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Futures action indicated a cautious open to Australian share trade following sharp falls on Wall Street and volatility on commodity markets in the wake of anti-lockdown protests in China.
The S&P/ASX 200 was set to open two points or 0.03 per cent higher, according to SPI200 price moves. The Australian benchmark retreated 0.42 per cent yesterday as US futures and key commodity prices declined.
Overnight, oil hit its lowest level since the start of the year before a partial recovery. Copper and gold declined. Iron ore traded mixed in different exchanges. The dollar slumped 1 per cent, trading back under 67 US cents.
Wall Street
US stocks fell as Federal Reserve policymakers reiterated calls for higher interest rates and as investors assessed the implications for global economic growth of the largest protests in China in decades.
The S&P 500 dropped 62 points or 1.54 per cent. The Dow Jones Industrial Average lost 498 points or 1.45 per cent. The Nasdaq Composite gave up 177 points or 1.58 per cent.
US declines paced falls in Asia and Europe following a rare show of civil disobedience in China after years of Covid restrictions. At least eight major cities saw protests over the weekend, with some protestors calling for President Xi Jinping to stand down.
The prospect of social unrest added to supply-chain worries as the world’s second-largest economy battles its biggest Covid outbreak. New infections yesterday hit a fresh record for a fifth straight day.
“If these protests continue, it could disrupt supply chains and the reopenings, a glimpse of which we saw earlier this year,” Brian Klimke, director of investment research at Cetera Financial Group, told Reuters.
“It will continue to weigh on investors’ minds going forward.”
Apple dropped 2.63 per cent amid reports of a shortfall in iPhones as protests disrupt production at its main Chinese factory. The firm recently lowered its production target from 90 million units to 87 million.
Hong Kong’s Hang Seng index plunged as much 4.2 per cent in early action yesterday before paring its loss to 1.57 per cent. The Shanghai Composite dropped 0.75 per cent. Overnight, the pan-European Stoxx 600 index shed 0.65 per cent.
Also weighing on Wall Street were hawkish comments on rates from Fed officials. Fed Bank of New York President John Williams, said, “We’re going to have raise rates further from where we are today.”
His colleague, Fed Bank of St Louis President James Bullard, told MarketWatch the central bank would likely have to keep benchmark interest rates above 5 per cent into 2024 to cool inflation.
“I think we’ll have to stay there all during 2023 and into 2024,” Bullard said.
Cryptocurrency and blockchain companies declined after crypto lender BlockFi filed for bankruptcy. Bitcoin dropped around 1.9 per cent to US$16,251.
Australian outlook
Futures action implies investors are already looking past yesterday’s ‘China-unrest’ scare. The S&P/ASX 200 dropped 30 points or 0.42 per cent yesterday as US futures pointed to overnight pressure. This morning’s action suggests at least some traders think yesterday’s modest retrace may represent enough of a discount to offer a buying opportunity.
A weaker dollar should help exporters. The Aussie dived 1 per cent to 66.45 US cents.
All 11 US sectors declined. Volatility on energy markets pulled the energy sector down 2.74 per cent. Basic materials shed 2.19 per cent.
A recovery in bond yields weighed on rate-sensitive sectors. Real estate dropped 2.81 per cent. Technology lost 2.13 per cent.
Consumer stocks fared least-worst following generally supportive Black Friday sales figures. Consumer staples shed 0.3 per cent. Consumer discretionary gave up 0.6 per cent.
Back home, ANZ and Roy Morgan release a weekly survey of consumer confidence this morning.
Lynas Rare Earths, Ramsay Health Care, Praemium and WAM Capital hold AGMs.
Fisher & Paykel Healthcare and Collins Foods release interim earnings. GrainCorp and Liberty Financial Group trade ex-dividend.
Commodities
Oil touched its lowest level since January 10 before a partial recovery. Prices initially cratered as traders assessed the implications of civil disruption in China for demand.
“Crude oil was the biggest casualty of the events unfolding in China, which are weighing on the demand outlook. Investors are worried that authorities will clamp down hard against protesters and tighten restrictions even more amid record high daily infections,” Raffi Boyadjian, lead analyst at XM, wrote.
Brent crude traded as low as US$80.61 a barrel before paring its loss to 44 US cents or 0.5 per cent at US$83.19. The US benchmark, West Texas Intermediate, fell to US$77.24 before settling 96 cents or 1.3 per cent in the red at US$77.24.
Wheat fell to its lowest price since mid-August on the Chicago Board of Trade.
A “flight to safety” to the US dollar drove precious metals lower. The US dollar index was lately up 0.7 per cent.
Gold for December delivery settled US$13.70 or 0.8 per cent lower at US$1,740.30 an ounce. Silver fell 2.4 per cent. The NYSE Arca Gold Bugs Index slid 4.01 per cent.
Copper was the worst performer on the London Metal Exchange, falling 0.35 per cent to US$7,980 a tonne. Aluminium gained 0.49 per cent, nickel 0.45 per cent and zinc 0.46 per cent. Tin dipped 0.07 per cent. Lead lost 0.28 per cent.
US-traded copper declined almost 1 per cent to US$3.5955 a pound.
Iron ore’s various benchmarks experienced different fortunes. Singapore futures fell 3.2 per cent before paring their fall to 1.3 per cent at US$97.90 a tonne. Meanwhile, the most-traded ore on China’s Dalian Commodity Exchange rallied 2.4 per cent to 755.50 yuan (US$104.86) a tonne.
“This week’s western headlines will be dominated by whether Chinese authorities stick to their guns on the no-nonsense zero-COVID strategy or repeal these measures,” Atilla Widnell, Managing Director of Navigate Commodities, said.
BHP‘s US-traded depositary receipts declined 1.17 per cent. Earlier, the miner’s UK listing eased 0.26 per cent. Rio Tinto lost 0.78 per cent in the US and 0.3 per cent in the UK.
