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Futures action indicates a subdued start to Australian share trade after Wall Street retreated ahead of tech earnings, jobs data and a likely interest rate rise.
ASX futures ended the night session 10 points or 0.13 per cent lower following solid falls in the US.
The Nasdaq and S&P 500 both dropped at least 1.3 per cent as investors reduced their exposure to this week’s risk events. The Dow shed 260 points.
Oil, gold and most industrial metals declined. Iron ore rallied as trade resumed in China following last week’s Lunar New Year holiday. The dollar fell back under 71 US cents.
Wall Street
The January rally took a breather as investors braced for earnings from the market’s biggest companies and the first Federal Reserve policy meeting of 2023. Energy and tech led a retreat that lowered all but one sector.
The S&P 500 declined 53 points or 1.3 per cent. The Dow Jones Industrial Average gave up 261 points or 0.77 per cent. The Nasdaq Composite shed 228 points or 1.96 per cent.
“The market has had a big run and the trading is a bit more cautious heading into a week which likely will be an inflection point for the overall market,” Keith Lerner, co-chief investment officer at Truist Advisory Services, told Reuters.
Megacaps Apple, Amazon and Google parent company Alphabet all lost at least 1.65 per cent ahead of trading updates later this week. This is arguably the biggest week of the current reporting season, with 107 S&P 500 companies scheduled to release updates, as well as six Dow component companies.
Share valuations have come under the microscope after several high-profile companies warned trading conditions were deteriorating.
“Many believe that the US stock markets and European stock markets do not reflect the underlying issues in terms of price. The reason is that they think that traders and investors are too optimistic in thinking that they are out of the woods,” Naeem Aslam, chief market analyst at AvaTrade, said.
“Threats of recession are real as they can be and companies in the current quarter have already confirmed their cautious approach in their guidance.”
The Fed meets tomorrow and is widely expected to raise the federal funds rate target by at least a quarter of a percentage point on Wednesday. December jobs data on Friday night will have a big influence on how the week finishes up.
Tech stocks retreated as treasury yields rallied. The Nasdaq has outperformed this year as traders scooped up victims of last year’s rout in highly-geared growth stocks. Star stock-picker Cathie Wood’s flagship fund reversed 4.63 per cent overnight after rising a stunning 29 per cent for the month.
European stocks declined ahead of this week’s European Central Bank policy meeting. The pan-European Stoxx 600 trimmed a sharp opening fall to 0.17 per cent.
Australian outlook
A resilient S&P/ASX 200 looks set for minimal damage despite weak leads from Wall Street and most commodity markets. Possibly providing confidence is the fact the ASX 200 has not logged back-to-back declines all month. The index eased 0.16 per cent yesterday.
The Australian benchmark looks fearfully over-extended in the short-term, but as yet there is little appetite among sellers. End-of-month “window dressing” is likely a factor this session. Institutional investors will be reluctant to give up much of this month’s 6.3 per cent advance, if any.
US sector analysis does not offer a lot of confidence. The defensive consumer staples was the only sector to resist the downtrend, and then only by a meagre +0.07 per cent. Utilities, another defensive, was next best with a drop of 0.45 per cent.
The heaviest blows landed on energy -2.29 per cent and tech -1.94 per cent. Industrials eased 0.97 per cent, materials 0.7 per cent and financials 0.52 per cent.
A busy day on the domestic economic calendar includes weekly consumer confidence and monthly reads on retail sales and private-sector credit. Chinese manufacturing and services-sector gauges at 12.30 pm AEDT will also have an impact.
IGO and Centuria Industrial REIT report interim earnings. The quarterly reporting season ends today with the usual scramble to meet the deadline.
The dollar faced selling pressure overnight as the greenback and US treasury yields rallied ahead of Wednesday’s rates decision. The Aussie slid 0.68 per cent to 70.59 US cents.
Commodities
Iron ore rallied 2 per cent in China as trade resumed after the week-long Lunar New Year holiday. Buyers were encouraged by a pledge from the State Council to support consumption and by reports the holiday had not fuelled an uptick in Covid cases.
China’s Center for Disease Control and Prevention said there was “no obvious rebound” in Covid cases despite millions of people travelling across country. The current wave was “coming to an end”.
The most-traded May ore contract on the Dalian Commodity Exchange ended daytime trade 2 per cent ahead at 873.50 yuan (US$129.40) a tonne after earlier gaining as much as 3 per cent.
BHP‘s US-traded depositary receipts dropped 0.31 per cent. The miner’s UK listing lost 0.27 per cent. Rio Tinto reversed 0.85 per cent in the US after gaining 0.43 per cent in the UK.
Most industrial metals retreated amid questions over whether Chinese demand will be strong enough to support current prices. Factory data is due this morning.
Benchmark copper on the London Metal Exchange dropped 0.72 per cent to US$9,196.50 a tonne.
“Copper prices have risen to a relatively high level, and the reality may be difficult to make a positive response in the short term,” Jinrui Futures said in a note quoted by Reuters.
“It is expected that copper prices may face a certain risk of a correction after the (Lunar New Year) festival.”
Aluminium lost 2.51 per cent on the LME, lead 1.97 per cent, zinc 0.25 per cent and tin 3.03 per cent. Nickel gained 2.67 per cent.
Oil fell ahead of likely rate hikes in the US and Europe this week. The Organization of the Petroleum Exporting Countries and allies hold a committee meeting on Wednesday. A European Union ban on Russian oil imports starts on Sunday.
Brent crude settled US$1.76 or 2.03 per cent lower at US$84.90 a barrel.
Gold trimmed its longest run of weekly advances since 2020. Gold for April delivery settled US$6.40 or 0.3 per cent lower at US$1,939.20 an ounce. The NYSE Arca Gold Bugs Index dropped 1.08 per cent.
“Gold is seeing a modest corrective pullback and some mild profit-taking from the futures traders ahead of this week’s highly anticipated monetary policy meeting of the U.S. Federal Reserve,” Jim Wyckoff, senior analyst at Kitco.com, said.
The Global X Lithium & Battery Tech ETF suffered its first loss on the New York Stock Exchange in seven sessions. The fund dropped 2.04 per cent from its highest level in more than two months. The VanEck Rare Earth/Strategic Metals ETF declined 1.04 per cent to a second straight loss.
