Plunging iron ore prices have pulled miners and the ASX lower on a day in which investors rediscovered growth stocks such as technology, going against the recent reflation trade.
The S&P/ASX200 benchmark index closed lower by 57.1 points, or 0.84 per cent, to 6714.1 on Wednesday.
The All Ordinaries closed lower by 53.2 points, or 0.76 per cent, at 6947.2.
The materials sector dropped by 2.51 per cent after iron ore prices in China fell steeply.
The energy sector fell almost three per cent as oil prices slid, while the heavyweight financial sector slumped by 1.25 per cent.
US markets provided a positive lead and bounced back against Tuesday’s technology fire-sale.
However, the positivity counted for little given a 10 per cent fall in iron ore prices.
Analysts said the fall was due to more pollution restrictions being introduced for steel producers in the Chinese city of Tangshan.
This may mean steel producers require less iron ore.
CMC Markets chief strategist Michael McCarthy did not necessarily agree on the reason.
“Markets are rich with reasons for why things happened,” he said.
“I’d suggest this (fall in price) was going to happen regardless.
“The run in iron ore prices has been extraordinary. That means it is vulnerable to sharp pull-backs.”
Mr McCarthy said the wider Aussie market bucked the trend of the recent reflation trade.
In the reflation trade, investors buy shares likely to perform better from higher rates and inflation, such as financials, and sell stocks such as technology ones.
Financials dipped 1.25 per cent, while technology bounced 3.16 per cent.
Before the market opened, Reserve Bank governor Philip Lowe spoke to a business conference and noted bond markets had interest rate increases priced in Australia as early as late next year.
“This is not an expectation we share,” he said.
Mr Lowe said he does not expect to lift the cash rate from its record low 0.1 per cent until 2024 and when inflation is predicted to be sustainably within the two to three per cent target.
Wages growth also needs to be materially higher.
On the ASX, Fortescue Metals – which deals almost exclusively in iron ore – plunged. Shares fell 8.34 per cent to $20.33.
Rio Tinto dived 5.54 per cent to $114.49 and BHP dipped 2.84 per cent to $47.60.
Afterpay was among the tech companies to rebound from big losses in the sector on Tuesday.
The buy now, pay later provider sprung 7.53 per cent to $115.26.
The rise came despite PayPal’s news it will provide buy now, pay later services to Australians from June.
Treasury Wine Estates said it had licensed four brands for use in the Americas by The Wine Group: Beringer Main & Vine, Beringer Founders’ Estate, Coastal Estates and Meridian.
They had sales of $92 million in the six months to December 31 and Treasury will earn $100 million from the deal.
Shares were higher by 2.88 per cent to $11.42.
In banking, ANZ had the biggest loss among the big four and shed 2.03 per cent to $28.51. The others slipped by more than one per cent each.
Nickel producer Western Areas dropped 13.25 per cent to $2.03 after raising $85 million from institutional investors.
The investors bought shares for $2.15 each.
The company will use the money to develop its Odysseus nickel mine in Western Australia and progress others in the same state.
The Australian dollar was buying 76.71 US cents at 1722 AEDT, higher from 76.66 US cents at Tuesday’s close.
ON THE ASX
* The S&P/ASX200 benchmark index closed lower by 57.1 points, or 0.84 per cent, to 6714.1 on Wednesday.
* The All Ordinaries closed lower by 53.2 points, or 0.76 per cent, at 6947.2.
* At 1722 AEDT, the SPI200 futures index was lower by six points, or 0.09 per cent, and trading at 6702 points.
One Australian dollar buys:
* 76.71 US cents, from 76.66 cents on Tuesday
* 83.53 Japanese yen, from 83.66 yen
* 64.63 Euro cents, from 64.62 cents
* 55.40 British pence, from 55.36 pence
* 107.52 NZ cents, from 107.57 cents.