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The share market was poised to open under pressure for a fourth day after the S&P 500 fell deeper into bear market territory ahead of tonight’s US interest rate announcement.
ASX futures declined 40 points or 0.6 per cent following a mixed close on Wall Street. The S&P 500 fell for a fifth night. The Nasdaq eked out a slim gain in choppy action. The Dow declined.
Oil, iron ore, gold and other metals retreated. The dollar slid to a four-week low.
The S&P/ASX 200 has fallen for five of the last six sessions, closing yesterday at a 16-month low as traders braced for sharply higher rates.
Wall Street
A “wait and see” session ahead of tonight’s Federal Reserve policy update saw two of the three major indices shed early gains. Treasury yields continued to surge ahead of a meeting that could see the central bank raise its benchmark rate by up to 100 basis points.
The S&P 500 fell 14 points or 0.38 per cent. The Dow Jones Industrial Average finished 152 points or 0.5 per cent lower after being up as much as 170 points and down as much as 370 points. The Nasdaq Composite held on to a gain of 19 points or 0.18 per cent.
An on-going sell-off on bond markets kept traders on edge. The yield on ten-year treasuries hit an 11-year high in anticipation of an aggressive rates outlook tonight. The two-year yield rallied to 3.43 per cent.
“If the rates aren’t done going up then the stock market’s not done going down,” Jim Paulsen, chief investment strategist at The Leuthold Group, told CNBC.
The Fed began a two-day meeting and will hold a press conference tonight. The CME Group’s FedWatch tool indicates a 90 per chance of a 75-basis-point rate increase. The odds on a massive hike rose substantially after inflation hit a 41-year high last month. Goldman Sachs and JPMorgan Chase were among the banks predicting a 75-point raise.
Wholesale inflation data released overnight did little to ease pressure on the Fed. The producer price index increased by 0.8 per cent last month, twice the April rate. The 12-month increase in prices was 10.8 per cent. Core inflation climbed 0.5 per cent.
“It will be some time before inflation slows enough for the Fed to feel more comfortable shifting from a very hawkish policy stance,” Veronica Clark, economist at Citigroup, told Reuters.
The S&P 500 fell into a bear market on Monday and closed this morning more than 21 per cent off its January peak. The pandemic bear market of 2020 bottomed at 33.9 per cent. Last night’s decline extended the benchmark’s losing run to five sessions, the longest since January.
Australian outlook
No relief yet for Australian investors as tonight’s Fed meeting casts a long shadow. US traders remained reluctant to commit until they see just how much Friday’s US inflation data has steepened the rates outlook.
The S&P/ASX 200 suffered a heavy blow yesterday, tumbling 246 points or 3.55 per cent to a 16-month low. Those shockwaves are unlikely to settle just yet, particularly with pressure on commodity prices overnight.
The US materials sector dropped 0.84 per cent. BHP and Rio Tinto continued to lose altitude in overseas trade (more below). Financials, the ASX’s other key sector, dropped 0.94 per cent.
Bond proxies struggled as surging bond yields dulled their appeal. Utilities shed 2.58 per cent, consumer staples 1.29 per cent and healthcare 1.07 per cent.
Tech was the pick of US sectors, rising 0.62 per cent. Energy was the only other winner, inching up 0.07 per cent.
The dollar has been collateral damage to five days of “risk-off” selling. After trading as high as 72.36 US cents last week, the Aussie slumped 1.03 per cent this morning to 68.69 US cents.
Westpac releases monthly consumer sentiment figures at 10.30 am AEST. Quarterly housing data follows at 11.30 am.
An expected rate cut from China could help sentiment. Economists believe the People’s Bank will reduce the rate on its medium-term lending facility today to cushion the economy from the impact of Covid lockdowns.
A midday economic update from China could also impact how the session evolves. China’s National Bureau of Statistics releases data on May factory output, retail sales, unemployment and investment. A weak set of results would have implications for demand for Australian raw materials.
Commodities
Commodity prices retreated as the US dollar strengthened and renewed Chinese efforts to contain Covid outbreaks weighed on demand.
The spot price for iron ore landed in China fell US$1.27 or 0.9 per cent to US$138.26 a tonne. The most-traded ore contract on the Dalian Commodity Exchange hit a three-week low before closing 0.1 per cent lower at US$134.11.
“The risk of further lockdowns remains high while the dynamic-zero covid-19 approach remains in place,” Fitch Ratings said.
On the London Metal Exchange, benchmark copper dropped 0.7 per cent to US$9,218.75 a tonne. Aluminium shed 2.2 per cent, nickel 2.6 per cent, lead 1.2 per cent and tin 5.5 per cent. Zinc edged up 0.1 per cent.
Oil retreated after Iran said it still hoped to revive a nuclear deal with the US that would ease sanctions on Iranian crude. Brent crude settled US$1.10 or 0.9 per cent lower at US$121.17 a barrel.
Natural gas in the US skidded 16.5 per cent to a five-week low on news a damaged plant in Texas expects to restore partial production within 90 days.
Gold booked its weakest close in a month ahead of tonight’s Fed rates announcement. Metal for August delivery settled US$18.30 or 1 per cent lower at US$1,813.50 an ounce. The NYSE Arca Gold Bugs Index sank 2.6 per cent.
BHP‘s US-traded depositary receipts declined 1.38 per cent. The miner’s UK listing dipped 0.18 per cent. Rio Tinto gave up 2.02 per cent in the US and 0.45 per cent in the UK.
