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Australian shares were set to open lower for a second day after surging energy prices, inflation worries and caution ahead of a new earnings season weighed on Wall Street.
ASX futures declined 27 points or 0.37 per cent as US stocks retreated.
US crude logged its highest price in seven years. Iron ore jumped almost 10 per cent. Aluminium hit a 13-year high.
Wall Street
US stocks gave up early gains in light trade during the Columbus Day national holiday. Bond markets were closed, affecting trading volumes.
The Dow Jones Industrial Average faded to a loss of 250 points or 0.72 per cent after being up more than 200 points. The S&P 500 shed 30 points or 0.69 per cent. The Nasdaq Composite eased 93 points or 0.64 per cent.
Investors appeared increasingly anxious about the third-quarter reporting season that gets underway properly tomorrow night with earnings from JPMorgan Chase. The financial powerhouse was one of the biggest drags on the Dow, falling 2.1 per cent. Other companies that report later in the week also declined, including Goldman Sachs, Bank of America, Wells Fargo and Citigroup.
The outlook for the new season has been muddied by supply chain problems and rising costs. Recent surges in input costs, especially raw materials, are expected to be a feature this season. Analysts expect profit growth to moderate significantly.
“The market is a bit cautious going into this earnings season,” Tim Ghriskey, chief investment strategist at Inverness Counsel, told Reuters. “Supply chain issues may have impacted earnings for a number of companies and certain industries more than others.”
Runaway energy prices are expected to impact earnings. Overnight, West Texas Intermediate crude traded above US$82 a barrel for the first time since 2014.
“High or rapid increase in energy costs have triggered recessions in the past and there is a possibility that history could repeat itself if energy prices continue to rise. Higher energy prices result in lower disposable income for consumers,” Neil Beveridge, senior energy analyst at Sanford C. Bernstein, said.
Goldman Sachs cut its growth outlook for the US, citing the expiry of fiscal support and the impact of the delta Covid variant on consumer spending. The bank lowered its forecast for next year to 4 per cent from 4.4 per cent and for this year to 5.6 per cent from 5.7 per cent.
Australian outlook
A fade session in the US points to further pressure on the ASX today. Wall Street closed at its low (a negative sign), but volumes were light and it is not unusual to see light profit-taking heading into earnings season. The market mood will improve if the first few reports show companies are navigating higher input costs and supply chain and staffing issues with minimal damage.
The S&P/ASX 200 briefly skidded 70 points yesterday before trimming its fall to 20 points or 0.28 per cent. The energy sector was predictably the best performer, but crude and gas prices have reached a level where they become a headwind for the broader market.
West Texas Intermediate traded as high as US$82.18 a barrel before trimming its advance to US$80.52, a gain of US$1.17 or 1.5 per cent. Brent crude settled US$1.26 or 1.5 per cent ahead at US$83.65 a barrel.
The US energy sector gave up early gains as crude came off its session high. The sector finished 0.41 per cent lower.
The dollar is re-emerging as a negative factor for exporters. The Aussie firmed 0.71 per cent overnight to 73.46 US cents, touching its highest in four weeks. Nonetheless, BHP, Rio Tinto and Fortescue Metals should shine today following a powerful two-day surge in iron ore (more below).
Real estate and materials were the only US sectors to close ahead, gaining 0.17 and 0.03 per cent, respectively. The financial sector shed 1.01 per cent, industrials 0.76 per cent and technology 0.53 per cent.
CSL and Telstra hold virtual AGMs today. Others holding meetings include Aurizon and iSignthis.
NAB releases its September business confidence review at 11.30 am AEDT. Weekly consumer confidence figures are also scheduled.
A big day of IPOs is coming up. Three companies are set to make their debuts today. First up is Resilience Mining Mongolia at 11 am AEDT. Resilience focuses on investing in Mongolia’s copper and gold sector. Diablo Resources at 11.30 am AEDT explores for gold in Nevada, Utah and Idaho. Minerals 260 at 1 pm has been spun out of Liontown Resources and holds assets including the Moora gold-nickel-copper project.
Commodities
Iron ore surged for a second day as Chinese buyers continued to restock following Golden Week. The spot price for ore landed in China jumped US$11.90 or 9.5 per cent to US$136.95 a tonne. Prices have gained US$19.15 in two sessions amid reports steel production is on the rise.
“Steel output is reportedly set to increase in October in some parts of China, like Tangshan, Jiangsu, Zhejiang and Anhui, after these regions exceeded steel production cuts in September,” Vivek Dhar, commodities analyst at Commonwealth Bank, said. “The impacted mills may see November output either match or exceed October levels.”
BHP‘s US-listed stock rallied 1.42 per cent after its UK-listed stock gained 3.21 per cent. Rio Tinto put on 1.96 per cent in the US and 3.49 per cent in the UK.
Aluminium hit its highest price in 13 years as Chinese production was constrained by power shortages and pollution crackdowns. Benchmark aluminium on the London Metal Exchange climbed 3.3 per cent to US$3,044.50 a tonne. Copper improved 2.3 per cent, lead 0.2 per cent, zinc 2.6 per cent and tin 0.8 per cent. Nickel dipped 0.5 per cent.
Gold dipped to a third straight loss, its worst run in a month. Gold for December delivery settled US$1.70 or 0.1 per cent lower at US$1,755.70 an ounce. The NYSE Arca Gold Bugs Index shed 0.63 per cent.
