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A volatile week for Australian stocks looked set for another sharp down-leg after Wall Street added to its biggest monthly decline since March 2020.
Futures trading pointed to a heavy loss at today’s open. SPI 200 futures declined 114 points or 1.56 per cent. A fall of that scale would erase most of yesterday’s 136-point rebound on the S&P/ASX 200, sealing a fourth straight weekly decline.
Overnight, oil, iron ore and gold rallied. Industrial metals retreated following weak Chinese factory data. The dollar firmed above 72 US cents.
Wall Street
US stocks ended a soft quarter and the worst month since the start of the pandemic in retreat as a stop-gap government funding bill was overshadowed by weak economic data and inflation worries.
The S&P 500 declined 52 points or 1.19 per cent, finishing at a session low. The Dow Jones Industrial Average dropped 547 points or 1.59 per cent. The Nasdaq Composite sank 64 points or 0.44 per cent to a fifth straight loss.
The S&P 500 lost 4.8 per cent during its worst month since the initial pandemic sell-off. The Dow shed 4.3 per cent and the Nasdaq 5.3 per cent.
“September lived up to its reputation and dented stock portfolio returns, but not too badly,” Ed Yardeni of Yardeni Research said. “There has been a lot of concern that higher wages, higher energy prices, and higher transportation costs will weigh on earnings for the remainder of this year and into 2022.”
For the quarter, the S&P 500 eked out a slim advance, the only one of the three major indices to do so. The Dow lost 1.9 per cent and the Nasdaq 0.3 per cent.
Retailers declined after Bed Bath & Beyond warned sales and profits had been dented by supply-chain issues and inflationary pressures. The retailer slashed its revenue and earnings outlook following a sharp downturn in foot traffic in August. The share price was savaged 22.18 per cent.
Other retailers retreated as analysts reassessed their prospects. Walgreens Boots Alliance fell 3.41 per cent, Home Depot 2.57 per cent and Walmart 0.75 per cent.
Also troubling investors, claims for unemployment benefits climbed for a third straight week. First-time claims increased by 27,000 to 362,000 last week. Continuing claims rose by 131,000 to 2.84 million.
The market started the day higher after the Senate and House of Representatives approved a stopgap bill to avert a government shutdown. The bill will fund government operations until early December. However, Congress has not yet reached a deal on the debt limit, which will be hit on October 18, according to the Treasury, or on the White House’s infrastructure plans.
“The market’s been resilient, but the risk tied up in the policy headlines over the debt ceiling, the chaos around these spending bills is weighing on the markets a bit as the quarter comes to a head,” Ross Mayfield, investment strategy analyst at Baird, told Reuters.
Australian outlook
This week’s roller coaster ride appears set for another hair-raising drop. The S&P/ASX 200 was misdirected yesterday by a strong advance in US futures and will likely give most, if not all, of yesterday’s gains back.
What a week. The index has swung through a 271-point trading range from a Monday high of 7416 to a Wednesday low of 7146. Today’s futures suggest the week will end nearer the lower end of that range than the top.
All 11 US sectors declined. Tech stocks suffered less than most, falling 0.68 per cent. Industrials took the biggest hit, sliding 2.11 per cent. Financials shed 1.62 per cent and materials 1.59 per cent.
Gold stocks provided a haven. The NYSE Arca Gold Bugs Index gained 2.02 per cent as the precious metal rebounded from two days of selling (more below).
The Australian Industry Group’s September manufacturing index was due for release at 7.30 am AEST. Trade in China is suspended today for the start of the Golden Week holiday.
IPOs: a huge week for new listings continues with the debuts of West Cobar Metals at 11.30am AEST and C29 Metals at 12.30 pm. Explorer West Cobar has four copper/gold prospects west of Cobar in NSW. C29 is also a copper explorer with projects in NSW, SA and WA.
The dollar bounced 0.68 per cent overnight to 72.27 US cents.
Commodities
A rebound in iron ore ahead of Chinese Golden Week holidays has been one of the few bright spots over the last week. The spot price for ore landed in China rose US$3.45 or 3 per cent yesterday to US$118.25 a tonne. Ore prices have risen on six of the last seven sessions as Chinese buyers restocked ahead of the holidays, which start today.
BHP‘s US-listed stock rallied 1.71 per cent and its UK-listed stock put on 1.42 per cent. Rio Tinto gained 1.64 per cent in the US and 1.93 per cent in the UK.
Oil finished mixed despite reports China had told state-owned energy operators to secure reserves for the winter. Brent crude settled 12 US cents or 0.2 per cent lower at US$78.52 a barrel. The US benchmark firmed 20 cents or 0.3 per cent to US$75.03.
China has been hit by blackouts due to fuel shortages. Factories have been ordered to suspend operations, adding to supply-chain issues.
“This could be a game changer for crude oil,” Phil Flynn, senior market analyst at The Price Futures Group, said. “China is realizing that this energy crisis could impact all parts of the economy because of coal shortages,” he added.
Gold pulled out of a two-session dive that drove prices to their lowest in around six months. Metal for December delivery bounced US$34.10 or 2 per cent to settle at US$1,757 an ounce.
“Bargain hunters are picking up gold as a safe haven as smart investors are concerned about a Chinese real estate crash and slowdown,” Jeb Handwerger of Gold Stock Trades told MarketWatch.
Copper finished its first losing quarter in a year and a half below US$9,000 a tonne. Industrial metals sold off after Chinese factory activity contracted for the first time since March 2020.
Benchmark copper on the London Metal Exchange fell 2.5 per cent overnight to US$8,944.50 a tonne. Aluminium dropped 1.8 per cent, nickel 2.2 per cent, lead 1.7 per cent, zinc 2.2 per cent and tin 4.2 per cent.
