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ASX Today: ASX caps off worst week since GFC with more losses

A punch-drunk stock market looks likely to open little changed near ten-week lows following a volatile end to the Nasdaq's worst week since March.

Australian index futures edged up four points or less than 0.1 per cent amid hopes global markets will settle down this week after a fierce sell-off in megacap US tech stocks helped pull the S&P/ASX 200 to a fourth straight weekly loss.

What's driving the market

The Nasdaq Composite entered a technical correction last week and swung wildly on Friday, rising as much as 1 per cent and dropping as low as 1.7 per cent before closing 66 points or 0.6 per cent in the red. Apple, Amazon, Microsoft, Facebook and Alphabet all declined.

The broader S&P 500 finished near flat with a gain of 0.05 per cent or less than two points. The Dow Jones Industrial Average resisted the sell-off with a rise of 131 points or 0.48 per cent.

Tech stocks fell for the fourth time in five sessions, dragging the Nasdaq to a weekly deficit of 4.1 per cent. For the week, the S&P 500 shed 2.5 per cent, its worst return since June. The Dow lost 1.7 per cent.

“Markets continue to struggle finding an equilibrium,” Mark Hackett, chief of investment research at Nationwide, told CNBC. “This market is more akin to the emotional swings of March and April than in recent months. We are likely to continue in a period of directionless volatility as bulls and bears wrestle between the strong Fed liquidity and improving economic backdrop and the continued uncertainty and elevated valuations.”

Aussie outlook

The golden run for ASX investors since late March began to fade in June when easy gains gave way to three months of mostly sideways drift. The current market phase threatens something more ominous as local investors wait to see if the correction in over-valued US tech stocks turns out to have marked a market top or is just a blip in the post-pandemic-meltdown recovery.

“Investors should brace for more choppiness in the months ahead, with COVID-19 infection rates remaining in the headlines, US elections approaching, US-China tensions ratcheting up, and Brexit challenges lingering,” Frédérique Carrier, head of investment strategy at RBC Wealth Management, wrote on Friday.

The S&P/ASX 200 closed on Friday at its weakest level since June 29. However, there are causes for optimism today: the heavyweight materials and financials sectors that underpin the local market both rallied in the US. Materials rose 1.3 per cent and financials 0.8 per cent.

Australia's most valuable export, iron ore, pushed back towards US$130 a tonne. The spot price for ore landed in China bounced $1.75 or 2.2 per cent to US$129.05 a tonne. The recovery helped lift BHP's US-listed stock 2.94 per cent and its UK-listed stock 2.14 per cent. Rio Tinto jumped 5.01 per cent in the US and 4.35 per cent in the UK.

There was good news on the vaccine front as UK drugmaker AstraZeneca resumed clinical trials of its Covid-19 candidate over the weekend after regulators gave it the go-ahead following a brief halt due to an adverse reaction by a patient last week. The Australian government has ordered millions of doses of the vaccine if it proves successful.

There is little in the economic calendar this week to change the market mood. Central bank meetings in the US, UK and Japan are not expected to produce major policy shifts. The US Federal Reserve releases a policy update on Wednesday night. The Reserve Bank releases the minutes from last month's meeting tomorrow. Domestic jobs data for August are due on Thursday.

Commodities

US energy stocks edged higher despite a muted close to crude's second straight losing week. The sector gained 0.25 per cent. Brent crude settled 23 cents or 0.6 per cent lower at US$39.83 a barrel and shed 6.6 per cent over the week amid weak demand signals and broader volatility in risk assets.

Gold stocks eased with the precious metals. The NYSE Arca Gold Bugs index slid 1.7 per cent. Gold for December delivery dropped $16.40 or 0.8 per cent to settle at US$1,947.90 an ounce. Despite Friday's setback, the yellow metal gained 0.7 per cent last week.

The dollar showed signs of stabilising at the end of last week after a sharp retreat from two-year highs above 74 US cents. The Aussie dipped 0.04 per cent this morning to 72.79 US cents.


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