Market Herald logo

Subscribe

Be the first with the news that moves the market

Australian shares were poised to open lower for a second day as commodity weakness and the prospect of a rate rise this afternoon outweighed a late recovery on Wall Street.

ASX futures declined 25 points or 0.34 per cent. The S&P/ASX 200 lost almost 1.2 per cent yesterday as investors prepared for possible rate hikes on both sides of the Pacific. The Reserve Bank meets this morning and will update the market at 2.30 pm AEST.

A strengthening US dollar pressured copper, silver and gold. Oil bounced with US equities. Iron ore trade was suspended for Asian holidays. The dollar hovered around 70.5 US cents.

Wall Street

US stocks finished higher in choppy action as buyers entered in the final hour. Stocks struggled for much of the session as a key long-term interest rate broke above 3 per cent for the first time since 2018.

The late recovery helped the Dow Jones Industrial Average flip a 400-point loss into a gain of 84 points or 0.26 per cent. The S&P 500 rallied 23 points or 0.57 per cent. The Nasdaq Composite led with a rise of 201 points or 1.63 per cent.

Rate-sensitive tech stocks spearheaded the turnaround as bargain-hunters snapped up some of this year’s worst performers. Facebook owner Meta Platforms bounced 5.32 per cent, Netflix 4.78 per cent, Intel 3.14 per cent and Amazon 0.18 per cent.  

The Nasdaq plunged more than 4 per cent deeper into a bear market on Friday following weak guidance from Amazon and Apple. Overnight, the index touched its weakest level since November 2020 before recovering. The S&P 500 brushed its lowest level since last May.

The early pressure came as the yield on ten-year US treasuries cracked 3 per cent ahead of tomorrow’s Federal Reserve rates announcement. Bond markets have been under pressure all year in expectation of a sharp increase in official rates. The Fed is expected to lift its target range by at least 50 basis points tomorrow night, but some analysts believe the central bank could go even harder.

“3% is certainly important,” Matt Maley, Managing Director of Miller Tabak, said. “It’s a psychological barrier that’s got people worried about what the Fed is going to do.”

In economic news, manufacturing activity slowed to its weakest pace since September 2020 as Covid lockdowns in China added to supply-chain issues.

Australian outlook

This morning’s wobbly futures reflect caution ahead of a cliff-hanger of an RBA meeting. Today’s meeting is the first in years where there is genuine doubt over the outcome. The three possible outcomes are: no-change, an increase of 15 basis points to 0.25 per cent, or a bumper 40-point increase to 0.5 per cent.

The likely effect on today’s trade? Tony Sycamore, senior market analyst at City Index, described the likely market reactions to each scenario as follows.

“If the RBA leaves rates unchanged, the AUDUSD and AUD cross rates would likely fall modestly, and the ASX200 would stage a short-term relief rally,” he said.

“If the RBA raise rates by 40bp, it will likely cause a rally in AUDUSD and AUD cross rates and a fall in the ASX200 of around -0.5%.

“If the RBA raises rates by 15bp (the market expects this), the reaction will be limited to the shake-out of short-term speculative positions being unwound. In turn, the larger macro forces outlined above will dictate movements.”

The S&P/ASX 200 slumped 88 points or 1.18 per cent yesterday in the wake of Friday’s Wall Street bloodbath. The local market has outperformed Wall Street this year, supported by the performance of the heavily-weighted mining sector.

US materials sagged 0.33 per cent overnight amid pressure on metal prices in the US. The other sector that matters most on the ASX, financials, finished flat.

The three sectors dominated by Big Tech spearheaded the reversal in the US. Communication services put on 2.43 per cent, technology 1.56 per cent and consumer discretionary 1.36 per cent. Energy was also strong, rising 1.37 per cent.  

Back home, Santos and TPG Telecom host annual general meetings today. Weekly consumer confidence data are due this morning.

IPOs: two new listings today. Equity Story Group at 11 am AEST is a Sydney-based trading and investment firm. Sierra Nevada Gold at 11.30 am is a precious metals explorer with projects in Nevada.

The dollar dipped 0.11 per cent to 70.52 US cents.

Commodities

Metals came under pressure in US trade as public holidays closed the major exchanges in London and Shanghai.

Gold suffered its heaviest loss in around two months as US treasury yields touched a key level and the US dollar flirted with a two-decade high. Metal for June delivery settled US$27.70 or 2.5 per cent weaker at US$1,863.60 an ounce.

May silver dropped 59 cents or 2.2 per cent to US$22.54 an ounce. The NYSE Arca Gold Bugs Index dropped 1.45 per cent.

“The precious metals are getting hit early this week by the bearish outside market forces of a strong U.S. dollar index that is near a 20-year high, solidly lower U.S. crude oil prices and higher U.S. Treasury yields,” Jim Wyckoff, senior analyst at Kitco.com, wrote.

Copper slumped on Comex following soft Chinese factory data released over the weekend. The official Chinese purchasing managers’ index dropped to its lowest since February 2020.

Copper for July delivery shed as much as 4 per cent before finishing 3.2 per cent lower at US$4.268 a pound. The London Metal Exchange was closed for Labour Day holidays.

BHP‘s US-traded depositary receipts rallied 0.63 per cent. The miner’s UK stock gained 0.87 per cent. Rio Tinto dipped 0.24 per cent in the US after adding 1.39 per cent in the UK.

Oil rebounded from steep early losses as the mood on equity markets improved. The US benchmark finished 48 cents or 0.5 per cent ahead at US$105.17 a barrel after trading as low as US$100.28. Brent crude settled 44 US cents or 0.4 per cent higher at US$107.58 a barrel.

More From The Market Herald

" ASX Today: Traders weigh change of government, commodity gains

The share market looked set to open modestly lower after the Dow logged its longest run of weekly losses since 1932 and Australians

" ASX 200 rallied 52 points

he share market's bullish start to the new quarter continued after upbeat economic data triggered strong…

" A second day of falls saw the ASX 200 drop 59 points ​

Aussie shares erased the last of their gains for the week as risk aversion gripped regional…

" Health sector led the recovery, rising 1.6 per cent

Improved global sentiment following a round of upbeat economic data helped Aussie shares rally for the…