A mixed finish on Wall Street points to a flat start to Australian trade as a huge week of corporate earnings gets underway.
ASX futures dipped one point or 0.01 per cent as rising yields and expectations of higher rates kept a lid on US stocks. The S&P 500 and Nasdaq fell. The Dow eked out a modest advance.
Oil and gold added to weekly losses. Iron ore rose. Industrial metals were mixed. Lithium miners plunged in the US. The dollar fell further below 69 US cents.
Reporting season roars on this week with updates from BHP, Rio Tinto, Santos, Coles, Woolworths and Qantas. BlueScope Steel, a2 Milk and Bendigo Bank report today.
The US’s main indices finished mixed as the prospect of further rate hikes lifted treasury yields to their highest since November. Two more Federal Reserve policymakers joined the chorus calling for higher rates.
The S&P 500 trimmed a sharp opening loss to 11 points or 0.28 per cent. The Nasdaq Composite shed 69 points or 0.58 per cent. The Dow Jones Industrial Average swung to a gain of 130 points or 0.39 per cent.
Megacap growth stocks weighed as the yields on two-year and ten-year US treasuries scaled three-month highs. Atlassian shed 3.49 per cent, Nvidia 2.79 per cent and Microsoft 1.56 per cent.
A strong rally since the start of the year continued to lose momentum last week amid signs inflation was receding more slowly than hoped. Both consumer and producers prices increased more than expected last month, delaying the decline of annual inflation.
Fed Governor Michelle Bowman said the central bank had a long way to go to reach its inflation target and would have to keep raising.
“We were seeing some progress in lowering inflation at the end of last year, but some of the data that we’re seeing early this year is not tracking with consistently lowering inflation in a way that I would like to see,” Bowman said.
Richmond Fed president Thomas Barkin said he saw “progress, but slow progress” towards the bank’s inflation target. More rate hikes were necessary, but how many was unclear.
Bank of America and Goldman Sachs said they now anticipate three more rate hikes this year, lifting the federal funds rate target to 5.25-5.5 per cent.
“A dark cloud has drifted over the stock market in the last two weeks based on a higher watermark for the Fed funds rate,” Jake Dollarhide, chief executive officer of Longbow Asset Management, told Reuters.
“The jobs numbers aren’t getting weaker, and it’s hard to go into a recession with a strong labor market at the same time. That means the Fed could push the button and move rates higher.”
The Dow eased 0.13 per cent to a third straight weekly loss, its worst run since September. The S&P 500 dropped 0.28 per cent during a second negative week. The Nasdaq bucked the trend with a weekly gain of 0.59 per cent.
A muted start to the week looks likely as financial markets continue to adjust to the likelihood of higher rates for longer. Several bank economists now anticipate three more rate hikes both here and in the US in the next few months. That is a major shift from the start of the year, when hopes were high for a pause as soon as next month.
The S&P/ASX 200 is coming off a two-week losing streak. The Australian benchmark sealed a weekly loss of almost 1.2 per cent with a fall of 0.86 per cent on Friday.
The changing outlook for interest rates will continue to set the tone this week. The minutes from this month’s Reserve Bank meeting, released tomorrow, should help clarify the near-term trajectory. Quarterly wage price data on Wednesday could have an impact if they suggest growth is accelerating significantly, adding to inflationary prices.
Also on the domestic economic calendar this week: preliminary measures of this month’s manufacturing and services-sector activity (Tuesday); construction data (Wednesday); and business investment (Thursday).
Wall Street is closed tonight for the Presidents’ Day public holiday. Potential highlights this week on the economic calendar include services and manufacturing PMIs (Tuesday); the minutes from this month’s Federal Reserve meeting (Wednesday); preliminary GDP data (Thursday); and most importantly, January consumer inflation data (Friday).
A somewhat underwhelming domestic earnings season continues this week. The ASX 200 has lost ground steadily since the start of the current season, although much of that weakness could be attributed to shifting rates expectations.
One of the themes to emerge from the season so far is that mining margins are under pressure. Costs have risen while commodity prices have mostly eased from last year’s highs.
A second theme is the drag of cost-of-living pressures on consumption noted by several retailers since the turn of the year. Last week’s strongest results appeared to come from companies that enjoy pricing power – the ability to pass on costs to customers.
The index’s best performers last week were GUD Holdings +20 per cent, Orora +17.5 per cent and Sonic Healthcare +16.2 per cent. The worst performers were Star Entertainment -20.5 per cent and AMP -14.8 per cent.
Defensive sectors provided the best returns in the US on Friday. Consumer staples rallied 1.29 per cent, utilities 1 per cent and healthcare 0.89 per cent. Financials finished near flat, up less than 0.1 per cent.
The materials sector slumped 0.96 per cent. Lithium miners came in for heavy treatment, but weekend reports of potential takeover interest from Tesla in a Canadian lithium miner may cushion ASX companies. Bloomberg reported Elon Musk’s electric car-maker was eyeing Canada’s Sigma Lithium.
