surge in covid cases causing economic disruption.
JB Hi-Fi rose +6.9% after reporting its -9.4% slide in net profit for the 6-months ending December 2021 was not as bad as the market had feared given the Sydney and Melbourne lockdown. Other retailers also more upbeat Harvey Norman up +1.4% and Temple and Webster edged +0.1% higher.
Materials was the best performing sector, with BHP rising +1.2% as well as other smaller miners trading higher due to upbeat confidence for 2022. EV related miners up were also up on higher lithium prices.
The New Zealand market (NZX 50 index) edged higher on Tuesday up +0.1%, on little volume.
IkeGPS led the market higher up +8.3% after extending a contract with an existing communications customer who was involved in building fibre infrastructure in the United States.
Scales and Kathmandu were also notable strong performers up 3% and +2.8% respectively. Tower insurance slipped -3.5% after going ex-dividend.