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The share market was poised to unwind three days of gains as downbeat bank earnings weighed on Wall Street while key commodity prices turned sharply lower.

ASX futures dropped 52 points or 0.79 per cent, signalling a resumption of selling pressure. The S&P/ASX 200 inched up 48 points since Tuesday as investors shrugged off strong jobs data and the prospect of higher rates.  

Wall Street’s main indices closed mixed but broadly lower as a new quarterly reporting season got underway.

Iron ore skidded almost 5 per cent. Gold fell to a 15-month low. Oil settled at its weakest level since April. Copper and other industrial metals also declined.

Wall Street

The S&P 500 and Dow fell as investors weighed a disappointing start to a new reporting season and red-hot inflation data earlier in the week. The main indices finished off their lows as Federal Reserve officials downplayed the likelihood of interest rates increasing by a full percentage point this month.  

The S&P 500 cut an opening 2 per cent loss to just 11 points or 0.3 per cent by the close. The Dow Jones Industrial Average closed 143 points or 0.46 per cent lower after earlier falling as much as 628 points. The Nasdaq Composite flipped a 2 per cent loss into a final gain of four points or 0.03 per cent.

The financial sector spearheaded the retreat following poorly-received updates from heavyweights JPMorgan Chase and Morgan Stanley. JPMorgan dropped 3.49 per cent as the bank prepared for tougher times, halting share buybacks and increasing reserves for bad debts. Morgan Stanley dipped 0.39 per cent after investment banking revenue fell short of expectations.

The results cast a pall over the rest of the sector. Goldman Sachs, which reports on Monday, fell 2.95 per cent. Citigroup and Wells Fargo lost 2.99 and 0.84 per cent, respectively, ahead of reporting tonight.  

“If the banks are a barometer of the whole economy as well as what we’re likely to get from other earnings reports going forward, it’s going to be an ugly quarter,” Sam Stovall, chief investment strategist at CFRA, wrote.

Analysts have been warning for weeks that consensus earnings estimates were too high going into this quarterly reporting season. While the aggregate earnings growth forecast for S&P 500 companies has fallen to 5.1 per cent from 6.8 per cent at the start of the quarter, some market participants say expectations are still unrealistic.

“How can corporate America, in the wake of a slowing economy and cost pressures have the earnings that have been expected by the consensus. Those numbers have to come down,” Bob Doll, chief investment officer at Crossmark Global Investments, said.

Inflation pressures on earnings were underlined by a report showing wholesale prices were 11.3 per cent higher last month than the same time last year. Energy costs were the main culprit.

Stocks moved off their lows after Fed Governor Christopher Waller downplayed the likelihood the central bank will raise its key rate by 100 basis points when it meets in two weeks.

“You don’t want to overdo rate hikes,” Waller said. He said he supported a 75 bp hike and the market had “got ahead of itself” by pricing in a larger increase.

Investing.com’s Fed Rate Monitor Tool showed the odds of a full percentage point hike dropped from 80 per cent to 45 per cent in the wake of Waller’s remarks.

Australian outlook

The S&P/ASX 200 has successfully defied gravity for much of this week, but suddenly looks like Wile E. Coyote after running off the cliff. Support from commodity prices kept the market airborne yesterday. That support evaporated overnight, so down we go.

Wall Street was weak where it matters most for the ASX. The financial sector dropped 1.92 per cent amid signs US banks were preparing for an economic downturn.

US materials fell 1.89 per cent. Australian mining giants BHP and Rio Tinto booked sharp declines (more below). The energy sector dropped 1.9 per cent.

Tech was the pick of the sectors, rising 0.93 per cent. Defensive consumer staples and utilities also closed narrowly ahead.

China releases a swag of economic data at noon AEST. GDP data is expected to confirm a dramatic slowdown in growth last quarter during lockdowns in Shanghai and work-from-home orders in Beijing. Monthly retail sales and industrial output are tipped to have rebounded last month as restrictions were lifted.

Rio Tinto releases a trading update today as the domestic quarterly reporting season starts to rev up.

The dollar continued to hover near two-year lows, lately up 0.23 per cent to 67.48 US cents.

Commodities

Iron ore prices slumped as reports of problems in China’s troubled real estate sector dented buying interest. Fifteen Chinese banks revealed they were exposed to mortgage defaults. Chinese media reported more than 100 projects in 18 provinces were affected, suggesting the problem of non-payment was widespread.   

The spot price for ore landed in China dived US$5.30 or 4.8 per cent to US$104.96 a tonne. The most-traded ore contract on the Dalian Commodity Exchange dropped 2.6 per cent to 695.5 yuan.

BHP‘s US-traded depositary receipts slumped 4.08 per cent. The miner’s UK listing lost 3.51 per cent. Rio Tinto shed 5.89 per cent in the US and 4.7 per cent in the UK.

Oil settled at its weakest level since April as global recession worries continued to swirl. Brent crude fell 47 US cents or 0.5 per cent to US$99.10 a barrel.

“Concerns about faltering demand are beginning to overtake supply worries linked to the Russia-Ukraine war and that is putting pressure on energy futures markets this week,” Tyler Richey, co-editor at Sevens Report Research, told MarketWatch.

Strength in the US dollar continued to depress precious metals. Silver and platinum hit two-year lows. Gold settled at its lowest since March 2021.  

Gold for August delivery settled US$29.70 or 1.7 per cent in the red at US$1,705.80 an ounce. Silver dropped 97 US cents or 5.1 per cent to US$18.225. The NYSE Arca Gold Bugs Index dived 4.63 per cent.

Copper sank to a level last seen in late 2020 in US trade. September copper futures declined 11 US cents or 3.3 per cent on Comex to US$3.2115 per pound.

“We still haven’t found the bottom yet,” Commerzbank analyst Daniel Briesemann said.

Benchmark copper on the London Metal Exchange slumped 3 per cent to US$7,104 a tonne. Aluminium fell 0.6 per cent, nickel 8.6 per cent, lead 6.5 per cent, zinc 2.8 per cent and tin 4.6 per cent.

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