Australian shares edged lower on Monday as miners' losses outweighed bank gains, with investors bracing for a possible fifth rate hike this year. According to reports from Reuters, the S&P/ASX 200 index fell 0.2% to 8,894.10 by 2343 GMT. The benchmark had risen 1.3% last week, indicating some recovery from recent weakness as weaker iron ore and copper prices hit mining stocks.
The mining sector faced significant pressure, falling 1.5% as sector heavyweights came under pressure from recent weakness in iron ore and copper prices. As reported by Reuters, BHP slid 1.3% while Rio Tinto fell 1.4%, extending Friday's losses after reporting that a seismic event temporarily disrupted underground mining at its Oyu Tolgoi copper mine in Mongolia. The gold sub-index dropped 2.8% after bullion fell to a one-year low in the previous session, with even traditionally steady consumer-staples names sliding as higher rate expectations typically pressure rate-sensitive sectors.
Financials provided some support to the market, rising 0.5% and helping offset mining losses. According to Reuters, the sector's performance was led by Westpac's 1% advance, which reported a marginal rise in its full-year profit supported by healthy growth in deposits and lending while mortgage demand slowed. The remaining three of the big four banks posted gains of 0.2% to 0.5%. When traders start pricing in a higher cash rate, banks often benefit initially because many home loans in Australia have variable rates that reset quickly, while banks tend to raise deposit rates more slowly and by less than the full move, widening net interest margins.
Consumer staples dropped 1.9%, continuing weakness after falling 5% last week, with major grocers and Coles down around 3%. Technology stocks declined 1.5%, tracking a sharp drop in the Nasdaq on Friday amid renewed concerns over heavy AI spending. As reported by Reuters, the potential for still higher domestic borrowing costs continued to weigh on sentiment as higher rate expectations typically pressure rate-sensitive sectors like technology, where today's earnings are less certain and investors discount future profits more heavily when interest rates rise.
Above-target inflation and Governor Michele Bullock's hawkish comments last week have led many economists to shift their forecasts to a rate hike at Tuesday's policy meeting. According to Reuters, all but two of 32 economists polled expect the cash rate to rise to 4.85%. The bigger driver sits with the RBA, as inflation remains above the central bank's target and Governor Bullock sounded more willing to tighten policy last week. Higher rate expectations typically pressure rate-sensitive sectors, though banks often benefit initially due to the widening net interest margin between loan and deposit rates.
