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The share market looked set to open modestly lower as investors balance declines in commodities against gains on Wall Street.

US stocks built on this week’s rebound as recession fears encouraged buyers into defensive sections of the market.

ASX futures eased eight points or 0.12 per cent as oil and most metals retreated. Iron ore rose for the first time in ten sessions. The dollar steadied near 69 US cents.  

The S&P/ASX 200 is around 54 points ahead for the week and within reach of its first weekly advance in three weeks.

Wall Street

US stocks rose at the end of a choppy session to extend this week’s rebound rally. A decline in treasury yields boosted companies that depend most on borrowing to fund growth.  

The S&P 500 gained 36 points or 0.95 per cent. The Dow Jones Industrial Average put on 194 points or 0.64 per cent. The Nasdaq Composite led with a rise of 179 points or 1.62 per cent.

Trading turned defensive as Federal Reserve Chair Jerome Powell concluded two days of testimony before Congress. Recession fears were sharpened by an “unconditional” pledge from the Fed chief to fight inflation.

“We can’t fail on this. We really have to get inflation down to 2%,” he said.

“I don’t think that a recession is inevitable,” he added.

Economists fear stock prices will become collateral damage to the central bank’s focus on inflation.

“The Fed doesn’t have the market’s back anymore,” Anthony Saglimbene, global market strategist at Ameriprise Financial, told MarketWatch. “I think the Fed is unbothered of slowing growth if it causes a shallow recession.”

Surveys showed business activity slowed this month as surging prices dampened consumer demand. The S&P services index fell to a five-month low. Manufacturing slowed to a two-year low. New orders declined for the first time since 2020.

An on-going rally in government bonds drove the yield on ten-year treasuries to a two-week low. (Yields move inversely to prices.) Declines in yields increase the appeal of parts of the stock market offering similar safe, predictable returns as bonds. They also reduce the cost of borrowing for companies.

“The market action that we’ve seen today and yesterday at least on the internals suggests that the market is becoming increasingly concerned with the global economic growth, highlighted by the fact that the front end of the US yield curve is, the rates are going down a lot,” Scott Ladner, chief investment officer at Horizon Investments, told CNBC.

Borrowing-dependent tech stocks rose, along with bond proxies such as utilities, healthcare and real estate. Commodity stocks fell with financials.

Australian outlook

A soft start looks likely as heavy falls in bellwether commodity copper and other metals dampen enthusiasm to chase US gains. Wall Street was strong where it matters least for the ASX, and weak where the ASX is strong.

The pick of the US sectors were traditional defensives. Utilities, healthcare and real estate all gained more than 2 per cent. Consumer staples added rose 2 per cent.

The two sectors with the biggest weighting on the ASX – materials and financials – shed 1.4 and 0.46 per cent, respectively. Index heavyweights BHP and Rio Tinto continued to fall in overseas trade (more below). Also weak were energy -3.75 per cent and industrials -0.53 per cent.

Nonetheless, this has been a cautiously positive week for Australian investors. The S&P/ASX 200 would need to lose more than 54 points this session to book a third week of losses. Bond proxies spearheaded yesterday’s 0.31 per cent rally and will likely need to fire again today if the market is to rise.

The only event in the domestic economic calendar comes too late to affect today’s trade. Reserve Bank Governor Philip Lowe takes part in an online panel at 9.30pm AEST to discuss central banks and inflation.

The dollar eased 0.12 per cent this morning to 68.96 US cents.

Commodities

Copper plunged to a 16-month low as fears of a global slowdown overshadowed a Chinese pledge to support its economy. The metal is sometimes called “Dr Copper” for its ability to predict the global economic outlook.  

“The [US Federal Reserve] is tightening aggressively. Holding copper’s getting expensive. The commodity world’s flagship is under fire,” Tom Price, analyst at Liberum, told Reuters.

Benchmark copper on the London Metal Exchange slumped 4.3 per cent to US$8,397 a tonne. US-traded copper dropped 20 cents or 5.2 per cent to US$3.739 a pound.

Elsewhere on the LME, tin declined 6.7 per cent, lead 3.7 per cent and nickel 1.6 per cent. Aluminium finished flat. Zinc edged up 0.4 per cent.

BHP‘s US-traded depositary receipts dropped1.55 per cent. The miner’s UK stock shed 1.13 per cent. Rio Tinto gave up 3.03 per cent in the US and 2.17 per cent in the UK.

Oil fell to its lowest in six weeks amid fears of demand destruction as record pump prices prompt motorists to reduce their usage. Brent crude settled US$1.69 or 1.5 per cent lower at US$110.05 a barrel.

“The next important test for the oil bears is the $100 level. Many investors don’t expect a downturn in oil prices below this level, pointing at a tight global supply, and the resilient demand,” Ipek Ozkardeskaya, senior market analyst at Swissquote Bank, said.

Iron ore broke a run of nine straight losses after China’s President Xi Jinping said the government would take stronger measures to support the economy. The spot price for ore landed in China climbed US$2.30 or 1.8 per cent to US$129.32 a tonne.

Gold retreated for a fourth session, constrained by a rising greenback. Gold for August delivery settled US$8.60 or 0.5 per cent lower at US$1,829.80 an ounce. The NYSE Arca Gold Bugs Index sagged 3.67 per cent.

“The most important support level for the gold price are near the 1,800 price mark, and as long as the price continues to trade above that price mark, the path of the least resistance is skewed to the upside,” Naeem Aslam, chief market analyst at AVATrade, said.

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