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A soggy night on Wall Street points to a subdued start to Australian trade.
ASX futures eased three points or 0.04 per cent as the Dow declined for a third session. Meme stock mania continued to spread.
Oil and copper retreated. Gold inched higher. Iron ore firmed above US$200 a tonne. Price movements in most markets were minimal.
Wall Street
US stocks faded steadily ahead of tonight’s much-anticipated consumer inflation report. The session was the latest in a string characterised by weak participation, low volatility and lack of direction.
“We’ve seen very low volatility over the past week,” John Roe, head of multi-asset funds at Legal & General Investment Management, told the Wall Street Journal. “As we get into the warmer weather, we have less market participants and a less volatile environment. This reduces liquidity.”
The S&P 500 turned negative in the final hour, falling eight points or 0.18 per cent. The Dow Jones Industrial Average dropped 153 points or 0.44 per cent to a third straight loss. The Nasdaq Composite eased 13 points or 0.09 per cent.
Trading volumes and volatility have contracted with the start of the northern summer holiday season. The S&P 500 has not moved more than 1 per cent in either direction in 13 sessions, the longest run since before the start of the pandemic.
The late sell-off came as investors pared risk ahead of tonight’s May Consumer Price Index. While the market expects a decline in the rate of price growth, the risk of a shock has capped buying interest this week. A strong result would place further pressure on the Federal Reserve to revise its market-friendly policy settings.
A sharp decline in bond yields this week appeared to support the Fed’s argument that this year’s spike in inflation will be transitory. Overnight, the yield on ten-year US treasuries skidded more than five basis points to 1.492 per cent.
“The bond market is signalling this is all very transitory,” Rhys Williams, chief investment officer of the Opportunistic All Cap Equity Strategy at Spouting Rock Asset Management, told Investing.com. “With the 10-year treasury yield at about 1.50%… clearly the market doesn’t seem very nervous about this [inflation] print as much as maybe individual portfolio managers are.”
Reddit’s army of retail investors found a couple of new playthings: Clean Energy Fuels jumped 31.52 per cent and Workhorse Group 8.47 per cent after attracting interest on WallStreetBets. Clover Health – Tuesday night’s big winner – fell 23.61 per cent.
Australian outlook
The domestic market has pretty much ignored soft US leads for the last week, setting a run of all-time highs. The S&P/ASX 200 recorded a sixth straight intraday record yesterday before fading to a loss of 22 points or 0.31 per cent.
However, last night’s underlying dynamics do not seem supportive of fresh highs today. Bank stocks are likely to drag as falling borrowing costs squeeze margin opportunities. The US financial sector fell 1.06 per cent.
Materials – the other pillar of the ASX – fell 0.76 per cent in the US after strong Chinese factory gate prices and weak consumer inflation raised questions about manufacturers’ ability to pass on costs.
US industrials and energy stocks were also weak, falling 1.03 and 0.56 per cent, respectively. Interest in growth stocks was muted even as bond yields tumbled: US tech inched up 0.06 per cent. Dull-but-safe health and utilities were the night’s best performers, rising 1 and 0.85 per cent, respectively.
Trading volumes have held up pretty well here. There is no evidence yet of contagion from the drop in US market participation.
The end of the financial year is likely to play an increasing role in market behaviour as the month progresses. Traditionally, the year’s winners add to gains as fund managers add them to their portfolios before reporting, while losers extend their declines as investors lock in losses to reduce their tax bills.
Two companies are scheduled to list today: Argenica Therapeutics and Salter Brothers Emerging Companies.
The dollar declined 0.09 per cent overnight to 77.29 US cents.
Commodities
Mining stocks came under pressure despite iron ore firming above US$200 a tonne. The spot price for ore landed in China rose $3.10 or 1.5 per cent to US$213.50 a tonne. BHP’s US-listed stock dropped 2.09 per cent and its UK-listed stock shed 2.07 per cent. Rio Tinto fell 1.96 per cent in the US and 2 per cent in the UK.
Copper retreated after data showed Chinese factories facing soaring input costs were struggling to pass them on to consumers. The May producer price index jumped 9 per cent year on year, the fastest rise in costs since 2008. Consumer inflation was muted, signalling manufacturers were absorbing costs. US-traded copper fell almost 0.6 per cent to US$4.53 a pound.
Gold inched higher, supported by declining US yields. Metal for August delivery settled $1.10 or 0.1 per cent ahead at US$1,895.50 an ounce. The NYSE Arca Gold Bugs Index eased 0.36 per cent.
Oil finished little changed. West Texas Intermediate dipped nine cents or 0.1 per cent to US$69.96 a barrel. The global benchmark, Brent crude, settled unchanged at US$72.22 a barrel.
