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ASX futures pointed lower after the threat of higher interest rates triggered a flight from high-growth US stocks.
The Nasdaq Composite dived almost 2 per cent to its heaviest loss since March. The retreat came after Treasury Secretary Janet Yellen said rates might “have to rise somewhat”. The Dow finished narrowly ahead as traders sought refuge in defensive stocks.
ASX futures slid 26 points or 0.37 per cent, signalling a weak start after yesterday’s 39-point advance.
Wall Street
Big Tech led a sharp retreat in high-growth stocks amid fears the Federal Reserve will raise rates faster than the market anticipates to restrain a rampant economy.
“It may be that interest rates will have to rise somewhat to make sure that our economy doesn’t overheat,” Treasury Secretary Yellen said at a virtual event run by The Atlantic magazine. Yellen is a former Chair of the Fed.
The Nasdaq Composite crumpled 262 points or 1.88 per cent. Apple lost 3.54 per cent, Amazon 2.2 per cent, Tesla 1.65 per cent, Microsoft 1.62 per cent, Alphabet 1.55 per cent and Facebook 1.31 per cent.
The broader S&P 500 shed 28 points or 0.67 per cent. The Dow Jones Industrial Average reversed to a gain of 20 points or 0.06 per cent after being down as much as 300 points. Caterpillar, Dow Inc and Johnson & Johnson outperformed.
The sell-off in growth stocks came amid rising concerns about rising input costs. On the weekend, Warren Buffett, the “Oracle of Omaha”, told investors in Berkshire Hathaway his companies were seeing “substantial inflation“.
“We are raising prices,” he said. “People are raising prices to us and it’s being accepted.”
Commodity prices have seen substantial gains this year. Iron ore moved back towards record levels yesterday. Copper was near a ten-year a high. Aluminium touched a three-year peak, zinc a two-and-a-half-year high.
Investors were also said to be troubled by the underwhelming response to some knockout trading reports and strong economic data over the last few weeks.
“We have gone through a two to three week period that has seen really good news get little or no reaction in markets,” wrote Art Hogan, chief market strategist at National Securities. “Investors get uneasy at new highs, and there have been 25 new highs for the S&P 500 so far this year.”
European stocks closed sharply lower. The pan-European Stoxx 600 shed 1.43 per cent. Germany’s DAX lost 2.49 per cent.
Australian outlook
The ASX looked set to go lower at today’s open, but there were reasons for optimism below those gloomy headline US figures. The two sectors that matter most on the ASX – materials and financials – were Wall Street’s best performers, rising 1.04 and 0.7 per cent, respectively. The dollar declined as the greenback attracted haven buying – a net positive for our export-focussed economy. Iron ore moved back towards record levels yesterday. Copper and other industrial metals rallied.
The S&P/ASX 200 rose 39 points or 0.56 per cent yesterday after the RBA upgraded its economic forecasts but reiterated it does not expect to raise the cash rate until at least 2024. Gold stocks were the session’s standout, but will face down-pressure after the prospect of higher rates sent precious metals into reverse (more below). The NYSE Arca Gold Bugs Index of US miners fell 1.75 per cent.
Growth stocks will likely bear the brunt of today’s selling. The US tech sector sank 1.89 per cent, consumer discretionary (Tesla) 1.24 per cent and communication services (Apple, Amazon) 0.93 per cent.
ANZ is scheduled to release interim earnings today. Insurer QBE holds its AGM. A busy week of economic data continues with construction figures (8.30 am AEST) and building approvals (11.30 am). Markets in China and Japan will remain closed for public holidays.
The dollar declined 0.69 per cent to 77.05 US cents as the US sell-off triggered a flight to the perceived safety of the greenback.
Commodities
Mining giants BHP and Rio Tinto avoided the carnage at the growth end of the market as iron ore moved back towards US$190 a tonne. BHP’s US-listed stock gained 0.62 per cent and its UK-listed stock 0.55 per cent. Rio Tinto added 0.24 per cent in the US and 0.69 per cent in the UK. The spot price for iron ore landed in China climbed $3.20 or 1.2 per cent to US$189.65 a tonne when trade resumed after a public holiday.
Copper rallied towards US$10,000 a tonne and aluminium hit a three-year high. Benchmark copper on the London Metal Exchange climbed 1.4 per cent to US$9,9966.75 a tonne. Aluminium advanced 1 per cent, lead 2.2 per cent, zinc 1.3 per cent and tin 0.5 per cent. Nickel dipped 0.1 per cent.
Oil shrugged off turmoil in equities, drawing support from relaxing Covid restrictions in the US and Europe. Brent crude settled $1.32 or 2 per cent ahead at US$68.88 a barrel.
Gold wilted under the prospect of higher interest rates. Gold for June delivery settled $15.80 or 0.9 per cent lower at US$1,776 an ounce.
The “gold market turned around instantly with even a hint of higher interest rates in policy plans,” Jeff Wright, chief investment officer at Wolfpack Capital, told MarketWatch. “Yellen holds a lot of influence.”
