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Aussie shares looked set to pull back from 13-month highs following a mixed night on Wall Street as inflation worries overshadowed a bright start to earnings season.
ASX futures skidded 38 points or 0.54 per cent as the S&P 500 retreated from record levels. The dollar surged more than 1 per cent, back above 77 US cents for the first time in more than three weeks.
Wall Street
Well-received earnings updates from financial heavyweights got the session off to a strong open before the release of the Federal Reserve’s Beige Book triggered a sell-off. The S&P 500 hit its fourth all-time high in five sessions, then faded to a loss of 17 points or 0.41 per cent.
The Nasdaq Composite led the retreat with a fall of 138 points or 0.99 per cent as inflation-sensitive tech stocks sold off. The Dow Jones Industrial Average trimmed an advance of more than 200 points to a final tally of 54 points or 0.16 per cent.
A trio of strong bank results soothed concerns about valuations. Wells Fargo jumped 5.53 per cent after beating analyst expectations on earnings and revenue. Goldman Sachs climbed 2.34 per cent following a record quarter. JPMorgan Chase increased earnings by almost 400 per cent, but saw its shares ease 1.87 per cent following a surge in defaults. The S&P 500 financial sector has been one of this year’s best performers, rising 15 per cent.
“The bank earnings were strong, but the market expected them to be strong,” Christopher Grisanti, chief equity strategist at MAI Capital Management, told Reuters. “So the question becomes how do the bank stocks rise more from here? That’s not clear. They have had a nice ride. I think there will be other places to make money more easily in the future.”
The market lost some of its initial impetus after the Fed’s Beige Book reinforced inflation worries. The Beige Book, a collection of anecdotal evidence about conditions across the central bank’s 12 districts, appeared to point to an accelerating economy and a pick-up in pricing pressures. Consumer spending, car sales and manufacturing improved.
“Wage growth accelerated slightly overall, with more significant wage pressures in industries like manufacturing and construction where finding and retaining workers was particularly difficult,” the Fed noted.
US bond yields rallied, pressuring high-growth stocks. Apple, Amazon and Facebook all lost at least 1 per cent.
Bitcoin retreated as crypto exchange Coinbase surrendered early highs upon its Nasdaq debut. Coinbase rose as high as $429, but finished at $328.28, an opening-day gain of 31.31 per cent. Bitcoin eased 1.73 per cent.
Australian outlook
The ASX looked set to give back much of yesterday’s gains after surging to within a hair’s breadth of new highs. The All Ords rallied 50 points or 0.69 per cent yesterday, finishing less than 10 points from last year’s pre-pandemic record. The S&P/ASX 200 gained 46 points or 0.66 per cent.
The dollar surged overnight as investors dumped the greenback. The Aussie rallied 1.01 per cent to 77.24 US cents. That presents a headwind for ASX heavyweights with significant US earnings, such as CSL, Aristocrat Leisure, Macquarie Group and Transurban. It is less of a problem for miners, with currency moves generally offset by improvements in US dollar-denominated commodity prices.
Tech stocks set the pace here yesterday, but led the US retreat overnight. The S&P 500 technology sector dropped 1.15 per cent. Bond proxies were mixed – real estate, health and consumer staples down 0.08 – 0.69 per cent, utilities up 0.4 per cent.
Market bulls looking for reasons for optimism will note Wall Street was strong overnight in the two sectors that carry the most weight on the ASX: materials +0.64 per cent, financials +0.66 per cent. Energy was the night’s best performer, rising 2.91 per cent as oil rallied.
How the session plays out will be determined to some extent by the March employment report, due at 11.30 am AEST. The consensus among economists is that the economy added around 35,000 positions, helping pull the official unemployment rate down a tick to 5.7 per cent from 5.8 per cent.
Commodities
An upgraded demand outlook from the International Energy Agency (IEA) and a third straight decline in US weekly inventories helped propel oil to hit its highest level in almost a month. Brent crude settled $2.91 or 4.6 per cent ahead at US$66.58 a barrel, its highest level since March 18. The IEA raised its global oil forecast for the year by 230,000 barrels a day.
“Oil prices might be breaking out of their month-long wicked trading range as the normally pessimistic IEA is sounding pretty darn bullish,” Phil Flynn, senior market analyst at The Price Futures Group, wrote.
Gold retreated as bond yields improved. Metal for June delivery settled $11.30 or 0.7 per cent lower at US$1,736.30 an ounce. The NYSE Arca Gold Bugs Index fell 1.46 per cent.
Miners surged in overseas trade as a slump in the US dollar lifted commodity prices. BHP’s US-listed stock jumped 3.47 per cent and its UK-listed stock 3.3 per cent. Rio Tinto rallied 2.79 per cent in the US and 2.6 per cent in the UK. The spot price for iron ore landed in China edged up 30 cents or 0.2 per cent to US$172.65 a tonne.
US-traded copper climbed 2.4 per cent to US$4.13 a pound.
