Australian shares looked set to open higher despite declines on Wall Street after fresh Covid restrictions in China rattled commodity markets.
Oil hit a ten-month low before paring its fall. Iron ore and metals also declined. The Australian dollar skidded more than 1 per cent towards 66 US cents.
The S&P/ASX 200 was poised to open 32 points or 0.45 per cent ahead, according to futures action.
US stocks sank after China announced new restrictions in Beijing and a major manufacturing hub following an upsurge in infection rates and the nation’s first Covid-related death in six months. Energy stocks led the sell-off during a volatile session for crude prices.
The S&P 500 dropped 15 points or 0.39 per cent. The Nasdaq Composite shed 122 points or 1.09 per cent. The Dow Jones Industrial Average eased 45 points or 0.13 per cent.
Commodity markets shuddered after Chinese authorities announced tougher restrictions to contain a rapidly-expanding Covid outbreak. Beijing instructed residents not to travel between city districts. A large number of shopping malls, office blocks, apartment blocks and restaurants were either closed or isolated. School teaching was moved online.
The largest district in the manufacturing hub of Guangzhou entered lockdown for five days. Public transport was suspended.
“Financial markets have caught a cold amid worries that mounting COVID cases in China and a fresh tightening of restrictions will send a fresh shiver through manufacturing output and push down demand for raw materials,” Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said.
A risk-averse session saw investors retreat to the perceived security of the greenback. The US dollar index jumped 0.8 per cent, adding to pressure on dollar-denominated commodity prices.
Also undermining buying interest was the threat of a rail strike after one of the US’s largest railway unions rejected a wage deal brokered by the White House. A strike would exacerbate supply-chain issues that have contributed to this year’s explosion in inflation to four-decade highs.
The Dow was cushioned by a 6.29 per cent surge in Disney after the entertainment giant brought back former CEO Bob Iger to replace Bob Chapek. Iger’s successor came under pressure after recent earnings fell significantly short of expectations.
The New York Stock Exchange closes on Thursday for Thanksgiving and only reopens for a shortened session on Friday.
Futures action suggests a positive start to the session in the face of generally negative leads. Part of the explanation is that Wall Street was weak where it matters least for the ASX, and strong where it does matter. US financials gained 0.33 per cent. Basic materials overcame China worries to advance 0.38 per cent.
Defensive sectors – another ASX strength – also outperformed. Consumer staples gained 0.98 per cent, real estate 0.71 per cent and utilities 0.5 per cent.
A lower dollar should help sentiment towards Australian exporters. The Aussie dived 1.2 per cent overnight to 66.04 US cents.
The bloodletting on Wall Street was largely in sectors tied to global demand. Energy sank 1.39 per cent, consumer discretionary 1.41 per cent and tech 1.13 per cent.
The S&P/ASX 200 got a jump on China Covid worries yesterday, falling 0.17 per cent despite positive leads. Today’s upbeat futures suggest yesterday’s sellers anticipated a poorer session in the US than eventuated.
Fortescue Metals holds its annual general meeting today. Other AGMs taking place around the country include The Star Entertainment Group, Liontown Resources, Monadelphous, BlueScope Steel and Brickworks.
Technology One and Select Harvests release full-year results.
Amcor, Tamawood and Sunland trade ex-dividend.
ANZ’s weekly consumer confidence survey is released this morning. RBA Governor Philip Lowe delivers a speech to a Melbourne event at 6 pm AEDT tonight titled “Price Stability, the Supply Side, and Prosperity”.
IPOs: Lightning Minerals (ASX code: L1M) is scheduled to list at 12 pm AEDT. Lightning is a battery metals explorer with four project areas in WA.
Oil hit its lowest level since January before recouping most of its losses after Saudi Arabia denied a report that OPEC will consider increasing production next month. Crude prices plunged following a report from The Wall Street Journal claiming the cartel could produce an extra 500,000 barrels a month from December to placate the White House.
West Texas Intermediate fell as low as US$75.08 before closing just 35 cents or 0.4 per cent in the red at US$79.73 a barrel. Brent crude settled 17 US cents or 0.2 per cent lower at US$87.45 a barrel.
Iron ore finally capitulated to China Covid worries. The most traded January ore on the Dalian Commodity Exchange slid as much as 2.6 per cent before paring its loss to 1.6 per cent at 745.5 yuan (US$104.10) a tonne.
Industrial metals slumped as a rising US dollar added to headwinds. Benchmark copper on the London Metal Exchange declined 2.24 per cent to US$7,895 a tonne. Aluminium gave up 2.81 per cent, nickel 1.82 per cent, lead 2.09 per cent, zinc 3.52 per cent and tin 6.27 per cent.
BHP‘s US-traded depositary receipts shed 2.55 per cent, broadly in line with yesterday’s ASX loss. The miner’s UK listing gave up 2.38 per cent. Rio Tinto fell 1.39 per cent in the US and 2.14 per cent in the UK.
Strength in the US dollar undermined demand for alternative stores of wealth, including cryptocurrencies and precious metals. Gold for December delivery settled US$14.80 or 0.8 per cent lower at US$1,739.60 an ounce. The NYSE Arca Gold Bugs Index dipped 0.43 per cent.
“Gold will only be a safe-haven trade if the dollar is in a defensive mode and that is not happening here,” Ed Moya, senior market analyst with OANDA, said. “Gold needs China’s COVID situation to improve before it can start to look attractive again for investors. If the dollar rally turns excessive, gold could be vulnerable to a plunge towards the $1,700 level.”