Spectacular nosedive for ASX as inflation spike, geopolitical tensions wreak havoc

The Australian sharemarket took a spectacular dive on Tuesday, with every single sector in the red as a perfect storm of negative news hammered investor sentiment, including an inflation spike that heightened interest rate jitters.

After volatility on Wall Street, the benchmark S&P/ASX200 index closed 2.49 per cent lower at 6961.6 while the All Ordinaries Index plunged 2.6 per cent to 7248.1.

OMG chief executive Ivan Tchourilov said it was a bloody day on the local bourse, with the ASX200 tumbling more than 200 points at one point, slipping below 7000 points for the first time since May last year.

“Sentiment is weak across global equity markets and commodity prices have weakened due to geopolitical tensions,” he said.

“Domestic market negativity was exacerbated today by higher-than-expected inflation.

“In the Reserve Bank of Australia versus bond markets and banks rate hike debate, the latter appear to have the upper hand.

“The RBA will likely be forced to react faster if inflation keeps on its current path, which is bad news for growth stocks.”

Accordingly, tech and small caps continued to weaken, dragging down battery materials suppliers with them, Mr Tchourilov said.

Arizona Lithium plunged 18.75 per cent to 13 cents while Brainchip Holdings slid 13.6 per cent to $1.43.

“The consumer staples sector showed signs of life early on the back of a strong a2 Milk performance, but has since succumbed to broader losses across the index,” Mr Tchourilov said.

Woolworths fell 1.74 per cent to $34.41, Coles eased 0.55 per cent to $16.24 and Metcash backtracked 1.94 per cent to $4.05 while a2 Milk advanced 7.07 per cent to $5.45.

The energy sector was hardest hit, led by Beach Energy slumping 7.77 per cent to $1.30 after releasing its latest results.

“In a proxy for what’s being seen across the resources sector, production numbers took a hit in this quarter’s activity report,” Mr Tchourilov said.

“Where Beach Energy’s production loss was a natural decline paired with unplanned maintenance, we’re also seeing a lack of skilled workers and severe weather events putting pressure on output across a number of raw materials suppliers.

“Despite also recording a drop in sales, revenue increased for the quarter on the back of strong oil and gas prices.

“It’s the quarter that could have been for Beach Energy, who had investors bullish on capitalising on an oil and gas shortage in the northern hemisphere.”

Fortescue sank 4.97 per cent to $19.50 after its quarterly report showed costs continued to rise, reflecting higher prices for key inputs including diesel and labour.

RBC Capital Markets analyst Kaan Peker noted the miner achieved 68 per cent of the benchmark iron ore price, down from 73 per cent previously, and said his company had a below consensus view on iron ore for this financial year.

RBC has an underperform rating and $16 price target on Fortescue.

UBS said it was also cautious on iron ore prices as it expected demand to weaken and supply to lift in 2022.

It has a “sell” on Rio Tinto, which announced it had finally reached a deal with the Mongolian government to begin the underground part of their massive Oyu Tolgoi copper mine.

“This step unlocks the most valuable part of the mine and is expected to begin in the coming days, with first sustainable production expected in the first half of 2023,” Rio Tinto said.

Rio Tinto weakened 0.82 per cent to $107.08 while BHP retreated 1.25 per cent to $45.03.

Myer was one of the rare bright spots, surging 6.76 per cent to 39.5 cents after providing a trading update for the final five months of calendar 2020, showing a 12.3 per cent rise in total sales.

Online sales made up 27.7 per cent of total sales, up from 20.2 per cent for the same period the year prior.

But the cost of doing business had lifted, the department store chain said, mainly due to the absence of JobKeeper.

ANZ slid 3.6 per cent to $26.77, Commonwealth Bank backtracked 2.04 per cent to $95.45, National Australia Bank shed 2.9 per cent to $27.35 and Westpac fell 2.84 per cent to $20.21.

The Aussie dollar was buying 71.51 US cents, 53.04 British pence and 63.16 Euro cents in afternoon trade.