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Futures trading points to further down-pressure on shares following a mixed finish on Wall Street and an RBA warning of a looming wave of business failures and bad debts.
A day after tumbling 1.7 per cent, the S&P/ASX 200 looks set to open at its lowest level in almost three weeks. ASX SPI200 index futures declined 24 points or 0.4 per cent overnight.
Wall Street
US stocks closed mixed as investors digested disappointing earnings, rising coronavirus cases, a second day of solid falls in Europe and dimming hopes of a pre-election stimulus deal. A White House press secretary warned the chances for a new coronavirus relief package before next Tuesday’s election were “slim”.
A rotation into pandemic-resistant Big Tech stocks out of companies most exposed to the economic impact of lockdowns helped lift the Nasdaq Composite 72 points or 0.64 per cent and send the Dow Jones Industrial Average down 222 points or 0.8 per cent. The broadest of the three major benchmarks, the S&P 500, traded in and out of positive territory before finishing with a deficit of ten points or 0.3 per cent.
The Dow was dragged lower by poorly-received earnings updates from international bellwether Caterpillar and 3M. Caterpillar sank 3.2 per cent after reporting a 54 per cent plunge in earnings on weak demand for heavy machinery. 3M shed 3.1 per cent despite beating earnings and revenue expectations.
Airlines and other companies that rely on a return to economic normality declined. Tech stocks rallied ahead of a big week of quarterly reports. Apple, Amazon, Alphabet, Facebook and Microsoft all report this week. The tech giants helped propel the market out of the original February-March pandemic plunge.
“A focus on big technology companies may move this market to rally despite the problems the virus is creating,” Rick Meckler, partner at Cherry Lane Investments in the US, told Reuters.
European stocks skidded as France and Russia reported record daily virus tallies and the UK shut down more cities. France’s CAC 40 share index fell 1.77 per cent and the UK’s FTSE 100 shed 1.09 per cent. The pan-European Stoxx 600 dropped 0.95 per cent.
Australian outlook
Weak leads from Wall Street were compounded by a Reserve Bank warning the economic recovery will be “unpredictable and uneven”. The central bank expects businesses to fail and households to struggle to keep up with mortgage payments.
“There will be rising business insolvencies and problems for some households in servicing their debts,” RBA Assistant Governor Michele Bullock said.
Falling property prices may send some home-owners into negative equity, where the value of the property is less than the mortgage. Delinquency rates in Victoria were reportedly at a 15-year high, and in NSW at a seven-year high. Non-performing loans were expected to rise over coming months as pandemic payment deferrals end.
However, the central bank’s dire outlook may ultimately be interpreted as a net positive for a stimulus-addicted share market because they firm up the case for a cut to the cash rate next month.
Overnight action on Wall Street suggests a two-speed ASX today. Tech stocks look likely to outperform. Travel and tourism stocks may follow the US lower despite the superior outlook here. The RBA’s warning about bad debts could impact the banks. The US financial sector skidded 1.9 per cent overnight, the second-worst performer after industrials (-2.2 per cent).
Quarterly consumer inflation figures are due at 11.30 am EST and may impact the outlook for the cash rate.
The dollar rallied 0.24 per cent to 71.34 US cents, but remains stuck in a narrow trading range.
Commodities
The US energy sector slid 1.9 per cent despite a bump in oil as a hurricane in the Gulf of Mexico forced some producers to shut production. Brent crude settled 75 cents or 1.9 per cent higher at US$41.21 a barrel, reversing some of Monday’s 3.1 per cent fall.
Gold stocks moved higher with a third day of gains in precious metals. The NYSE Arca Gold Bugs Index climbed 1.9 per cent. Gold for December delivery settled $6.20 or 0.3 per cent ahead at US$1,911.90 an ounce.
A modest uptick in iron ore offered miners minimal support amid the generally dour market mood. BHP’s US-listed stock gave up 1.23 per cent and its UK-listed stock 1.61 per cent. Rio Tinto dropped 0.57 per cent in the US and 1.33 per cent in the UK. The spot price for iron ore in China edged up 70 cents or 0.6 per cent to US$115.70 a tonne.
Bargain-hunters supported copper after three straight declines. Volumes were reportedly light amid the souring look for the global economy as Covid spreads in Europe and the US. Benchmark copper on the London Metal Exchange rose 0.3 per cent to US$6,778.65 a tonne. Nickel gained 1.6 per cent, zinc 0.2 per cent and tin 0.1 per cent. Aluminium fell 0.4 per cent and lead 0.2 per cent.
