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The share market looks poised to recoup some of yesterday’s heavy loss despite declines on Wall Street as megacaps Apple and Tesla weighed.
ASX futures bounced 59 points or 0.86 per cent, suggesting relief for Australian investors after a grim start to the new year.
The S&P/ASX 200 tumbled up to 1.9 per cent yesterday before paring its loss to 92.5 points or 1.31 per cent. The slide came after bleak Chinese factory data helped trigger a record dive on the Baltic Dry Index, a leading indicator of global economic activity.
Iron ore, copper and crude oil declined overnight. Gold, a traditional haven, rallied to its highest in more than six months. The dollar fell more than 1 per cent.
Wall Street
US stocks sank on the first trading day of 2023 as a brief burst of New Year optimism quickly gave way to renewed selling. Apple and Tesla spearheaded losses ahead of a slew of economic data later this week.
The S&P 500 dropped 15 points or 0.4 per cent. A late rebound helped the Dow Jones Industrial Average trim its loss to 11 points or 0.03 per cent. The Nasdaq Composite gave up 80 points or 0.76 per cent.
An opening rally fizzled out within 30 minutes amid concerns the year ahead could bring recessions in much of the developed world. The head of the International Monetary Fund, Kristalina Georgieva, warned over the NY break that the US, European Union and China were all slowing simultaneously. New York Fed President William Dudley said a downturn in the US was “pretty likely”.
“Recession is what everyone is betting on,” Ben Emons, senior portfolio manager and head of fixed income/macro strategy at NewEdge Wealth, told MarketWatch.
“The whole narrative of a recession is something that’s bothering the stock market and other asset classes because it will mean shrinking margins and earnings,” he added.
The Baltic Exchange’s dry bulk sea freight index tumbled a record 17.5 per cent yesterday following news of a sharp contraction in Chinese factory output. The index is an important indicator of supply and demand across the globe. It measures changes in the cost of shipping raw materials such as coal and iron ore.
Tesla tumbled 12.24 per cent to its lowest since August 2020 after fourth-quarter deliveries fell short of market expectations. Analysts say the electric car-maker is battling production, delivery and demand issues. Apple gave up 3.74 per cent following reports weak demand will force production cuts.
The US market was coming off its worst year since 2008. The S&P 500 lost 19.4 per cent last year amid fears a surge in interest rates will tip the US economy into recession. The Nasdaq Composite shed 33.1 per cent.
This week will bring further insight into the prospects for the year ahead with the release of the minutes from last month’s Federal Reserve meeting, as well as various measures of employment.
Australian outlook
Futures traders anticipate a partial recovery this session following a grim start to 2023. The S&P/ASX 200 sank like a stone yesterday, briefly threatening to give up as much as 2 per cent after dire Chinese data rang alarm bells for the closely-tied Australian economy.
The dollar fell collateral damage to a rush to traditional havens, including the greenback and precious metals. The Aussie slid 1.16 per cent overnight to 67.28 US cents.
Precious metals miners shone in the US as gold, silver and platinum hit multi-month highs. The NYSE Arca Gold Bugs Index firmed 3 per cent.
Other pockets of strength included communication services (Facebook, Google, Netflix) +1.39 per cent, financials +0.37 per cent, real estate +0.31 per cent and industrials +0.2 per cent.
The biggest drag was energy, which shed a hefty 3.64 per cent as crude dropped to a two-week low. Optimism over China reopening has given way to panic about demand as Covid outbreaks shut down factory production lines and keep workers at home.
Commodities
Precious metals started the year at multi-month highs as a decline in treasury yields encouraged traders to seek other stores of wealth. Gold for February delivery settled US$19.90 or 1.1 per cent ahead at US$1,846.10 an ounce, a level last seen in mid-June.
“Fear and doubt across wider financial markets mean gold and silver have begun 2023 with a typical New Year surge, attracting speculative inflows as traders see weak growth, high inflation and a worsening geopolitical outlook ahead,” Adrian Ash, director of research at BullionVault, wrote.
Silver rallied 20 US cents or 0.8 per cent to US$24.236 per ounce. Earlier, the metal touched US$24.775, its strongest price since mid-April. Platinum set its highest intraday price since March before closing US$10.40 or 1 per cent ahead at US$1,093.30 per ounce.
Oil slumped as spiralling Covid cases muddied the prospects for Chinese demand. Brent crude settled US$3.81 or 4.43 per cent lower at US$82.10 a barrel. The US benchmark, West Texas Intermediate, dropped almost 4.2 per cent to US$76.93, a two-week low.
Iron ore and copper retreated after Chinese factory activity slowed to its weakest in three years. The China manufacturing PMI fell to 47 last month from 48 in November. Readings below 50 indicate contracting activity.
“Chinese COVID rates are going to have a substantial impact on the ability of factories to produce, on transport to deliver, builders to build and on finance companies to finance,” John Meyer, analyst at SP Angel, told Reuters.
The most-traded May ore contract on China’s Dalian Commodity Exchange declined 0.4 per cent to 851.50 yuan (US$123.62) a tonne in daytime trade.
Benchmark copper on the London Metal Exchange fell 0.62 per cent to US$8,320 a tonne. Aluminium lost 2.5 per cent and lead 0.33 per cent. Nickel gained 4.73 per cent, zinc 0.74 per cent and tin 2.29 per cent.
BHP‘s US-traded depositary receipts lost 1.05 per cent. Earlier, the miner’s UK listing crept up 0.06 per cent. Rio Tinto lost 0.2 per cent in the US after gaining 0.71 per cent in the UK.
