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Aussie shares were poised to open little changed after rate-hike worries and retail margin pressures weighed on Wall Street.

ASX futures inched up two points or 0.03 per cent, signalling a subdued start following two straight declines. The S&P/ASX 200 sank 50.5 points or almost 0.7 per cent yesterday to its lowest close in two weeks.

Overnight, US stocks finished modestly lower. Oil dived after the US and China discussed ways to lower fuel prices. Gold logged its highest finish since June. Iron ore and copper declined.

Wall Street

Investors found the negatives in a generally strong earnings season, fretting about rising costs and the rates implications of surging retail sales.

The S&P 500 dropped 12 points or 0.26 per cent, but kept within 1 per cent of a record. The Dow Jones Industrial Average lost 211 points or 0.58 per cent. The Nasdaq Composite shed 52 points or 0.33 per cent.

Target smashed profit expectations and raised its full-year outlook, but saw its shares slump 4.73 per cent after warning it will absorb rising costs rather than pass them on to customers. Walmart fell for a second day after delivering a similar message on Tuesday night. Margins at both discount store operators have contracted as they battle supply-chain issues and higher costs for labour and transportation.

“Gross margin pressure highlights the risk to Target and peers from global supply chain,” Evercore’s Greg Melich said. “That risk appears likely to linger through holiday and into early 2022 if not beyond,” he added.  

Home improvement stores have been treated better by investors, due to greater ability to pass on costs. Lowe’s edged up 0.4 per cent after lifting its full-year forecast. Home Depot rose for a second day since reporting a strong result.

The final week of this quarterly reporting season has delivered encouraging news about the strength of consumption, but added to evidence of inflationary pressures.  

“The consumer is spending and engaging in this economy at a level that is beating expectations,” Keith Buchanan, portfolio manager at GLOBALT, said. “What’s hammered the market though is that for Target and Walmart, the two biggest retailers in the country from a brick-and-mortar standpoint, the costs of running those businesses are outpacing the strong consumer.”

Investors fear this week’s strong retail data and trading updates add to pressure on the Federal Reserve to lift rates off emergency settings.

“The Fed will hold as long as they can,” Joe Saluzzi, co-manager of trading at Themis Trading, told Reuters. “But if [inflation] continues to go higher, and you continue to see inflationary pressure, then it becomes a question of how many and how often will [rates] rise.”

Visa was the biggest drag on the Dow, falling 4.7 per cent after Amazon UK declared it will stop accepting payments from the company because of high transaction fees. Amazon Australia recently began charging Australians a fee for paying with Visa credit cards.

Australian outlook

A week that started with great promise has soured steadily. In two sessions the S&P/ASX 200 has gone from a two-month high (Monday) to a two-week low. In doing so, the index has given up 100 points.

Shrinking margins were at the root of much of Wall Street’s overnight malaise and also at the heart of the storm that engulfed the Australian banking sector yesterday. The ASX financial sector skidded to a six-week low after Commonwealth Bank reported competition among home lenders had knocked a hole in profits.

Bank investors may have to wait for a rebound: US financials fell 1.11 per cent overnight as long-term interest rates declined. Energy was another major drag, falling 1.74 per cent as crude prices dived. Materials gave up 0.64 per cent.

Bond proxies attracted a bid as yields fell. Real estate put on 0.64 per cent, health 0.16 per cent and utilities 0.13 per cent.

A positive for exporters is another down-leg in the dollar. The Aussie fell 0.5 per cent overnight to 72.65 US cents, a six-week low.

The day ahead is one of the busiest of this AGM season. Shareholders will hear from Goodman Group, Sonic Healthcare, Altium, BlueScope Steel, Western Areas, IGO, Northern Star, Mineral Resources, New Hope, AMA Group, Virtus Health, Cettire, Medibank and Freedom Foods.

IPOs: biotech Tissue Repair lists at 11 am AEDT. The company is developing healing products for chronic wounds and surgery aftercare. The listing of Parabellum Resources has been pushed back to next week.

RBA Assistant Governor Luci Ellis is due to address an online event hosted by the Committee for Economic Development of Australia at 3 pm AEDT.

Commodities

Oil slumped to its lowest close since early October on reports the US and China discussed a joint release of strategic reserves to ease petrol prices. Brent crude settled US$2.15 or 2.6 per cent lower at US$80.28 a barrel, the weakest finish since October 1.

“The Biden administration has clearly stated its desire to seek lower oil prices, and the market is evaluating what the administration can do to contain prices, given very limited tools in the administration’s arsenals,” Manish Raj, chief financial officer at Velandera Energy Partners, told MarketWatch.

Gold shook off two days of losses, rising to its highest finish since June as treasury yields declined. Metal for December delivery settled US$16.10 or 0.9 per cent ahead at US$1,870.20 an ounce. The NYSE Arca Gold Bugs Index firmed 0.81 per cent.

Iron ore continued to hover around the US$90 a tonne level. Inventories at Chinese ports tracked by SMM increased last week despite a decline in shipments. SMM reported some steel mills had been operating at or below break-even following a slump in demand. The spot price for ore landed at Tianjin eased 45 US cents or 0.5 per cent to US$89.95 a tonne.

BHP‘s US-listed stock fell 0.81 per cent and its UK-listed stock 0.46 shed per cent. Rio Tinto edged up 0.21 per cent in the US after dipping 0.01 per cent in the UK.

Copper wilted under pressure from a surging greenback. December copper dropped 2 per cent to US$4.266 a pound on Comex.

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