The Australian share market is trading sideways after Wall Street’s major technology stocks were heavily sold off, while commodity prices have continued to surge.
The ASX 200 has risen 2.9pc 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
By 11:35am AEDT, the benchmark ASX 200 was steady at 6,780. The broader All Ordinaries index was slightly lower (-0.1pc) at 7,055 points.
The Australian dollar went up (+0.6pc) to 79.18 US cents due to a weaker greenback. It climbed as high as 79.29 US cents overnight, its strongest value 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.
“Our fair value equation for the Australian dollar — based on commodity prices and interest rate differentials — suggests 82 US cents is within reach.”
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.
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 if the deal went ahead.
In other news, 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.
Oil Search declared a final dividend of 50 US cents per share (a big drop from last year’s $US4.50 per share).
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 (-4.5pc) to $US55,005 over the past 24 hours.
However, 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.
Last 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 …”
“That said, BTC [bitcoin] & ETH [ethereum] do seem high lol.”
Ethereum (or ether) is the second-largest cryptocurrency by market capitalisation and daily volume.
Its value dropped (-6.4pc) to $US1,800 overnight, after hitting a record high of $US2,037 over the weekend.
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.
“It’s an extremely inefficient way of conducting transactions, and the amount of energy that’s consumed in processing those transactions is staggering.”
Gold and oil surge on COVID confidence
Spot gold rose (+1.8pc) to $US1,809.07 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 (+4.5pc) to $US65.71 a barrel on Tuesday morning.
“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.