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Aussie shares pointed sharply lower for a second day after a surge in Covid cases sank US reopening stocks.
ASX futures skidded 86 points or 1.23 per cent following back-to-back losses on Wall Street.
Wall Street
Travel and tourism stocks led the retreat after the World Health Organization (WHO) warned Covid-19 infection rates were nearing the highest of the pandemic. Bank stocks retreated as investors reassessed last week’s initially well-received earnings reports.
The S&P 500 dropped 28 points or 0.68 per cent. The Dow Jones Industrial Average shed 256 points or 0.75 per cent. The Nasdaq Composite lost 129 points or 0.92 per cent.
The sell-off was led by airlines, cruise lines and other companies whose earnings depend on a successful reopening of the US economy. WHO Director-General Tedros Adhanom Ghebreyesus warned infection rates were increasing, possibly due to more infectious variants.
“Globally, the number of new cases per week has nearly doubled over the past two months. This is approaching the highest rate of infection that we have seen so far during the pandemic,” he said. “Some countries that had previously avoided widespread transmission are now seeing steep increases in infections.”
A dour outlook from United Airlines added to the gloom. The airline’s shares tumbled 8.53 per cent after it reported a fifth straight quarterly loss and warned recoveries in international and business travel were still 80 per cent below pre-pandemic levels.
“The big question is when do those two things come back and we’re not certain of when that is,” CEO Scott Kirby told CNBC.
The S&P 1500 airlines index sank 4.56 per cent. Cruise lines Norwegian, Carnival and Royal Caribbean lost between 3.23 and 4.36 per cent. Aircraft manufacturer Boeing slumped 4.13 per cent. Hotel groups Hyatt and Marriott lost 3 and 4 per cent, respectively.
“We’re not out of the woods yet when it comes to the COVID virus and getting to where global economies are reopening,” Michael James, managing director of equity trading at Wedbush Securities, told Reuters. “Some of that enthusiasm has diminished.”
The financial sector dived 1.81 per cent as companies that reported earnings last week took a hit. An analyst at Odeon Capital said investors were reassessing results that had been skewed by accounting changes.
The night’s quarterly updates delivered more hits than misses. Johnson & Johnson, Procter & Gamble and Travelers all saw share price increases. Tech giant Netflix tanked 10.5 per cent in extended trading after announcing disappointing subscriber numbers following the close of regular trade this morning.
Australian outlook
An over-extended market looks set for further short-term pain. After putting on more than 320 points in three weeks, the S&P/ASX 200 gave back 48 points or 0.68 per cent yesterday and likely has more to go this session. Dip-buyers will watch closely for the right moment to put more cash to work.
Travel and tourism stocks are likely to bear the brunt this session. US energy stocks slid 2.66 per cent after crude retreated. Financials shed 1.81 per cent, industrials 1.08 per cent and materials 0.94 per cent.
Traditional defensive sectors provided a haven. Utilities gained 1.32 per cent, real estate 1.12 per cent, consumer staples 0.57 per cent and health 0.43 per cent.
If there was a plus for the local market in the overnight action, it was a retreat in the dollar. The Aussie skidded 0.65 per cent to 77.26 US cents after yesterday poking its head above 80 US cents for the first time in a month.
Revised monthly retail sales are scheduled for 11.30 am AEST. The quarterly reporting season continues today. BHP is the largest of the market whales scheduled to release an update.
Commodities
A fresh 10-year high in iron ore provided scant protection for major producers BHP and Rio Tinto. The spot price for ore landed in China soared $6.55 or 3.6 per cent yesterday to US$187.75 a tonne. BHP’s US-listed stock dropped 2.24 per cent overnight and its UK-listed stock 2.28 per cent. Rio Tinto gave up 1.83 per cent in the US and 2.2 per cent in the UK.
Haven buying and a retreat in bond yields helped gold advance. Gold for June delivery settled $7.80 or 0.4 per cent higher at US$1,778.40 an ounce. The NYSE Arca Gold Bugs Index rose 0.9 per cent.
Oil retreated after India suffered its worst daily death toll of the pandemic and a US bill to crack down on cartel behaviour made progress in Congress. Brent crude settled 48 cents or 0.7 per cent lower at US$66.57 a barrel.
Copper fell 0.6 per cent to US$4.21 a pound in US trade.
