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A new month was expected to start with modest losses following declines in Europe as Wall Street closed for Memorial Day.
ASX futures retreated 31 points or 0.43 per cent, pointing to a second day of falls.
End-of-month-buying boosted the S&P/ASX 200 past 7200 yesterday for the first time ever. The index rose as high as 7203.3 before fading to a loss of 18 points or 0.25 per cent.
Europe
European stocks surrendered record levels as a spike in consumer prices sharpened the debate about rising inflation and rates. Trading volumes were depressed by public holidays in the US and UK.
The pan-European Stoxx 600 fell two points or 0.49 per cent. Germany’s DAX shed 0.64 per cent. France’s CAC 40 lost 0.57 per cent. Italy’s FTSE MIB closed flat.
Fears about the impact of rising inflation on central bank policy-making helped drive markets lower. Consumer prices in Germany increased 2.5 per cent last month, according to flash data. Spain saw a gain of 2.4 per cent.
Both figures were stronger than the European Central Bank’s (ECB) target of close-to-but-below 2 per cent. The Stoxx 600 hit an all-time high last week after ECB President Christine Lagarde said it was too soon to discuss “tapering” the bank’s stimulatory bond purchase, introduced to support the economy through the pandemic.
“With headline inflation on the rise, the ECB’s attempt to avoid the taper conversation will become more and more complicated,” Carsten Brzeski, global head of macro at ING, told clients.
“However, we think German headline inflation could eventually range between 3% and 4% in the second half of this year.”
Deutsche Bank was the biggest drag in Germany, falling 1.26 per cent. The US Federal Reserve reportedly warned the bank it was not complying with anti-money laundering regulations. The Wall Street Journal said the Fed was considering a fine.
Despite last night’s setback, the Stoxx 600 gained around 2.1 per cent for the month. Buying interest was maintained by reopening economies and central bank pledges to support the recovery.
Australian outlook
Futures trading points to an unwinding of at least some of the institutional buying that traditionally marks the end of each month. A soft session in Europe and a lack of progress in Victoria add to down-pressures. A strong rebound in iron ore and a two-year high in oil (more below) should limit the downside.
An up-tick in Covid-19 cases yesterday cast a cloud over the prospects for Victoria emerging from lockdown on Thursday, as scheduled. Acting Premier James Merlino warned things could get worse before they get better. Chief Health Officer Brett Sutton said authorities were treating the breakout on a day-by-day basis.
“With more numbers today coming through and those really concerning settings, especially in aged care, we’re neck and neck with this virus, and it’s an absolute beast,” Mr Sutton said.
The S&P/ASX 200 briefly saw blue skies yesterday before caution set in. The index inched six points past the February 2020 record high, 14 months after the start of the pandemic market collapse.
The Reserve Bank meets today and will issue a policy statement at 2.30 pm AEST. The cash rate is expected to remain on hold at 0.1 per cent, but the policy statement will be studied closely for any sign that the bank’s position on stimulus spending or rates is shifting.
The session ahead also marks the start of a flood of economic data this week as a new month gets underway. Reports on building approvals, corporate profits and the national current accounts were due at 11.30 am.
Nickel miner Lunnon Metals is due to list today. The OPEC+ oil cartel is due to hold its virtual monthly meeting tonight.
The dollar climbed 0.33 per cent to 77.33 US cents.
Commodities
Iron ore bounced almost 6 per cent yesterday as Chinese steel prices improved. The spot price for ore landed in China rallied $11.10 or 5.9 per cent to US$198.75 a tonne.
Oil neared US$70 a barrel after a Reuters survey showed oil output last month was limited by declines in Nigeria and Angola. Brent crude settled 60 cents or 0.9 per cent ahead at US$69.32 after trading as high as US$69.82.
“The oil market looks in very good shape ahead of [tonight’s] meeting,” Eugen Weinberg of Commerzbank told Reuters. “Despite the mobility restrictions that are still in place, oil demand is recovering dynamically around the world.”
Gold cemented its hold above the psychologically-significant US$1,900 level. US futures were last up $4 or 0.21 per cent at US$1,909.30 an ounce. Spot gold rose 0.3 per cent.
“The [US] dollar is staying weaker, that’s fairly supportive. Gold bulls now have their eyes set on $2,000, and most are thinking it’s going to go quite a lot higher,” Stephen Innes, managing partner at SPI Asset Management, told Reuters.
