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The ASX looked set to recoup yesterday’s loss at today’s open after the dollar fell to a two-month low and growth stocks rebounded in the US.

ASX futures shrugged off a mixed night on Wall Street, bouncing 38 points or 0.52 per cent. The S&P/ASX 200 sank 27 points or 0.37 per cent yesterday after the Federal Reserve surprised investors by signalling US rates will rise by the end of 2023.

The dollar tumbled for a second day as the greenback rallied on the revised rates outlook. The surge in the US dollar pushed commodity prices sharply lower. Gold suffered its biggest loss of the year.

Wall Street

A retreat in bond yields helped tech stocks and bond surrogates outperform during a mixed night as Wall Street continued to work through the ramifications of Wednesday’s shift in the rates and inflation outlook. The yield on ten-year US treasuries sank seven basis points, reversing almost all of Wednesday night’s spike.

The Nasdaq Composite bounced 122 points or 0.87 per cent. The S&P 500 finished little changed in choppy trade, off two points or 0.04 per cent. The Dow Jones Industrial Average fell for a second night, losing 210 points or 0.62 per cent.

Investors rotated into Big Tech as Wednesday’s jump in yields faded. The FAANG group of tech leaders – Facebook, Apple, Amazon, Netflix and Google parent company Alphabet – recorded gains of between 0.8 and 2.17 per cent. The Russell 1000 Growth Index climbed 1.25 per cent, while the Value Index declined by the same percentage.

“Yes there is rising inflation but the market is focusing more on the positives of improving earnings, robust GDP growth and the wider economy getting stronger,” Randy Frederick, vice president of trading and derivatives at Charles Schwab, told Reuters.

“Today’s action is indicative that the Fed hasn’t said anything that the market didn’t already know.”

Cyclical sectors declined following an unexpected jump in claims for unemployment benefits. First-time claims increased to 412,000 last week from 375,000 the week before. Economists had predicted claims would decline to 360,000.

The energy and materials sectors tumbled 3.49 and 2.2 per cent, respectively, as oil and metals wilted. Commodity markets have been hit by a double whammy as the US dollar surges at the same time as China launches new measures to contain prices. The US dollar index hit a two-month high overnight. China said yesterday it will release some of its strategic reserves of copper, aluminium and zinc for the first time in more than a decade.    

“Commodities have been a popular investment in the last year as investors have been adding some portfolio protection against inflation. So many investors were probably overexposed going into the Fed meeting and the US dollar’s response is forcing some reconsideration,” Jim Paulsen, chief investment strategist at the Leuthold Group, told CNBC.

Australian outlook

A rebound looms as another down-leg in the dollar helps make exports more competitive. The Aussie skidded 0.78 per cent overnight to 75.52 US cents, a level last seen in late April. That April dip was fleeting – the dollar quickly bounced back into the 77-78 US cent range. This one looks more likely to endure, reflecting different rates outlooks in the US and here.

The RBA stuck to its core message yesterday – no rate rise until inflation sits sustainably within its 2 – 3 per cent target range – even as the Fed signalled a move in its projected timeline. However, the sharp decline in the unemployment rate announced yesterday suggested the economy was healing much faster than the bank expected, placing a question mark against its inflation timetable.

The S&P/ASX 200 suffered its first loss in five sessions, falling 27 points or 0.37 per cent yesterday. Tech stocks outperformed then and will have to do some of the heavy lifting again today following sharp declines in US financials and materials. BHP was hit particularly hard in overseas trade (more below).

The US financial sector skidded 2.94 per cent as yields declined. Industrials slumped 1.55 per cent.

US tech jumped 1.17 per cent. Bond surrogates – stocks that attract investment flows when yields decline – also rose. Health gained 0.79 per cent, utilities 0.49 per cent and consumer staples 0.37 per cent.

Commodities

Industrial metals suffered heavy losses under the twin assault from China and the greenback. Benchmark copper on the London Metal Exchange sagged 3.6 per cent to US$9,289 a tonne. Aluminium fell 2.6 per cent, nickel 2.7 per cent, lead 3.3 per cent, zinc 3.8 per cent and tin 1.7 per cent.

“We haven’t seen the country release state reserves for years,” Jia Zheng, commodity trader with Shanghai Dongwu Jiuying Investment Management, told Bloomberg. “This will boost short-term supply, sending a bearish signal to the market.”

Gold stocks tumbled as the yellow metal fell almost 5 per cent. Gold for August delivery settled US$86.60 or 4.7 per cent lower at US$1,774.80 an ounce. The NYSE Arca Gold Bugs Index dived 5.9 per cent.

“Basically, officials revising the timetable for interest rate hikes [have] brought a taper tantrum for the gold price,” Naeem Aslam, chief market analyst at AvaTrade, wrote. “For investors, the opportunity cost of holding non-interest bearing assets have increased and gold has become [a] less attractive asset for them for now.”

Oil retreated further from two-year highs. Brent crude settled $1.31 or 1.8 per cent lower at US$73.08 a barrel.

Iron ore was an outlier, supported by news of record May steel output in China. The spot price for ore landed in China rallied $7.15 or 3.3 per cent yesterday to US$220.80 a tonne.

BHP‘s US-listed stock slumped 4.5 per cent and its UK-listed stock lost 3.26 per cent. Rio Tinto shed 1.94 per cent in the US and 2.29 per cent in the UK.

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