ASX Today: Rates expectations weigh as US sinks

Australian shares face selling pressure following losses in the US after upbeat economic data sharpened expectations for another jumbo rate hike this month.

US treasury yields ripped higher, pressuring borrowing-dependent growth stocks. The Nasdaq Composite fell for a seventh session, its longest losing run since 2016.

The S&P/ASX 200 looks set to test the 6800 level for the first time since late July. ASX futures wilted 37 points or 0.54 per cent. 

The dollar fell more than 1 per cent to an eight-week low. On commodity markets, oil gave up Monday’s gains and gold fell.

Wall Street

Wall Street reopened after Labor Day under renewed pressure as stronger-than-expected economic data implied interest rates will have to go higher to bring down inflation.

The odds on a 75 basis point rate hike this month jumped from 57 per cent to 72 per cent after data showed the services sector gained momentum last month. The sector accounts for around two-thirds of US economic activity.

The S&P 500 fell 16 points or 0.41 per cent to its lowest since mid-July. The Dow Jones Industrial Average shed 173 points or 0.55 per cent. The Nasdaq Composite dropped 86 points or 0.74 per cent.

The Institute for Supply Management’s non-manufacturing purchasing managers’ index rose for a second straight month, defying expectations for a slowdown. The PMI rose to 56.9 last month from 56.7 in July. Economists had expected slower growth of 54.9.

Bond traders interpreted the report as a sign interest rates will have to go significantly higher to slow the economy. The ten-year treasury yield scaled a fresh three-month high, jumping as much as 16 basis points. The yield was this morning within 15 basis points of its peak during the June stock market rout.

“The Fed has relegated us to being very data dependent, so every piece of information that comes out investors are going to look not only at the absolute level, but try to infer what that means for when the Fed meets,” Carol Schleif, deputy chief investment officer at BMO Family Office, told Reuters.

Apple, Microsoft and Facebook owner Meta Platforms were among the major drags during a volatile session. Also weighing on tech were new Covid restrictions in Chinese tech centre Shenzhen. Alibaba fell 3.65 per cent.

Airlines bucked the trend after airport checkpoint data showed more people travelled on Labor Day than the same day in 2019, before the pandemic. The S&P 500 airlines index rose 1.13 per cent.

Australian outlook

The Labor Day reprieve from US selling proved fleeting. The long weekend did little to improve the mood on Wall Street. Bond movements continued to set the tone, as they did during the June rout. The stronger the economy appears, the higher interest rates are expected to go to stifle demand and bring down prices.

The S&P/ASX 200 looks likely to open below 6800 for the first time since the last week of July. The index faded to a loss of 0.38 per cent yesterday after the RBA hiked the cash rate target by 50 bp and gave no hint of a slowdown.

The dollar came under serious pressure within a few hours of the increase. The Aussie skidded 1.2 per cent to 67.29 US cents, a level last seen in mid-July. Much lower and the Aussie will approach levels from 2020.

US trade had a defensive bent. The night’s best-performing sectors were real estate +1.02 per cent and utilities +0.22 per cent. Health and industrials eked out gains of less than 0.2 per cent.

Growth sectors and energy were the biggest drags. The two sectors with the biggest weighting on the ASX, financials and materials, shed 0.29 and 0.33 per cent, respectively.

Fourth-quarter gross domestic product figures at 11.30 am AEST have the power to move the market one way or the other. With the outlook for interest rates currently dictating market direction, a weak result would be more welcome than an upside surprise. The consensus among economists is for growth of around 0.9 per cent for the quarter.  

Companies trading ex-dividend today include Brambles, Healius, IDP Education, Insignia, SEEK, Amcor, Austal, Meridian Energy, Viva Energy and Medibank.

Syrah Resources, Strike Energy and Buru Energy release trading updates.

Commodities

Oil quickly unwound Monday’s gains, which came after the Organization of the Petroleum Exporting Countries and allies agreed to slash daily production by 100,000 barrels from next month. The reversal came after Saudi Arabia reduced prices for Asian and European buyers.

Carsten Fritsch, commodity analyst at Commerzbank, said the reduction was too small to make a significant difference to the balance of supply and demand. The cut reversed an increase of the same scale the previous month.

“The marginal production cut makes just as little difference as the corresponding hike a month ago, especially as the cartel’s output is well below target in any case, so no reduction in supply is in fact needed at all,” Fritsch said.

Brent crude settled US$2.91 or 3 per cent lower at US$92.83 a barrel. The global benchmark rallied 2.9 per cent on Monday.

Iron ore traded mixed following news that global shipments increased by 13.5 per cent last week from the week before. Shipments from Australia increased by 5.3 per cent to 16.83 million metric tons. Eighty-seven per cent of Australian ore went to China.

The most-traded ore contract on the Dalian Commodity Exchange climbed 1.8 per cent to 691.50 yuan. The spot price for ore landed at Tianjin dropped 86 US cents or 0.9 per cent to US$97.61 a tonne.

BHP‘s US-traded depositary receipts fell 0.72 per cent. The miner’s UK listing gave up 1.98 per cent. Rio Tinto rose 0.72 per cent in the US after inching up 0.02 per cent in the UK.

Gold reversed most of Friday’s advance as the US dollar rallied. Gold for December delivery settled US$9.70 or 0.6 per cent lower at US$1,712.90 an ounce. The NYSE Arca Gold Bugs Index declined 1.08 per cent.

Copper was lifted by signs of tight supply at London Metal Exchange warehouses. Benchmark copper firmed 0.3 per cent on the LME to US$7,751 a tonne. Nickel improved 0.5 per cent and lead 1 per cent. Zinc fell 1.2 per cent, tin 1.9 per cent and aluminium 1.6 per cent.