Equity markets have resumed their downtrend after a brief rally, with the S&P/ASX 200 closing out its worst trading week since mid-June 3.9% lower.

Out of the index’s 11 sectors, only consumer staples finished up. The S&P 500 was also down 3.29%, with the VIX maintaining most of the 24% increase in volatility it packed on the week before.

US jobs data revealed the first increase to the unemployment rate since January, landing on 3.7%.

A slight bounce in this week’s open was guided by caution leading into the RBA’s rate decision, which yesterday delivered yet another 50 basis point increase to bring the cash rate up to 2.35%.

Warning signs are starting to appear across the real estate industry, with August’s 1.6% national house price decline representing the largest month-on-month decline Australia has seen since 1983.

Commodities got belted once again on the back of news that rising COVID cases led China to lock down 21 million people in Chengdu, a fast-advancing mega-city.

Copper was down -7.67% for the week, iron ore -9.42%, nickel -5.1%, silver -5.17%, zinc -12.06%, platinum -4.19%, brent crude oil -6.05% and even natural gas had a 5.49% decline. As usual, nothing can stop lithium trading near all-time highs, closing flat for the week.

The end of perpetually cheap money has made the risk of a rates-led corporate collapse all too real, warranting closer scrutiny of companies interest coverage ratio (ICR).

Reflecting a company’s ability to meet its interest payment liabilities with EBIT, an ICR of less than 1 means that a company is not earning enough to repay the interest due on its debt.

According to analysis by Coolabah Capital veteran Christopher Joye, 38.6% of all ASX-listed companies had an ICR of less than 1 in FY21.

Despite the entire world’s weighted average cost of capital (WACC) going up and a future full of robust corporate earnings becoming less certain, some of Australia’s biggest companies have not been afraid to trim their balance sheets with rampant share buybacks.

AMP ($350 million), A2 Milk Company (NZ$150 million) and Qantas Airways ($400 million) have engaged in the practice.

In the smaller end of town, Swoop Holdings (ASX: SWP) – a telco that operates a growth by acquisition model that is especially sensitive to WACC – has decided to move forward with its buyback that will drain 50% of FY22’s EBITDA at their last closing price.

Sources:

• ABC News, House price plunge spreads with biggest monthly decline in 39 years
• Financial Review, Get ready for the first rates-led collapses since 1991
• Financial Review, Buyback fever sweeps through corporate Australia
• ListCorp, Earnings Update and On Market Share Buyback
• tradingeconomics.com, Lithium
• scmp.com, China locks down Chengdu, home to 21 million, as city reports new Covid-19 cases