A fifth straight decline in US stocks points to early pressure on the ASX as financial markets struggle with a toxic mix of weak growth and strong inflation.
ASX futures retreated 28 points or 0.38 per cent, signalling more pain following a losing week. The S&P/ASX 200 fell 116 points or 1.5 per cent last week as dividend payments flowed out, iron ore prices collapsed and the RBA confirmed it will reduce support for the economy.
On Friday, iron ore prices sagged to their lowest in a year. Nickel and aluminium hit multi-year highs. Gold dropped below US$1,800 an ounce. Oil rose.
The Dow and S&P 500 declined for a fifth straight session as strong inflation data added to pressure on the Federal Reserve to launch the long-awaited "taper", and Apple lost the legal right to force app developers sell through its store.
The Dow Jones Industrial Average fell 272 points or 0.78 per cent, finishing at a session low. The S&P 500 shed 35 points or 0.77 per cent. The Nasdaq Composite gave up 133 points or 0.87 per cent.
Wall Street declined all of last week as investors worried inflationary pressures will encourage the Fed to wind back its bond-buying program at a time when the delta Covid variant is slowing the economy.
“Investors are wringing their hands over growth but are seeing higher inflation at the same time,” Jack Ablin, Cresset Capital Management CIO, told CNBC.
Wholesale costs for businesses surged 8.3 per cent last month year-on-year, according to producer price data released on Friday. The rise was the strongest since at least 2010. The monthly increase of 0.7 per cent was also hotter than the 0.6 per cent rise anticipated by economists.
Stubbornly high inflation threatens to undermine the Fed's argument that record-low rates and emergency stimulus measures are justifiable because this year's surge in prices will be "transitory".
“The extent that we see flow through to the consumer remains to be seen, but this is another shot to the transitory narrative that has been the dominant reason to continue emergency fed policy,” Sean Bandazian, investment analyst for Cornerstone Wealth, wrote.
Fed committee member Loretta Mester said on Friday she would like the central bank to start the taper this year, despite last month's weak jobs data.
"I don't think the August employment report has changed my view that we've made substantial further progress" towards the bank's inflation and employment targets, Mester told reporters.
Apple was the biggest weight on all three indices, sagging 3.31 per cent after a US federal judge ruled the tech giant could not prevent app developers selling outside its App Store. The ruling threatens a lucrative income stream for Apple. Reports say Apple takes 15-30 per cent of gross sales through its store, generating an estimated US$64 billion last year.
The Dow lost 2.2 per cent over the holiday-shortened week. The S&P 500 gave up roughly 1.7 per cent and the Nasdaq around 1.6 per cent.
A soft start coming up as world markets continue to struggle with growth and taper concerns. Buying the dip has generally delivered quick returns since the 2020 pandemic low, but investors may have to be more patient while the market works through a seasonally-weak time of the year.
The S&P/ASX 200 has fallen in two downlegs since peaking halfway through last month's earnings season. Three weeks of sideways drift gave way to a sharp sell-off last Thursday, the index's biggest hit since February. Friday's recovery-gains look likely to disappear at today's open.
All 11 US sectors declined. Cyclical sectors fared best (or least worst). Energy and materials eased less than 0.1 per cent. Industrials shed 0.47 per cent and financials 0.65 per cent.
A rise in bond yields undercut interest in equity alternatives. Utilities and real estate were the session's worst performers.
Dividend payments will continue to weigh on the S&P/ASX 200, although the hits this week will be smaller. Companies trading ex-dividend include Chorus, HUB24, Regis Resources and Healius (today); Breville, Inghams, TPG Telecom and News Corp (Tuesday); Cimic, Regis Healthcare, Pro-Pac, Costa Group and Lovisa (Wednesday); and Seven Group, SkyCity Entertainment and Spark NZ (Thursday).
Economic data: the week starts slowly (nothing of note today), but brings a couple of potential market-movers later in the week. A speech by Reserve Bank Governor Philip Lowe tomorrow offers an opportunity for the bank to clarify its reasons for reducing support during a contraction.
The August jobs report on Thursday will be the first to show the full impact of lockdowns in NSW and Victoria. CBA expects the jobless rate to jump to 5.2 per cent from 4.6 per cent as 30,000 jobs evaporate and participation rates slump.
Other data this week include monthly business confidence, weekly consumer confidence (Tuesday); and monthly consumer confidence (Wednesday).
IPOs: a busy week kicks off today with the listing of Legacy Minerals at 11.30 am AEST. Legacy is an explorer focussed on copper and gold in New South Wales.
The rest of the week currently looks like this: Heavy Minerals (Tuesday); Copper Search, Dalaroo Metals (Wednesday); Pearl Gull Iron, Star Minerals (Thursday); and SSH Group, Way 2 VAT and Koonenberry Gold (Friday). Note: listings are frequently subject to delays or cancellation.
Milton Corporation holds its AGM online today.
The dollar started the week with a sharp advance, rising 0.38 per cent this morning to 73.57 US cents.
Nickel hit a seven-year high in London and an all-time high in Shanghai amid reports of strong demand and falling inventories. Nickel rallied 4.1 per cent on the Shanghai Futures Exchange to US$24,067 a tonne. On the London Metal Exchange, nickel hit US$20,705 a tonne, its highest since May 2014, before paring its rise to US$20,426.50 a tonne, a gain of 1.1 per cent.
"The low inventory status increases the elasticity of nickel prices. Refined nickel will continue to be in short supply in September," Huatai Futures said.
Aluminium hit a 13-year high on the LME, gaining 3.1 per cent. Copper added 3.4 per cent, lead 0.1 per cent, zinc 1.6 per cent and tin 0.8 per cent.
Iron ore dropped to its lowest in a year following reports China's second-largest steel-producing province was monitoring energy consumption to ensure steelmakers observe production caps. The spot price for ore landed in Tianjin slipped US$1.75 or 1.3 per cent to US$128.75 a tonne.
Despite the setback, BHP and Rio Tinto rebounded from multi-month lows in overseas trade. BHP's US-listed stock bounced 0.71 per cent and its UK-listed stock 1.07 per cent. Rio Tinto firmed 1.55 per cent in the US and 1.96 per cent in the UK.
Oil recovered from Thursday's news that China intends to release some of its strategic reserves to help contain prices. Brent crude settled US$1.47 or 2.1 per cent ahead at US$72.92 a barrel.
Gold capped its first weekly decline in five weeks with a fall below US$1,800 an ounce. Rising treasury yields and a firmer greenback presented headwinds. Metal for December delivery settled US$7.90 or 0.4 per cent lower at US$1,792.10 an ounce. The NYSE Arca Gold Bugs Index shed 1.63 per cent.