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Australian shares were poised to open weaker for a second day after inflation and rates worries combined with volatility on oil markets to push Wall Street lower.

ASX futures declined 26 points or 0.36 per cent. The S&P/ASX 200 fell 1 per cent yesterday amid end-of-month institutional selling.

US stocks declined for the first time in four sessions as trade resumed after the Memorial Day long weekend. Oil prices turned mixed following reports of an OPEC plan to pump more crude. The dollar retreated.

Wall Street

US stocks ended a rollercoaster month little changed as the main indices once again turned lower. Energy and mining stocks spearheaded overnight falls. Consumer stocks rallied amid signs confidence among American consumers held up better than expected as the cost of living surged.

The S&P 500 dropped 26 points or 0.63 per cent. The Dow Jones Industrial Average shed 223 points or 0.67 per cent. The Nasdaq Composite gave up 50 points or 0.41 per cent.

“The market is digesting the sharp rally late last week and trying to figure out its footing,” Peter Boockvar, chief investment officer at Bleakley Advisory Group, said. “We’re still far from being out of the woods here in terms of the major overhangs, being inflation, monetary tightening and rising rates.”

Inflation and rates worries revived as investors weighed a surge in fuel prices, hawkish comments from the Federal Reserve and record inflation within the European Union.

The energy sector was the night’s biggest drag. Crude hit a two-month high on Tuesday after the EU voted to halt around 90 per cent of Russian energy imports.

Those gains largely unravelled after The Wall Street Journal reported the Organization of the Petroleum Exporting Countries was weighing a plan to exempt Russia from the cartel’s production limits. Suspending Russia would allow Saudi Arabia and other countries to pump more crude to make up an expected shortfall as the EU ban takes effect.  

The effect of soaring energy prices was underlined by dire European Union inflation figures. Inflation hit 8.1 per cent last month, the highest since the launch of the euro. Energy prices jumped 39.2 per cent.

Rates worries re-emerged after Fed governor Christopher Waller said the central bank should raise rates by 50 basis points each meeting until inflation is under control. The comments came as Fed Chair Jerome Powell met with President Joe Biden to discuss inflation.

Gains in consumer stocks helped the major indices rise off their lows amid signs of resilience in consumer confidence. The Conference Board’s confidence gauge eased to 106.4 last month from 108.6 in April, well above the median forecast of 103.9.

Amazon was one of the session’s best performers, rising 4.4 per cent. Nike and Starbucks rose as China started to lift Covid restrictions.

The Dow and S&P 500 finished broadly flat for the month, thanks to last week’s recovery. The Nasdaq Composite lost 2.1 per cent.

Australian outlook

A soft start coming up as investors ponder how much of the overnight pressure was end-of-month portfolio rebalancing and how much genuine selling.

The S&P/ASX 200 had a good run from mid-May onwards, but doubts remain as to whether the bottom is truly in in the US, or this is just another bear market rally. Market sentiment remains fragile.

Volatility has certainly declined. The Australian VIX or volatility index is back at four-week lows. Intraday market moves have also contracted.

Energy producers and miners loom as potential headwinds this session. US energy stocks fell 1.65 per cent. Materials dropped 1.6 per cent.  

Bond proxies declined as treasury yields rallied. Utilities shed 1.38 per cent, health 1.37 per cent and real estate 1.34 per cent.

The only sectors to advance were consumer discretionary +0.76 per cent and communication services (Amazon) +0.41 per cent.

Back home, third-quarter data on gross domestic product at 11.30 am AEST have the potential to change the market mood for better or worse. Economists expect to see a dramatic slowdown in growth to 0.6 per cent from 3.4 per cent the previous quarter. The latter figure was supercharged by the eastern states emerging from lockdown.

Nickel miner Western Areas holds its AGM online today.

IPOs: the only listing this week takes place at 11 am AEST. Nordic Nickel is an explorer targeting sulphides in Finland’s Central Lapland Greenstone Belt.

The dollar retreated 0.21 per cent to 71.79 US cents.

Commodities

Oil‘s major benchmarks finished mixed as traders weighed conflicting pricing signals. While an EU ban on Russian crude pointed to higher prices, OPEC’s plan to exempt Russia from production caps would release more supply. Russia has reportedly not met its production quota for months.

Brent crude settled US$1.17 or 1 per cent higher at US$122.84 a barrel. The US benchmark fell 40 US cents or 0.4 per cent to US$114.67.

Iron ore prices shrugged off a slowdown in Chinese manufacturing activity last month. Futures on the Dalian Commodity Exchange climbed 2.06 per cent to a six-week high. The spot price for ore landed at Tianjin firmed US$1.51 or 1.1 per cent to US$135.02 a tonne.

Copper turned lower after hitting a three-week peak. Benchmark copper on the London Metal Exchange traded as high as US$9,591.50 before fading 1 per cent to US$9,445.50 a tonne. Aluminium slumped 3.5 per cent. Nickel gave up 3 per cent. Lead rose 0.3 per cent, zinc 0.4 per cent and tin 0.2 per cent.

BHP‘s US-traded depositary receipts declined 0.51 per cent. The miner’s UK stock shed 1.16 per cent. Rio Tinto improved 0.34 per cent in the US and 0.26 per cent in the UK.

Gold wilted under a rising greenback and strengthening bond yields. Metal for August delivery settled US$8.90 or 0.5 per cent lower at US$1,848.40 an ounce. The NYSE Arca Gold Bugs Index fell 2.26 per cent.

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