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The share market’s winning start to 2023 faces mild headwinds this session as investors weigh gains in Europe against soft US equity futures and pressure on commodity prices during a US holiday.
Futures action suggests the S&P/ASX 200 will open 19 points or 0.26 per cent lower. The Australian benchmark climbed 0.82 per cent yesterday to an eight-and-a-half month high. The rally brought the local market’s gain for the year close to 5 per cent.
Pressure on futures this morning follows a heavy fall in the price of iron ore, as well as more modest declines in oil, gold and copper. The dollar fell back to 69.5 US cents.
Europe/Wall Street
Europe’s equity benchmark neared its highest level in nine months in light trade during the Martin Luther King Jr holiday in the US. Gains in financial services and retail stocks helped offset pressure on resource producers.
The pan-European Stoxx 600 climbed 0.46 per cent to its strongest level since April. Markets in Germany, France and Italy rallied between 0.28 and 0.46 per cent towards one-year highs. Britain’s FTSE 100 index edged up 0.2 per cent.
The advance extended the Stoxx 600’s gain for the year to 6.6 per cent. European stocks have roared back this year as inflationary pressures cooled, China reopened and warm weather eased a surge in energy prices triggered by Russia’s invasion of Ukraine.
HSBC’s head of European equity strategy, Edward Stanford, said European valuations were “unarguably cheap”.
“Having been pessimistic on the outlook for much of 2022 and while still acknowledging the risks to markets, we are somewhat more constructive on the outlook for 2023, and favour increasing weightings in certain cyclical sectors,” Stanford said.
German wholesale prices declined 1.6 per cent last month, according to data overnight. Wholesale price growth has almost halved since peaking at an eye-watering year-on-year increase of 23.8 per cent in April.
Last night’s equity gains were kept in check by negative US futures. S&P 500 futures were this morning down nine points or 0.22 per cent after swinging from highs to lows. Nasdaq futures were down 0.38 per cent and Dow futures off 0.08 per cent.
Investors kept a wary eye on the World Economic Forum’s annual three-day meeting, which kicked off in Davos overnight for the first time in three years. Politicians and central bank officials were scheduled to attend.
A survey of leading economists carried out on behalf of the forum found almost one in five thought a global recession was “extremely likely” this year. Almost half thought a global recession was “somewhat likely”. A third believed a global recession was “somewhat unlikely”.
Australian outlook
A subdued start to the session looks likely as resource stocks weigh. BHP‘s UK-listed stock fell 1.72 per cent overnight. Rio Tinto shed 1.98 per cent in London trade. The declines followed a heavy fall in the price of iron ore after China’s state planner ramped up a crackdown on alleged price manipulation (more below).
Some mild profit-taking looks possible after the S&P/ASX 200 surged to its highest since early May. The market has jumped almost 5 per cent since January 1 as investors position for a likely top in interest rates this year.
Resource stocks weighed in Europe. Pockets of strength included retail, financial services and property.
The dollar retreated with commodity prices, falling 0.33 per cent to 69.49 US cents.
Westpac releases its monthly survey of consumer sentiment at 10.30 am AEDT. A weekly confidence gauge from ANZ comes earlier in the day.
A big data drop from China at 1 pm AEDT is likely to have more impact. GDP figures for the last three months of 2022 were expected to show the deadening effect of the government’s zero-Covid policy. Economists expect growth slowed to 1.6 per cent from 3.9 per cent the previous quarter. December data on factory output, retail sales, unemployment and asset investing were also expected to weaken.
“Chinese GDP y/y data… is pretty much going to set the trading tone not only in Asia but also in the rest of the world, as China is the second biggest economy in the world,” Naeem Aslam, chief market analyst at AvaTrade, said.
IPOs: ACDC Metals lists at 1 pm AEDT under the code ADC. The company is targeting heavy mineral sands and rare earths in western Victoria.
Tower and Katana Capital trade ex-dividend today.
Commodities
Iron ore slumped after China’s state planner pledged to crack down on hoarding, price gouging and the spreading of false information. The National Development and Reform Commission summoned some information providers for a dressing down over publishing false or outdated news.
The clampdown is China’s latest attempt to rein in prices that have soared more than 50 per cent in recent months. Beijing is consolidating the country’s largest steelmakers into a buying bloc to reduce competition among bidders.
“We anticipate government bodies will step up the frequency and intensity of investigations into what they deem to be exorbitantly high iron ore prices,” Atilla Widnell, managing director of Navigate Commodities, said.
The most-traded May ore on China’s Dalian Commodity Exchange fell 4.3 per cent in daytime trade to 832.5 yuan a tonne (US$123.63). Prices in Singapore finished 2.5 per cent lower after plunging as much as 5.4 per cent.
Copper backed off a seven-month high ahead of Lunar New Year holidays in China next week that are expected to dampen demand. Benchmark copper on the London Metal Exchange reversed 0.93 per cent to US$9,100 a tonne.
Aluminium hit a six-month high on technical buying after breaking above its 200-day moving average. Prices have risen more than 15 per cent so far this year. Overnight, the metal advanced 1.18 per cent on the LME to US$2,625.73 a tonne.
Nickel gained 2.26 per cent. Lead gave up 2.02 per cent, zinc 1.32 per cent and tin 1.39 per cent.
Oil trimmed last week’s 8.5 per cent rally. Brent crude settled 84 US cents or 0.96 per cent lower at US$84.46 a barrel.
Gold eased off its highest level in more than eight months in thin trade. Gold for February delivery drifted US$3.50 or 0.18 per cent lower to US$1,918.20 an ounce.
The Global X Lithium & Battery Tech ETF bounced 1.01 per cent on the London Stock Exchange. The VanEck Rare Earth/ Strategic Metals ETF eased 0.22 per cent in London.
