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The prospect of a pre-election stimulus package faded in the US overnight, sending Wall Street lower for a second day and positioning the ASX for a downbeat start.
ASX SPI200 index futures eased 15 points or 0.2 per cent ahead of September employment data and a much-anticipated speech by Reserve Bank Chairman Philip Lowe this morning.
Wall Street
US stocks gave up earlier gains after Treasury Secretary Steven Mnuchin doused hopes politicians were nearing a deal on a coronavirus relief package.
“At this point getting something done before the election and executing on that would be difficult, just given where we are and the level of detail, but we’re going to try to continue to work through these issues,” Mnuchin said. He said the two sides had made progress in some areas, including a second round of US$1,200 stimulus cheques, but remained far apart on a range of other issues.
A market dealing with another round of poorly-received corporate quarterly updates sold off. The S&P 500 sank 23 points or 0.66 per cent. The Dow Jones Industrial Average dropped 166 points or 0.58 per cent. The Nasdaq Composite shed 95 points or 0.8 per cent.
While the night’s quarterly updates contained no major disasters, the market reaction was broadly negative for a second night. A revenue miss helped send Bank of America down 5.1 per cent. Dow component UnitedHealth fell 3 per cent despite beating profit and revenue expectations. Wells Fargo dived 6 per cent. Goldman Sachs was the only one of the night’s heavyweights to advance, rising a skinny 0.2 per cent on a 95 per cent jump in quarterly profit.
“Bank CEOs were a little bit more cautious than some people were expecting them to be,” Matt Peron, director of research at Janus Henderson Investors, told MarketWatch. In particular, investors were disappointed banks were not putting more capital to work, preferring to retain cash buffers against loan issues while the economic recovery grinds on.
Australian outlook
The S&P/ASX 200 failed to secure its longest winning run of the year yesterday, but in a bullish sign for investors gave back only a fraction of its 7 per cent gain over the previous seven sessions. The index dropped a modest 17 points or 0.3 per cent despite solidly negative leads.
Today’s set-up looks similar: negative US leads, but futures action implies minimal concern about downside following a week and a half when a stimulus-fuelled ASX marched to the beat of its own drum. Local market sentiment yesterday was boosted by profit upgrades from CSL and James Hardie, and positive developments for Afterpay, Ramsay Health Care and Michael Hill.
How the day ahead unfolds will largely depend on two ‘risk events’: a speech and a report. RBA Chair Lowe is due to address an investment conference by satellite at 8.45 am EST. Traders want confirmation the central bank is preparing to cut the cash rate to a record-low 0.1 per cent at next month’s meeting. With the ASX’s RBA Rate Indicator tool pointing to a 73 per cent chance of a cut, any hint otherwise could trigger a sell-off.
The second risk event is the September jobs report from the Australian Bureau of Statistics. Economists anticipate a weak report following an unexpectedly strong August result. The unemployment rate is expected to tick higher amid a loss of around 35,000 positions.
The financials sector was the biggest drag on the index yesterday and will be an obstacle to ASX gains today if it mirrors last night’s poor performance in the US. US financials sank 1.1 per cent.
US resource stocks rallied with oil and metals: the materials sector put on 0.4 per cent and energy 0.3 per cent. Industrials also advanced, rising 0.5 per cent. Unsurprisingly, the consumer discretionary sector recorded the biggest fall, shedding 1.4 per cent after Mnuchin all but ruled out a stimulus deal until after the November 3 presidential election.
The dollar was little changed this morning, up 0.02 per cent at 71.65 US cents.
Commodities
Oil rose for a second session after talks between the leaders of major producers Saudi Arabia and Russia reinforced the OPEC+ oil cartel’s commitment to production caps. Brent crude settled 87 cents or 2.1 per cent ahead at US$43.32 a barrel.
Gold regained much of Tuesday’s losses, climbing back above US$1,900 an ounce. Metal for December delivery settled $12.70 or 0.7 per cent higher at US$1,907.30 an ounce. That helped lift the NYSE Arca Gold Bugs index of US gold miners 1.4 per cent.
A third straight fall in the price of iron ore kept a lid on BHP and Rio Tinto in overseas trade. The spot price for iron ore landed in China declined $1.60 or 1.3 per cent to US$119.75 a tonne. BHP’s US-listed stock shed 0.25 per cent after its UK-listed stock ended unchanged. Rio Tinto dipped 0.11 per cent in the US and 0.14 per cent in the UK.
The threat of strikes at BHP’s Escondida mine in Chile helped support copper. Benchmark copper on the London Metal Exchange rose 0.3 per cent to US$6,702.50 a tonne. Nickel gained 2 per cent, zinc 0.1 per cent and tin 0.2 per cent. Aluminium gave up 0.5 per cent and lead 0.6 per cent.
