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Aussie shares face early pressure after soft jobs data and an earnings miss from General Motors pressured Wall Street.

Cyclical sectors steered the Dow and S&P 500 lower amid concern the Federal Reserve was preparing to raise rates as the economy loses momentum. Tech gains helped the Nasdaq Composite edge higher.

ASX futures eased 13 points or 0.18 per cent.  The S&P/ASX 200 closed at a record high yesterday, supported by strength in mining stocks.

Overnight, BHP and Rio Tinto declined in US trade. Iron ore and copper fell. Oil retreated for a third night. Gold eked out a small gain.  

Wall Street

US stocks closed mixed but broadly lower as traders sold stocks tied to the economic cycle. The Dow Jones Industrial Average slumped 324 points or 0.92 per cent, finishing near its session low.

The S&P 500 gave up 20 points or 0.46 per cent. The Nasdaq Composite squeezed out a gain of 19 points or 0.13 per cent.

Traders sold off stocks and bought bonds ahead of tomorrow night’s July government jobs report after private payrolls data came in well short of expectations. ADP’s report showed private companies hired an additional 330,000 workers last month, barely half the 653,000 expected by economists polled by Dow Jones.

“July payroll data reports a marked slowdown from the second quarter pace in jobs growth,” ADP chief economist Nela Richardson said.

The report sharpened concerns that the pandemic rebound may have peaked as the Fed lays the groundwork for reducing support. Overnight, Fed Reserve Vice Chair Richard Clarida said growth might be strong enough to raise rates in early 2023. Clarida said he would support a reduction in the bank’s quantitative easing program “later this year” if the economy improved as he expected.

“Ever since 2013, the moment you start talking about tapering or higher interest rates, stocks come under pressure,” Kent Engelke, chief economic strategist at Capitol Securities, told MarketWatch. “The market is addicted to high-power money. It’s like heroin.”

Growth stocks outperformed value stocks as weak economic signals fuelled a rotation from cyclicals. The Russell 1000 Growth Index inched up 0.07 per cent, versus a 0.95 per cent slump in the Value Index. Facebook, Netflix and other stay-at-home-stocks rallied.

General Motors tumbled 8.91 per cent following an earnings miss. The car-maker’s second-quarter result was marred by US$1.3 billion in recall costs for its troubled Chevrolet Bolt electric vehicle.

Bond yields trimmed losses as an index of activity in the services sector climbed from 60.1 in June to 64.1 last month, the highest on record.  

Australian outlook

A downbeat start appears likely off generally negative leads. Any strength on Wall Street was in sectors where the ASX is under-powered: technology +0.19 per cent and communication services (social media, etc) +0.23 per cent.

The sectors with the biggest weightings on the ASX declined: materials fell 0.99 per cent, financials 0.76 per cent. Energy stocks slid 2.93 per cent. Industrials lost 1.37 per cent.

BHP and Rio Tinto did much of the heavy lifting yesterday as the S&P/ASX 200 rallied 29 points or 0.38 per cent, closing above 7500 for the first time. The giants face headwinds today following setbacks in copper and iron ore, as well as declines in their US listings (more below).

Bumper production reports last month have helped keep the miners at/near record levels despite declines in key exports. The question is how far bulk metals would need to fall before gravity kicked in?

News Corp reports full-year and fourth-quarter earnings today. Sleep apnea specialist ResMed provides a quarterly update.  

IPOs: Perth-based Kimberly iron ore explorer Pantera Minerals lists at 11.30 am AEST. June trade figures are due at the same time.

The dollar declined 0.22 per cent to 73.8 US cents.

Commodities

Oil fell for a third session as an unexpected rise in US inventories added to headwinds. Crude has been under pressure all week following soft US and Chinese manufacturing updates and worries about the demand implications of rising Covid infection rates in many parts of the world.

“The risks to demand in China remain the number one topic,” Barbara Lambrecht, analyst at Commerzbank, wrote.

Brent crude settled US$2.03 or 2.8 per cent lower at US$70.38 a barrel. The US benchmark, West Texas Intermediate, fell 3.4 per cent to a three-week low.

BHP and Rio Tinto rallied in UK trade, then rolled over in the US as the mood soured. BHP’s US-listed stock shed 0.89 per cent after its UK-listed stock gained 0.21 per cent. Rio Tinto lost 0.96 per cent in the US after edging up 0.18 per cent in the UK. The spot price for iron ore landed in China dipped US$1 or 0.5 per cent to US$183.15 a tonne.

Copper unwound initial gains as the US dollar steadied. Benchmark copper on the London Metal Exchange finished 0.8 per cent lower at US$9,443.75 a tonne. Aluminium and nickel gave up 0.8 per cent. Tin eased 0.3 per cent. Lead improved 0.1 per cent, zinc 0.2 per cent.

Gold closed modestly ahead as US bond yields tested multi-month lows. Metal for December delivery settled 40 US cents or less than 0.1 per cent higher at US$1,814.50 an ounce. The NYSE Arca Gold Bugs Index fell 0.94 per cent.

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