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Australian shares face mild early pressure following a mixed finish on Wall Street as traders weighed evidence that rate hikes were starting to bite.
ASX futures dipped 15 points or 0.2 per cent as the Dow and S&P 500 gave back some of Wednesday night’s bumper gains. The Nasdaq nudged higher.
On commodity markets, gold had its best session in more than two years. Copper rose to a two-week high. Iron ore and oil eased around 0.1 per cent. The dollar held above 68 US cents.
Wall Street
The main indices finished mixed as tonight’s monthly employment data capped follow-up buying interest after one of the biggest rallies of the year. US stocks soared on Wednesday night on signs of a slowdown in interest rate hikes. Overnight, a contraction in manufacturing activity and a dip in inflation suggested this year’s rate increases were starting to cool the economy.
The S&P 500 eased in choppy trade to a loss of four points or 0.09 per cent. The Nasdaq Composite gained 14 points or 0.13 per cent.
The Dow Jones Industrial Average slid 195 points or 0.56 per cent. Salesforce was the biggest drag on the blue-chip average, falling 8.09 per cent on a weak sales outlook and news co-CEO Bret Taylor will stand down.
Retailers declined after Costco reported a contraction in November sales, triggering broader worries about consumer spending during peak shopping season. Costco fell 6.56 per cent, Macy’s 1.34 per cent and Target 1.19 per cent.
Inflation continued to subside from four-decade highs, according to the Commerce Department’s personal consumption expenditures price index. The index increased a modest 0.3 per cent in October. On an annual basis, the index dropped to 6 per cent from 6.3 per cent in September.
Core inflation, which strips out volatile food and energy prices, rose 0.2 per cent, less than the 0.3 per cent anticipated by economists.
A separate measure of factory activity contracted for the first time in two and a half years. The Institute of Supply Management’s manufacturing index dropped to 49 last month from 50.2 in October. Readings below 50 indicate shrinking activity.
Together, the reports appeared to bolster the argument for a slowdown in rate hikes.
“On a normal day, the package of data this morning would be pretty risk-on, but after the rally yesterday, I think it’s not quite good enough to push another leg higher,” Ross Mayfield, investment strategy analyst at Baird, told Reuters.
Stocks soared on Wednesday night after Federal Reserve Chair Jerome Powell said the central bank was ready to reduce the size of interest rate increases after four straight increases of three-quarters of a percentage point. The S&P 500 jumped 3.09 per cent. The Nasdaq Composite popped 4.41 per cent.
Investors will look to tonight’s November employment data for further evidence that the Fed can take its foot off the interest rate accelerator. Economists polled by Dow Jones expect the report to show the economy created 200,000 jobs, down from 261,000 in October.
“A big number will spook the markets further that the Fed’s not going to be able to slow down their pace of rate hikes,” Megan Horneman, CIO at Verdence Capital Advisors, told CNBC.
“A so-so number, I think the markets can maybe rally on that,” she added. “But if you get a really weak number, it’s just going to spook investors after such a strong rally we’ve seen in November.”
Australian outlook
A consolidation session looks likely after another big leap forward this week. The S&P/ASX 200 climbed almost 1 per cent yesterday to its strongest close since early May. The Australian benchmark has put on more than 220 points or 3.1 per cent this week.
Positive news from Wall Street on Wednesday night was bolstered by news yesterday that Chinese authorities loosened Covid restrictions in several cities following weekend protests. Guangzhou, Shijiazhuang, Chengdu and other major cities announced they were easing controls on movement and testing requirements. Beijing made changes to isolation requirements.
Vice-premier Sun Chunlan said the situation was changing as the latest virus variant weakened and more people were vaccinated. A former editor of state media with close connections to the Communist Party said the nation was “speeding up to cast aside large-scale lockdowns”.
Optimism about the prospects for improved Chinese demand for Australian exports helped the dollar edge up 0.22 per cent to 68.14 US cents.
Battered growth stocks continued to outperform in the US. Communication services gained 0.29 per cent. Also positive were health +0.24 per cent and tech +0.07 per cent.
Financials were the session’s worst performer, falling 0.71 per cent. Materials, real estate, consumer staples and energy also finished lower.
Turning to today’s economic data, the Australian Bureau of Statistics releases October retail sales figures at 11.30am AEDT. Reserve Bank Governor Philip Lowe takes part in a panel discussion about inflation in Bangkok from 1.40 pm.
Premier Investments and Synlait Milk hold AGMs.
IPOs: New Zealand-listed travel operator Tourism Rental Holdings adds an Australian listing today (ASX code: THL). The firm specialises in renting RVs in Australasia, Europe and North America.
Commodities
Gold was the night’s standout, surging to its largest single-day gain since April 2020 as the US dollar and treasury yields extended Wednesday night losses.
Precious metals have struggled this year as a steady rise in interest rates dulled demand for assets that do not pay a yield. Recent pressure on the greenback and yields has reignited interest in metals as an investment class.
“Gold likes the combination of lower interest rates and a weaker dollar,” Marc Chandler, chief market strategist at Bannockburn Global Forex, said.
Gold for February delivery settled US$55.30 or 3.1 per cent ahead at US$1,815.20 an ounce. Silver climbed US$1.06 or 4.9 per cent to US$22.841 an ounce. The NYSE Arca Gold Bugs Index climbed 3.49 per cent.
Copper tested a two-week high after Chinese authorities relaxed Covid restrictions that have had a chilling effect on the global economy.
“We believe that Chinese authorities are shifting to a ‘living with COVID’ stance, as reflected in new rules that allow people to do ‘home isolation’ instead of being ferried away to quarantine facilities,” ANZ analysts wrote.
Benchmark copper on the London Metal Exchange climbed 1.47 per cent to US$8,360 a tonne. Aluminium rallied 0.33 per cent, nickel 1.88 per cent, zinc 0.94 per cent and tin 2.11 per cent. Lead shed 0.5 per cent.
Oil gave up early gains ahead of this week’s OPEC+ meeting. Brent crude settled nine US cents or 0.1 per cent lower at US$86.88 a barrel.
A modest rally in iron ore on the easing of Covid restrictions lost momentum by the close. The most-traded January ore on the Dalian Commodity Exchange finished less than 0.1 per cent lower at 766.50 yuan a ton.
BHP‘s US-traded depositary receipts gained 0.35 per cent. Earlier, the miner’s UK listing shed 0.83 per cent. Rio Tinto put on 0.82 per cent in the US and 0.23 per cent in the UK.
