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Aussie shares were set to open lower following losses in the US as strong economic data underscored the likelihood of aggressive rate increases and JPMorgan’s chief warned of a “hurricane” ahead.   

ASX futures declined 55 points or 0.76 per cent after Wall Street’s main indices fell for a second day. 

Iron ore, oil, copper and gold rose. Nickel declined. The dollar was little changed below 72 US cents.

Wall Street

US stocks finished lower in choppy trade as investors prepared for higher rates to slow the economy and crimp corporate profits.

The S&P 500 dropped 31 points or 0.75 per cent. The Dow Jones Industrial Average finished 177 points or 0.54 per cent in the red after being up as much as 280 points and down 400 points. The Nasdaq Composite lost 87 points or 0.72 per cent.

The main indices gave up opening gains as reports on manufacturing and job openings did little to alter expectations for a series of sharp rate hikes this year. The Federal Reserve has indicated it will lift its target rate in 50 basis point jumps until inflation is under control.

Overnight, San Francisco Reserve Bank President Mary Daly said the central bank had to get rates to neutral (around 2.5 per cent) “as quickly as we can”.

The Institute of Supply Management’s manufacturing gauge climbed to 56.1 last month from 55.4 in April. Job openings declined in April but remained at historically elevated levels. Record-low lay-offs underlined the tightness of the labour market and pressure on wages.

“Normally, such signs of a strong economy would be welcomed by markets,” Goldman’s Chris Hussey wrote. “But, today, investors are doing the opposite, perhaps out of concern that the Fed’s hikes thus far have not done enough to tamp down inflation, and that the Fed may have to do more than previously expected, and risk skipping the ‘soft landing’ they’re aiming for, and sending the economy into a recession.”

Bond markets sold off, driving yields higher. Higher yields increase the cost of borrowing and make the returns offered by stocks less attractive.  

JPMorgan Chase fell 2 per cent after CEO Jamie Dimon warned the US economy was heading into a “hurricane”. Dimon said investors were underestimating the impact of quantitative tightening (QT) as the Fed unwinds its bloated balance sheet. The central bank’s program starts this month.

“You better brace yourself,” he told a financial conference. “JPMorgan is bracing ourselves and we’re going to be very conservative with our balance sheet.”

Dimon also warned of pricing pressures fuelled by the war in Ukraine. Oil, he said, “almost has to go up in price”. Wheat and other food also faced upward pressure from the disruptive impact of the war.

A profit upgrade lifted Dow component company Salesforce 9.88 per cent. Facebook owner Meta Platforms skidded 2.58 per cent late in the session after Chief Operating Officer Sheryl Sandberg announced she was standing down.

Australian outlook

The Australian market ignored Tuesday night’s US losses as a new month got underway, but is unlikely to repeat the feat. Most of the start-of-month institutional portfolio rebalancing that supported the ASX yesterday should be over, leaving the market at the mercy of broader currents.

There was little in the Wall Street action to encourage hopes of another rally here. Energy was the only sector to improve, rising 1.76 per cent.

Financials skidded 1.67 per cent after Jamie Dimon’s dire warning about the economic outlook. Materials, the other pillar of the ASX, dropped 1.03 per cent.

Bond proxies retreated as rising rates diminished their appeal as alternative investments. Healthcare slid 1.42 per cent, consumer staples 1.31 per cent and real estate 1.1 per cent.

The S&P/ASX 200 ticked up 0.32 per cent yesterday as gains in blue-chips outweighed declines in battery metals miners. A few traders will be licking their wounds after a brutal session for lithium and nickel stocks.

The ABS releases April retail sales and trade data at 11.30 am AEST.

The dollar eased 0.09 per cent to 71.76 US cents.

Commodities

Oil climbed as the lifting of Covid restrictions in Shanghai offset any concerns ahead of a meeting tonight of the Organization of the Petroleum Exporting Countries and allies (OPEC+). The oil cartel was reportedly due to discuss exempting Russia from a production pact, potentially bringing more crude onto the market.

Brent crude for August delivery settled 69 US cents or 0.6 per cent higher at US$116.29 a barrel. The US benchmark firmed 0.5 per cent.

ING commodity strategist Warren Patterson said OPEC+ would struggle to increase output, even if Russia is excluded from the current cap.

“Given that most members have failed to hit their output targets consistently for several months, it will likely be a struggle for the group as a whole to increase output more aggressively,” Patterson wrote.

Iron ore also caught a tailwind from expectations of higher demand as China reopens. The spot price for ore landed in China firmed 32 US cents or 0.2 per cent to US$135.34 a tonne. Futures on the Dalian Commodity Exchange climbed 1.1 per cent to 905.5 yuan.

Copper and tin rallied  during a mixed session on the London Metal Exchange. Benchmark copper climbed 0.6 per cent to US$9,498.50 a tonne. Tin gained 0.8 per cent. Aluminium dropped 2.2 per cent, nickel 1 per cent, lead 0.5 per cent and zinc 1.4 per cent.

BHP‘s US-traded depositary receipts put on 1.33 per cent. The miner’s UK stock rose 1.39 per cent.  Rio Tinto dipped 0.29 per cent in the US after edging up 0.14 per cent in the UK.

Gold underperformed platinum and silver as precious metals shrugged off a strengthening greenback. Gold for August delivery settled 60 US cents or less than 0.1 per cent ahead at US$1,843.30 an ounce.

Platinum jumped 2.9 per cent to US$996 an ounce. Silver rose 1.1 per cent to US$21.88. The NYSE Arca Gold Bugs Index lifted 0.56 per cent.

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