ASX and US stocks fall as bond yields rise amid expected interest rate hikes

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The Australian equity market opened lower after US stocks fell as investors braced for higher US interest rates.

As of 10:30 a.m. AEDT, almost all industry sectors were in the red, with financial stocks, miners, technology and consumer companies weighing on the market.

The All Ordinaries index fell 0.7% to 7,679.

The ASX 200 index lost three-quarters of a percent to 7,352.

The best performers on the ASX 200 were electronics retailer Harvey Norman (+3.2pc), Virgin Money (+2.7pc) and explosives maker Incitec Pivot (+1.9pc) .

Data center operator Megaport (-11.6pc), battery materials company Novonix (-4.5pc) and online car retailer Car Sales.com (-3.7pc) fell .

All the major banks were weaker.

BHP warns of impact of COVID

Major miner BHP said it achieved near-record iron ore output in Western Australia despite bad weather and a shortage of COVID-19 train drivers.

Iron ore production rose 1% in the six months to the end of December compared to the same period last year.

Production increased by 4% during the quarter.

Production has been impacted by labor shortages due to COVID restrictions.

BHP has warned that the planned easing of WA border restrictions could disrupt operations in the short term.

The wet weather saw the production of thermal coal, used for electricity, fall by almost a third between the September quarter and the December quarter.

Copper production fell by 12%, coal production by 8% and nickel production by 15% during the six months.

BHP shares fell 0.26% to $46.58 at 10:30 a.m. AEDT.

The Australian dollar came off its lows overnight and was buying around 71.86 US cents at 10:40 a.m. AEDT.

US stocks sold

Wall Street fell as interest rates on government bonds rose and investment bank Goldman Sachs reported disappointing results.

Investors expect the US Federal Reserve to start raising interest rates soon to curb rising global inflation.

Last week’s data showed consumer inflation in the United States hit its highest level in forty years.

Tech stocks fell because higher interest rates hurt growth stocks, which rely on cheap borrowing to grow.

Goldman Sachs lost as much as 8% after the investment bank missed quarterly profit expectations amid weak business activity.

The Dow Jones index lost 1.5% to 35,369, the S&P 500 lost 1.8% to 4,577 and the Nasdaq fell 2.6% to 14,507.

The yield on two-year US government bonds rose above 1%, the first time since February 2020, a month before the coronavirus was declared a pandemic.

The yield on the benchmark 10-year bond rose to 1.86%, the highest since January 2002.

Rising bond yields are a sign of higher borrowing costs.

In economic news, the Empire Manufacturing Index, which measures manufacturing in New York state, fell for the first time since the start of 2020 when the pandemic hit.

The index fell 33 points in January to minus 7 points, indicating that activity has slowed as Omicron cases increased.

Oil prices close to their highest level in seven years

Oil prices rose to their highest level since October 2014 as investors worried about global political tensions that could worsen tight supply.

The group of major producers OPEC maintained its forecast of strong fuel demand in 2022 despite the spread of the Omicron variant COVID-19 and expected interest rate hikes.

Supply problems intensified after Yemen’s Houthi group attacked the United Arab Emirates with drone and missile strikes that killed three people.

“The damage to UAE oil facilities in Abu Dhabi is not significant in itself, but raises the question of even more supply disruptions in the region in 2022,” said Louise Dickson, senior oil markets analyst at Rystad Energy.

And fears that Russia will attack neighboring Ukraine are also increasing tensions.

OPEC countries are struggling to pump their allowed quotas under the deal between OPEC, Russia and its allies to add 400,000 barrels a day each month.

They hope to restore production to pre-pandemic levels by the end of 2022.

European markets

In London, the FTSE 100 index fell 0.6% to 7,564, the DAX in Germany lost 1% to 15,773 and the CAC 40 in Paris fell 1% to 7,134.

ABC/Reuters

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