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The share market looks set to open modestly higher despite further declines on Wall Street as Friday’s hawkish Federal Reserve interest rate outlook continues to reverberate.
US stocks fell for a second session as traders repositioned for higher rates for longer. Rate-sensitive sectors led the selling.
ASX futures edged up 18 points or 0.26 per cent, signalling possible relief after the market’s heaviest loss in two and a half months. The S&P/ASX 200 plunged almost 2 per cent yesterday. Just four of the index’s component companies advanced.
Overnight, oil rallied to its highest in a month. Iron ore, gold and most industrial metals retreated. The dollar climbed above 69 US cents.
Woodside Energy releases half-year earnings today as the domestic season nears its conclusion.
Wall Street
Friday’s market rout extended into the new week as investors rotated out of sectors most exposed to higher borrowing costs. The Dow and S&P 500 briefly recouped their opening losses before fading again in the final hour.
The S&P 500 finished 27 points or 0.67 per cent in the red. The Dow Jones Industrial Average lost 184 points or 0.57 per cent. The Nasdaq Composite shed 124 points or 1.02 per cent.
The main indices struggled to find their footing following Friday’s brutal sell-off, which came after Fed Chair Jerome Powell doused hopes the central bank might slow the current aggressive pace of rate hikes. Powell warned of pain ahead for businesses and households as the bank focuses on bringing down inflation.
“Powell sent a short and direct message that there won’t be a Fed pivot anytime soon. Investors were expecting that once the US got some ugly data, perhaps a couple negative NFP [jobs] reports, that the Fed would come to the rescue, but that might not be the case,” Ed Moya, senior market analyst at Oanda, wrote.
“Premature loosening won’t be happening on the first signs that the economy is slowing down quickly and that is raising doubts for anyone who bought stocks earlier this month.”
Tech led the selling as rates rose. Apple, Microsoft and Alphabet were among the biggest drags.
The yield on two-year US treasuries touched a fresh 15-year high in anticipation of higher official rates. Yields on longer-term bonds also rose. The yield curve (the gap between the two- and ten-year yields) remained firmly inverted, a classic sign of a possible recession.
Wall Street’s fear gauge, the CBOE Volatility Index or VIX, touched a seven-week high.
The major benchmarks briefly turned positive amid speculation markets over-reacted to Powell’s speech on Friday to the Jackson Hole symposium. The S&P 500 plunged 3.37 per cent to its heaviest loss since June.
“Friday’s selloff was frankly overdone, I know [Powell] said he was going to play tough with inflation but it is honestly not that much different than what he has been saying for the last several weeks, he was a little more hawkish but I mean, geez, who is surprised by that, really?” Randy Frederick, vice president of trading and derivatives at Charles Schwab, said.
Australian outlook
Positive signs this morning after Wall Street did not fall as much as implied by weak US futures during yesterday’s ASX trading hours. There was something for both bulls and bears in the overnight action. A second night of falls, certainly, but not the bloodbath that might have been anticipated if Friday really did mark a sea-change in market mood.
Energy markets do not appear concerned about the threat of a US recession. Brent crude jumped more than 4 per cent overnight (more below). That catapulted the US energy sector up 1.54 per cent.
Utilities also attracted a bid, rising 0.25 per cent as traders sought potential havens from any prolonged market downturn.
Tech was back in the firing line, falling 1.28 per cent. Also weak were real estate -0.87 per cent, financials -0.76 per cent and materials -0.69 per cent.
The S&P/ASX 200 slumped 1.95 per cent yesterday, but held above last Tuesday’s low. In other words, the damage from yesterday’s sell-off was no more than the erasure of three days of gains.
Earnings season is in the home straight. Companies reporting today include Woodside Energy, IGO Ltd, Healius, BWX, Link Administration and Alcidion.
A slew of companies trade ex-dividend today, including Domino’s Pizza, Evolution Mining, Beach Energy and Downer EDI.
Building approvals numbers for July land at 11.30 am AEST. Weekly consumer confidence data are also due this morning.
The dollar steadied after Friday’s sell-off, rising 0.55 per cent to 69.02 US cents.
Commodities
Oil surged to its highest in a month after Saudi Arabia signalled the OPEC+ cartel may consider production cuts if prices fall too far. Traders also weighed supply threats from fighting in Libya and hurricane activity in the Atlantic.
Brent crude settled US$4.10 or 4.1 per cent higher at US$105.09 a barrel. The US benchmark, West Texas Intermediate, climbed 4.2 per cent to US$97.01.
Iron ore retreated after Chinese officials met to discuss steel production curbs tied to environmental goals. Authorities met with steel mill operators in Tangshan, China’s leading production centre.
The main contract on the Dalian Commodity Exchange fell 1.4 per cent to 714 yuan. The spot price for ore landed in China declined 26 US cents or 0.2 per cent to US$105.12 a tonne.
BHP‘s US-traded depositary receipts shed 1.73 per cent. Rio Tinto lost 0.79 per cent. UK markets were closed for a bank holiday.
Industrial metals retreated in China as traders weighed the demand implications of a slowdown in US growth. Benchmark copper on the Shanghai Futures Exchange dropped 1.3 per cent to US$9,039.41 a tonne.
Aluminium lost 0.6 per cent, nickel 5 per cent and zinc 1.6 per cent. The London Metal Exchange was closed for a UK holiday.
Gold finished little changed as a modest decline in the US dollar helped offset pressure from rising rates. Gold for December delivery settled 10 US cents or 0.01 per cent lower at US$1,749.70 an ounce. The NYSE Arca Gold Bugs Index fell 1.19 per cent.