The last full week of the domestic earnings season gets underway with updates from Ampol, BlueScope Steel, Bendigo Bank, a2 Milk, Silver Lake Resources, Event, McGrath, Northern Star, Nuix, Altium, GPT, nib, Iress, Charter Hall Group, Adairs, Reliance and HomeCo Daily Needs REIT.
BHP heads up tomorrow’s list. Also reporting are Coles, Stockland, Alumina, Tabcorp, Iluka, Monadelphous, HUB24, G8 Education, Seek, Costa Group, Estia Health, AMA, ARB Group, HT&E, Macquarie Telcom, Judo Bank, Ingenia, Viva Energy and Johns Lyng.
Wednesday brings out a trio of big guns in Rio Tinto, Woolworths and Santos. Also on the list: Domino’s Pizza, WiseTech, Flight Centre, OZ Minerals, Scentre Group, Chorus, Coronado, Reece, Worley, AUB Group, Qualitas, Wagners, Siteminder, Lovisa, Spark New Zealand, Emeco, EML Payments, Karoon Energy and Rural Funds Group.
A heavy list on Thursday includes Qantas, Star Entertainment, Ramsay Health Care, Nine Entertainment, St Barbara, Atlas Arteria, The Lottery Corporation, Zip Co, Bega Cheese, MyState, APA, Cleanaway Waste, Qube, Insignia, Medibank, Smartgroup, Accent Group, Blackmores, HMC Capital, Auckland International Airport, Airtasker, Nanosonics, The Reject Shop, Pexa, Perpetual, Pepper Money, IDP Education, Maggie Beer, Eagers and Australian Clinical Labs.
The week winds up with updates from Brambles, Block, Allkem, Mineral Resources, Link Administration, Ardent Leisure, Helia, Mayne Pharma, Genworth, Jumbo Interactive and Ventia.
AGMs: Technology One holds its annual meeting in Brisbane on Wednesday. Aristocrat Leisure holds its meeting in Sydney on Friday.
IPOs: The rebadged SQX Resources (ASX code: SQX) is slated to list at 11.30 am AEDT today. The company formerly known as South-East Queensland Exploration has projects that are prospective for copper and gold. The week’s only other prospective listing is Tiger Tasman Minerals on Friday.
Dividend payments start to flow next month. Among companies trading ex-dividend this week are: Wesfarmers, Ansell, Vicinity Centres and Zimplats (today); Challenger, Magellan, IPH, Endeavour Group and Computershare (Tuesday); CBA, AGL, Domain Holdings and SG Fleet (Wednesday); Macquarie Group, JB Hi-Fi and Whitehaven (Thursday); and Newcrest, GUD, Pental and Fiducian Group (Friday).
The dollar drifted down 0.17 per cent this morning to 68.65 US cents.
Lithium miners were belted in the US on Friday amid on-going weakness in Chinese lithium carbonate prices. Livent tumbled 9.96 per cent, Albemarle 9.67 per cent and dual-listed Piedmont Lithium 12.22 per cent.
The bloodshed follow a steep decline in lithium prices since November. Chinese spot lithium carbonate prices topped out near 600,000 yuan three months ago. On Friday, the spot price fell 2.73 per cent to 427,500 yuan.
The Global X Lithium & Battery Tech ETF skidded 3.96 per cent on the New York Stock Exchange to a four-week low. The VanEck Rare Earth/Strategic Metals ETF dropped 3.11 per cent.
Gold logged a third straight losing week as the US dollar continued to strengthen. Gold for April delivery settled US$1.60 or 0.1 per cent lower on Friday at US$1,850.20 an ounce. The NYSE Arca Gold Bugs Index dipped 1.25 per cent.
Gold prices hit a 2023 intraday low of US$1,827.70 before a partial recovery. For the week, the yellow metal shed 1.3 per cent.
Iron ore rose for a second week after China pledged to stimulate the housing market and encourage consumer spending. Benchmark prices in Singapore firmed 0.8 per cent to US$125.70 a tonne.
BHP‘s US-traded depositary receipts declined 1.03 per cent. The miner’s UK listing shed 0.82 per cent. Rio Tinto gave up 0.63 per cent in the US and 0.59 per cent in the UK.
Oil sagged for a fourth session as traders continued to fret about the impact of higher rates on demand. Brent crude settled US$2.14 or 2.5 per cent lower at US$83 a barrel. The loss extended the international benchmark’s weekly decline to 3.9 per cent.
A firmer greenback helped push most industrial metals lower. Benchmark copper on the London Metal Exchange declined 0.39 per cent to US$8,987.50 a tonne. Aluminium eased 0.27 per cent, nickel 2.63 per cent and tin 4.25 per cent. Zinc gained 1.81 per cent. Lead lifted 1.75 per cent.