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A risk-off session in the US following explosions at Kabul Airport and ahead of a much-anticipated speech tonight from Federal Reserve Chair Jerome Powell points to early pressure on the ASX.

Australian futures eased ten points or 0.13 per cent as US stocks broke a five-session winning run. 

Oil fell for the first time in four days. Iron ore firmed for a third session. Gold edged higher. Copper declined. The dollar lost almost half a cent.  

Wall Street

US stocks retreated from record levels as investors assessed mixed economic data, a deadly attack on US military personnel and the prospects of greater clarity tonight on the Fed’s plans to reduce support for the economy.

The S&P 500 declined 26 points or 0.58 per cent, breaking a string of record closes. The Dow Jones Industrial Average shed 192 points or 0.54 per cent. The Nasdaq Composite gave up 96 points or 0.64 per cent.

Stocks dropped early in the session after suicide bombers detonated explosives near Kabul airport, killing 12 US military personnel and injuring 15 more. Afghan civilians were also killed. The attackers were reported to be affiliated with ISIS.

Also weighing on sentiment were weaker-than-expected economic data. First-time claims for unemployment benefits edged up to 353,000 last week from 349,000 the previous week. Economists expected claims to hold broadly steady.

The final gross domestic product reading for the second quarter came in at 6.6 per cent, just below the Dow Jones estimate of 6.7 per cent.

Expectations that the Fed will start to reduce its bond-buying program were sharpened by media appearances by several central bankers ahead of tonight’s speech at the virtual Jackson Hole symposium by Chair Powell.

James Bullard, President of the St Louis Fed, said the bank should start “tapering” the program soon.

“I think we want to get going on taper. Get the taper finished by the end of the first quarter next year,” Bullard told CNBC. “And then we can evaluate what the situation is and we’ll be able to see at that point whether inflation has moderated and if that’s the case we’ll be in great shape. If it hasn’t moderated, we’re going to have to be more aggressive to contain inflation.”

Dallas Fed president Robert Kaplan said the Fed should begin to taper in October. The President of the Kansas City Fed, Esther George, told CNBC tapering was “appropriate”.

“I would be ready to talk about taper sooner rather than later,” she said.

Australian outlook

The ASX appeared to pre-empt yesterday some of the overnight weakness in the US, and may therefore have little more to give this session. The S&P/ASX 200 declined 41 points or 0.54 per cent amid negative moves on US equity futures, crude and currency markets.

The market has been in repair mode for much of this week, rising for three straight sessions until yesterday’s setback. However, further progress today will be limited by uncertainty over Fed chair Powell’s speech tonight. Markets hate uncertainty.

Ten of eleven US sectors declined, led by energy -1.51 per cent, consumer discretionary -0.73 per cent and communication services -0.73 per cent. The materials sector shed 0.68 per cent and financials 0.54 per cent.

Defensive sectors fared best. Real estate edged up 0.1 per cent. Next best were utilities -0.35 per cent and health -0.4 per cent.

A huge week of corporate earnings wraps up with reports from Wesfarmers, BWX, Mayne Pharma and Coventry Group (source: CommSec).

July retail sales data at 11.30 am AEST were expected to show the negative effect of lockdowns.

This week’s recovery in the dollar hit reverse. The Aussie declined 0.53 per cent to 72.38 US cents.

Commodities

BHP and Rio Tinto lost ground in overseas trade amid a general retreat from risk. BHP’s listings in the US and UK both shed 1.52 per cent. Rio Tinto gave up 1.83 per cent in the US and 1.95 per cent in the UK.

Iron ore rallied for a third session amid reports of increased output at Chinese steel mills as producers took advantage of improved margins. Spot iron prices have collapsed by more than 40 per cent from their May peak. The spot price for ore landed at Tianjin firmed US$3.90 or 2.6 per cent to US$153.35 a tonne.

Oil pared a rally that had lifted prices almost ten per cent in a week. Brent crude settled US$1.18 or 1.6 per cent lower at US$71.07 a barrel.

“The state of the COVID-19 delta variant continues to inject uncertainty in the market,” Robbie Fraser, global research & analytics manager at Schneider Electric, wrote.

Gold shrugged off early pressure from a rising US dollar. Metal for December delivery settled US$4.20 or 0.2 per cent higher at US$1,795.20 an ounce. The NYSE Arca Gold Bugs Index eased 0.39 per cent.

Fawad Razaqzada, market analyst at ThinkMarkets, said gold would likely “remain range-bound over the next 24 hours or so… until we hear from… Powell.”

Copper declined as traders reduced exposure ahead of Powell’s speech. Benchmark copper on the London Metal Exchange fell 0.5 per cent to US$9,315 a tonne. Nickel dropped 2 per cent, lead 1 per cent and zinc 0.8 per cent. Tin improved 0.9 per cent. Aluminium was unchanged.

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