The ASX 200 Index dropped for the fifth consecutive day, reaching its lowest level since November 26. This decline mirrored the performance in Wall Street, where top indices like the Nasdaq 100 and Dow Jones plunged amid the ongoing AI jitters.
ASX 200 Index fell amid fears that RBA may hike rates
One main reason why the ASX 200 Index has tumbled by 6% from the year-to-date high is that there are concerns that the central bank may hike interest rates as early as in February.
Analysts at Commonwealth Bank and NAB believe that this hike will happen because of Australia’s inflation. Data released recently showed that inflation continued rising in October, moving further away from the target of between 2% and 3%.
Another report released on Thursday showed that inflation expectations continued rising this month. They moved from 4.5% last month to 4.7% in November.
As a result, Australian bond yields have jumped in the past two months. The ten-year yield rose from a low of 4.1% in October to the current 4.75%. Similarly, the five-year yield has risen to 4.27% from the year-to-date low of 3.416%.
It is common for the stock market to waver when government bond yields are in an uptrend. In some cases, investors normally rotate from the stock market to the bond market.
Most importantly, the rising expectation of a RBA rate hike is happening at a time when investors are anticipating the Federal Reserve to cut interest rates three times next year.
Jitters in the AI industry
The ongoing ASX 200 Index sell-off has coincided with the jitters surrounding the artificial intelligence industry. These jitters have accelerated after the recent Oracle earnings and the subsequent crash in its stock.
Oracle shares have plunged by over 50% from the year-to-date high, a trend that accelerated on Wednesday. This decline happened as Blue Owl, a company that has helped to finance its data centers, pulled back from a deal.
Oracle has also dropped as it faces huge maturities and questions its $523 billion in RPO.
As a result, Australian tech companies dropped today as concerns that the recent boom was ending. NextDC stock declined by 4.2%, while Megaport dropped by 2.67%. Life360 dropped by over 2.5%.
Some companies in the ASX 200 Index made headlines today. A major one was Netwealth, whose stock rose even after the company was asked to pay $67 million in compensation to over 1,000 customers. This order came after one of its superannuation funds failed.
Meanwhile, Woodside stock dropped by over 2.2% after its CEO was poached to head BP.
Some of the top gainers in the ASX 200 Index were firms like Bapcor, Coronado Resources, Zimplats, and Premier Investments.
ASX 200 Index technical analysis
The daily timeframe chart points to more downside in the near term. That’s because it formed a double-top pattern at A$9,060 and a neckline at A$8,722, its lowest level in September this year.
The stock has concluded a break-and-retest pattern by moving back to the neckline. A break-and-retest is one of the most popular bearish continuation signs in technical analysis.
It has also dropped below the 50-day moving average. Therefore, the most likely scenario is where it drops and retests the key support level at $8,386, its lowest level on November 22.
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