The S&P/ASX 200 Index retreated from a record on Thursday to hit session lows, down 1.3 per cent at lunchtime as the resources, energy and tech sectors led the market lower.
Shane Oliver said the Fed may ease rates sooner if New York Community Bank’s troubles snowball. Dominic Lorrimer
The financials sector dominated by the big four banks is also down 1.8 per cent after US lender New York Community Bank cratered 37 per cent overnight after warning on rising bad debts at its portfolio of commercial real estate loans. The tech-heavy Nasdaq Index dropped 2.1 per cent.
On Thursday afternoon Japanese bank Azora tumbled 21 per cent after it also warned on losses related to US commercial property.
“The fall did affect the banking index but doesn’t seem to be a major factor in broader sharemarket falls,” said Mr Oliver.
“It’s hard to know if it’s a specific issue, my suspicion is that it’s just the bank biting the bullet and accepting reality that loan losses, especially in commercial real estate, are going to increase.
“But it also provides a reminder that the banking issues we saw in March last year haven’t completely gone away and monetary policy in the US is still tight and it’s not impossible this leads to some sort of financial calamity, so if this snowballs into anything bigger [interest] rates might have to go down sooner than the Fed is envisioning.”
Data out of the Australian Bureau Statistics showed building approvals slumped 9.5 per cent in December, after a 0.3 per cent rise in November.
“These numbers can bounce around, but whichever way you count it building approvals are running at very low levels,” said Shane Oliver the chief economist at AMP.
“Last year there was about 160,000 approvals, whereas underlying demand is running at about 220,000 dwellings based on population growth and household formation. So it looks like a soft trend in home-building going forward and just points to a chronic undersupply of housing in Australia.”
On Wall Street, traders pared back expectations of imminent rate cuts in the US after Federal Reserve chairman Jerome Powell said policymakers were “unlikely” to cut rates in March, in contrast to expectations.
“The board confirmed peak policy settings and removed hawkish language from the statement, taking a somewhat more dovish stance,” said Mutual Limited’s chief investment officer Scott Rundell.
“The long and the short of it is rate cuts are close, but the board needs more confidence that data will continue to head in the right direction at the right pace before they formally pull the trigger and cut rates.”
The yield on 10-year US treasuries fell 13 basis points to 3.93 per cent as traders pared back rate-cut expectations.
Stocks on the move
Nufarm shares are 1.8 per cent lower after it warned of a “challenging” first half.
Block, the tech bellwether and Afterpay-owner, dropped 3.5 per cent as it prepares major job cuts.
IGO Ltd is down 4.4 per cent, with lithium bedfellow Mineral Resources dropping 3.4 per cent.
Pinnacle, the asset manager, reports highly anticipated earnings after the closing bell.
