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The share market was set to open sharply lower after weak corporate earnings and a spike in treasury yields dragged Wall Street deep into the red.

ASX futures sank 66 points or 0.9 per cent, signalling a likely retest of this year’s lowest levels.

Overnight, the Nasdaq fell 2.6 per cent into correction territory. The Dow gave up more than 500 points. US crude settled at a seven-year high. Iron ore rallied. Gold and copper declined.

Wall Street

US stocks slumped as Goldman Sachs’ quarterly earnings missed expectations and a jump in treasury yields fuelled selling in growth stocks.

The growth stock-heavy Nasdaq Composite dived 387 points or 2.6 per cent. The index finished the session in a technical correction, defined as a decline of at least 10 per cent from a peak. The index also closed below its 200-day moving average for the first time since April 2020.

The S&P 500 fell 86 points or 1.84 per cent. The Dow Jones Industrial Average gave up 543 points or 1.51 per cent.

Dow component Goldman slumped 7.04 per cent after reporting a 13 per cent contraction in fourth-quarter profit. Operating expenses surged 23 per cent to cover higher wages and bonuses during a strong trading year.

Growth stocks bore the brunt of the sell-off as borrowing costs rose ahead of higher official rates later this year. The two-year yield cracked 1 per cent for the first time since February 2020. The two-year yield is seen as an indicator of where the Federal Reserve will set official rates.

The ten-year yield broke out to its highest since January 2020. The ten-year yield has risen from around 1.5 per cent at the start of the year to almost 1.9 per cent overnight.

“The bond market is continuing to price in a more aggressive policy tightening by Federal Reserve based on still-high inflation and the Fed’s more hawkish guidance,” Kathy Bostjancic, Chief US Financial Market Economist at Oxford Economics, said.

“A fairly aggressive Fed tightening path will lead to somewhat lower valuations as economy-wide growth should slow as the Fed tries to soften the pace of demand,” she added.

The Federal Reserve meets next week and is expected to lay the groundwork for up to four rate increases this year. A report last week showed US inflation running at the hottest pace in almost 40 years.

Big Tech fell heavily. Meta Platforms (Facebook) shed 4.14 per cent, Amazon 1.99 per cent, Apple 1.89 per cent and Tesla 1.82 per cent. Microsoft dropped 2.43 per cent after announcing it will acquire gaming company Activision Blizzard.

Australian outlook

Red ahead. While history suggests investors have nothing to fear from a rate-tightening cycle, stock valuations will in the short term adjust to reflect higher borrowing costs and slower demand. That suggests a more volatile year ahead as institutions realign their holdings to the “new normal”.

The S&P/ASX 200 got a sniff of the coming storm yesterday afternoon and began to factor in possible overnight trouble. The Australian benchmark fell 8.5 points or 0.11 per cent, but will have to give back a lot more this session to fall back into line with Wall Street.

Australian yields were yesterday near two-month highs and will test higher levels this session. The ten-year yield was poised to break 2 per cent. Higher yields are a plus for lenders, a negative for borrowers.

The financial sector should be a long-term winner, but may feel some pain today. US financials dived 2.29 per cent, weighed down by Goldman’s weak result.

US tech led the overnight retreat, falling 2.49 per cent. Energy was the only sector to resist the sell-off, rising 0.4 per cent. The materials sector dropped 1.32 per cent and industrials 1.19 per cent.  

On the domestic economic calendar, Westpac releases its monthly consumer sentiment survey at 10.30 am AEDT.

IPOs: NiCo Resources at 12 pm AEDT is a nickel miner spun out of Metals X. Blackstone Minerals has invested $2.75 million in the debutant for a stake of 15.11 per cent. The listing of Virdis Mining and Minerals originally slated for today has been delayed.

The dollar was pulled lower by a general retreat from risk, falling almost 0.5 per cent to 71.76 US cents.

Commodities

Energy stocks outperformed overnight after a drone attack on an Abu Dhabi oil facility lifted crude to six-and-a-half-year highs. Brent crude settled US$1.03 or 1.2 per cent ahead at US$87.51 a barrel, a level last seen in October 2014. The US benchmark also traded at its highest since October 2014.

Houthi rebels from Yemen claimed responsibility for an attack that killed three and sparked a fire at the United Arab Emirates’ international airport. The UAE is the world’s eighth largest oil producer.

“The attack raises the geopolitical risk in the region and may signal the Iran-U.S. nuclear deal is off the table for the foreseeable future,” Louise Dickson, senior oil markets analyst at Rystad Energy, said.

Iron ore rebounded as traders took advantage of price falls in the wake of Monday’s soft Chinese economic data. Imports into northern China firmed 1.6 per cent, according to Fastmarkets MB.

Rio Tinto rallied 0.42 per cent in the US and 0.93 per cent in the UK following yesterday’s quarterly production report. BHP‘s US-listed stock fell 0.79 per cent after its UK-listed stock gained 0.1 per cent.

A “risk-off” retreat to the perceived security of the greenback pushed gold lower for a third session. Gold for February delivery settled US$4.10 or 0.2 per cent weaker at US$1,812.40 an ounce. The NYSE Arca Gold Bugs Index slid 1.34 per cent.

Copper was another victim of the higher greenback, falling 0.9 per cent in the US to US$4.383 a pound.

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