Join our daily newsletter At The Bell to receive exclusive market insights
Futures action points to further down-pressure on the Australian share market after inflation worries fuelled a night of volatile losses on Wall Street.
ASX futures declined 45 points or 0.64 per cent after the Dow endured its worst night since February.
The S&P/ASX 200 skidded 76 points or 1.06 per cent yesterday to its heaviest loss in 11 weeks.
Wall Street
Inflation jitters fuelled a wild night on Wall Street before a mid-session reversal in growth stocks. The Nasdaq Composite fell 2.2 per cent to lead the initial sell-off, but finished just 12 points or 0.09 per cent in the red amid speculation about short-covering ahead of tonight’s consumer prices report.
The Dow Jones Industrial Average lost 474 points or 1.36 per cent after being down more than 600 points. The S&P 500 shed 36 points or 0.87 per cent.
Markets were rattled by a warning from highly-regarded hedge fund manager Stanley Druckenmiller that risk assets were in a “raging mania“. Druckenmiller said the Federal Reserve’s easy monetary policy and the White House’s stimulatory spending risked fuelling a bubble.
“I can’t find any period in history where monetary and fiscal policy were this out of step with the economic circumstances, not one,” Druckenmiller told CNBC. “If they want to do all this and risk our reserve currency status, risk an asset bubble blowing up, so be it. But I think we ought to at least have a conversation about it.”
Inflation worries have dominated equity headlines this week as commodity prices went parabolic. A record high in US job vacancies overnight sharpened concerns. Job openings surged 8 per cent in March to 8.12 million. Analysts said employers struggling to find workers to fill positions will likely be forced to increase wages, adding to inflationary pressures. Reuters reported food chain Chipotle Mexican Grill would raise the average hourly wage of its workers.
Central banks in the US and Australia expect a pick-up in inflation this year, but predict the up-lift would be transitory.
“The market is beginning to debate whether or not the Fed is right on inflation,” Peter Cardillo, chief market economist at Spartan Capital Securities, told Reuters. “Will this be more than transitory? That’s what the market is beginning to discount.”
Wall Street’s volatility index climbed more than 11 per cent to its highest level in two months. The VIX rose as high as 23.73 after trading well below 20 for much of the last month and a half.
Beaten-up tech stocks led the Nasdaq’s recovery. The S&P tech sector ended just 0.24 per cent in the red as Apple, Facebook, Alphabet, Amazon and Microsoft finished well off session lows. ‘Big Tech’ bore the brunt of inflation-worry selling on Monday, sending the Nasdaq down 2.55 per cent.
Australian outlook
The market is in the midst of one of its periodic bouts of vertigo. As always the question is how much longer this era of easy money (low interest rates, stimulus spending) can endure? Central banks and governments will pull the pin once inflation/employment recover, therefore inflation threatens a rally that lifted the market to record levels on Monday.
The S&P/ASX 200 suffered its biggest hit since February yesterday, neatly pre-empting the Dow’s overnight performance. It looks like this retrace has further to run today. BHP and Rio Tinto wobbled in overseas action overnight, however, damage was minimal as iron ore finished just off record levels (more below). Materials was the only US sector to advance, gaining 0.35 per cent.
Energy led the US retreat, falling 2.56 per cent as traders fretted about a ransomware attack that shut down a major US fuel pipeline. The financial sector skidded 1.67 per cent. Industrials dropped 1.44 per cent. Defensives also came under pressure as bond yields climbed.
Last night’s Federal Budget may offer trading opportunities, although much of the detail was released ahead of the formal announcement. Aged care and construction appeared to be winners from a cash splash intended to cut employment rates and spur the economy.
The weekly consumer sentiment report is due today.
The dollar inched up 0.03 per cent this morning to 78.42 US cents.
Commodities
BHP and Rio Tinto finished mixed in overseas trade as iron ore closed just below record levels. The spot price for ore landed in China dipped 65 cents or 0.3 per cent to US$228.90 a tonne. BHP’s US-listed stock eased 0.16 per cent and its UK-listed stock lost 1.94 per cent. Rio Tinto rallied 0.9 per cent in the US after losing 1.76 per cent in the UK.
Gold logged it first loss in five sessions as US bond yields rose. Metal for June delivery settled $1.50 or 0.1 per cent lower at US$1,836.10 an ounce. The NYSE Arca Gold Bugs Index gained 0.98 per cent.
Oil ended a choppy session slightly ahead as traders assessed the impact of a temporary fuel pipeline closure in the US. Brent crude settled 23 cents or 0.3 per cent higher at US$68.55 a barrel.
Copper set a new high in the US a day after a reversal. US-traded copper climbed 1 per cent to a record US$4.76 a pound.
“Physical demand in China is still quite healthy. There’s also tightness in copper concentrate supply, there’s a number of issues in Chile and there’s sulfuric acid shortages, too,” Xiao Fu, head of commodity market strategy at Bank of China International in the UK, told Reuters.
