ASX 200 falls as AI fears and rate-hike dread hit miners
Web StoryWatch this story in 15 seconds →Key takeaways
- The S&P/ASX 200 closed at 8,856.5 on Monday November 2. It fell 51.6 points, or 0.58 per cent.
- Two forces drove the fall. A US tech selloff hit AI-linked miners. The Reserve Bank is likely to raise rates on Tuesday.
- Materials and gold stocks led the losses. Industrials and uranium miners bucked the trend.
Australia's share market had a rough Monday. The S&P/ASX 200 fell 0.58 per cent to 8,856.5. The drop ended two days of gains, according to the Business Recorder.
The ASX 200 tracks Australia's 200 biggest listed companies. Think of it as a scorecard for the whole share market. On Monday, most of that scorecard was red.
Two things scared investors. First, a US tech selloff shook the AI trade. Second, the Reserve Bank looks set to lift interest rates on Tuesday.
This article explains both, step by step. We start with the miners.
Why miners fell
Friday's news from Wall Street set the tone. The tech-heavy Nasdaq fell 2.9 per cent, its biggest one-day drop since June 5. Intel and Amazon reported earnings that disappointed investors.
The results fed a growing worry. Big companies are spending huge sums on artificial intelligence. Investors now ask when that spending will pay off.
When confidence wobbles, the whole AI trade shakes. Australia felt it within hours.
That shake reached Australia's miners. Investors had bought copper and mining shares as a bet on AI. Data centres need huge amounts of copper and other metals.
So copper now moves with US chip stocks. One falls, and the other often follows.
Josh Gilbert of eToro summed it up for the Business Recorder. He said copper has become "a stand-in for the AI build-out". In his words, "when chip stocks get hammered on Wall Street, the metal tends to go down with them".
The numbers show the damage. The materials sector fell 1.35 per cent. BHP lost 1.4 per cent to $56.74. Rio Tinto dropped 1.2 per cent to $145.59.
Smaller miners hurt more. Nickel Industries fell 4.0 per cent.
Lithium stocks stayed in pain. Vulcan Energy lost 5.2 per cent. Core Lithium fell 4.8 per cent.
It was the resources sub-index's third straight day of losses. That is according to the Business Recorder.
Gold hits 12-month lows
Gold had its own bad day. Gold futures fell 3.3 per cent on Friday to their lowest level in a year. On Monday, gold sat near US$3,924 an ounce in Asian trade.
The ASX gold sub-index fell 2.8 per cent. It was the third straight fall for gold stocks.
Catalyst Metals dropped 7.4 per cent. Northern Star fell 4.8 per cent. Both are major gold miners.
Why do gold shares fall when gold falls? Gold miners earn money by selling gold. When the price drops, their future profits shrink.
Investors sell the shares before that happens. That is what we saw on Monday.
The RBA decision everyone fears
The second drag on the market was the Reserve Bank. It meets on Tuesday, which is also Melbourne Cup Day. Most economists expect it to lift the cash rate to 4.85 per cent.
That is a rise of a quarter of a percentage point. It would be the fifth hike this year. Markets see an 80 per cent chance of a hike, according to AAP.
It would also take rates to their highest level since December 2008, per a Reuters poll. The RBA has run the most aggressive tightening campaign in the developed world.
What is the cash rate? It is the main interest rate the central bank sets. Banks use it to set home loan rates.
So a higher cash rate means higher mortgage payments. It also means better returns for savers.
Why do shares hate rate hikes? Higher rates make borrowing more costly for companies. They also make safe assets like bonds pay more.
So some investors sell shares and buy bonds instead. That pushes share prices down.
When interest rates rise, bond prices fall. That guide explains the basic rule in plain language.
The RBA would also stand alone among big central banks. America's Federal Reserve held rates recently. Europe's and Japan's central banks held too.
New Zealand's bank did the same. But Australia's inflation is still too stubborn. That is why the RBA keeps hiking.
Deputy Governor Andrew Hauser warned last month of a danger. Many firms now see 3 to 3.5 per cent inflation as normal. He called that the central bank's worst nightmare, per Market Index.
The decision lands at 2:30 PM on Tuesday. Governor Michele Bullock will speak to the press an hour later. Investors will hang on every word.
Banks split on the news
Bank shares mostly fell, which looks odd at first. Banks usually earn more when rates rise. But the market stayed cautious ahead of the decision.
The financials sector dropped 0.6 per cent. Most of the big banks retreated.
AMP was the worst faller in the sector. It dropped 7.5 per cent after a profit miss at China Life.
Westpac went the other way. It rose 1.0 per cent to $37.19. That followed a $6.8 billion full-year profit.
But Westpac also gave a grim warning. It said the housing downturn could be steeper than any seen in nearly two decades. Its charges for bad loans doubled.
Among the other big banks, CBA fell 1.0 per cent to $165.05. ANZ lost 0.6 per cent to $40.56. NAB shed 1.5 per cent to $40.91.
Rising rates also squeeze home buyers. House prices have already fallen for seven months in a row. Our Australian house price explainer shows what that means for buyers and sellers.
Higher rates also hit borrowers early in their loans. Our mortgage interest guide explains it in plain terms.
Supermarkets under pressure
Supermarket shares stayed under pressure. The consumer staples sector fell 1.4 per cent. Coles fell 1.8 per cent to $21.28 after a weak sales update last week.
Woolworths dropped 1.9 per cent to $39.46. Both chains face shoppers cutting back.
Another rate rise would squeeze spending further. That is the worry hanging over the sector.
What rose on a bad day
Not everything fell. Eight of the 11 sectors did, per AAP.
But industrials rose 0.77 per cent, the day's standout. Consumer discretionary added 0.65 per cent.
The industrial winners were firms that serve the mines. NRW Holdings gained 2.7 per cent. Maas Group rose 2.6 per cent.
Worley added 2.2 per cent. Mining services keep working even when prices fall.
These companies keep working even when metal prices fall. That is why they rose while miners sank.
In retail, Cettire jumped 6.3 per cent. Flight Centre rose 3.1 per cent. Uranium stocks also shone after their strongest week in nine months.
Bannerman Energy rose 5.3 per cent. Boss Energy added 3.6 per cent. Investors are still betting on nuclear power demand.
What happens next
All eyes turn to Tuesday at 2:30 PM. That is when the Reserve Bank announces its decision. A hike would push the cash rate to 4.85 per cent.
Mortgage holders would face higher payments. Savers would earn more on their deposits. It would be a mixed day for households.
The market will also keep watching the AI trade. If US tech stocks keep falling, miners may fall further.
The AI spending boom is not over. But investors want proof that the spending will pay. Until then, the jitters will stay.
This article is for information only. It is not financial advice.
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