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A fourth straight fall on Wall Street points to early pressure on Australian stocks as recession fears swirl around US financial markets.
US stocks added to Monday’s sharp losses amid job losses and dire warnings from business chiefs of a looming downturn.
Oil and iron ore declined with the downturn in risk appetite. The Australian dollar dropped back under 67 US cents. Gold inched higher for the first time in three sessions.
ASX futures skidded 37 points or 0.51 per cent. The S&P/ASX 200 dropped 0.47 per cent yesterday after the Reserve Bank raised benchmark rates and indicated further increases were likely next year.
Wall Street
The S&P 500 fell for a fourth session as recent robust economic data pointed to more rate rises ahead even as companies plan for leaner times and lay off workers.
The S&P 500 dropped 58 points or 1.44 per cent. The Dow Jones Industrial Average shed 351 points or 1.03 per cent. The Nasdaq Composite lost 225 points or 2 per cent as growth sectors bore the brunt of the selling.
The Santa Rally remained on hold after a series of business leaders made grim predictions about the outlook for 2023. Jamie Dimon, CEO of JPMorgan Chase, said a recession was likely as inflation erodes consumers’ spending power.
“Rates are now on their way to 5%. When you’re looking forward, those things very well might derail the economy and cause this mild to hard recession people are talking about,” Dimon told CNBC.
Bank of America CEO Brian Moynihan predicted two years of pain for the housing market, but hoped the economic downturn would be brief and “mild”. David Solomon, CEO of Goldman Sachs, said clients were cautious and “fatigued after a very volatile year”.
Morgan Stanley slid 2.52 per cent after announcing plans to slash 2 per cent of its workforce. Tesla lost another 1.44 per cent despite denying media reports of production cuts at its Shanghai factory in the face of weak demand. Meta Platforms dived 6.79 per cent after a European ruling undermined the Facebook owner’s ability to use targeted advertising.
Wall Street has been in retreat since unexpectedly strong jobs data on Friday increased pressure on the Federal Reserve to keep raising interest rates. The S&P 500 and Nasdaq Composite dived more than 1.7 per cent on Monday to their heaviest losses in a month.
“The risks of recession haven’t gone away, the storm clouds are still sitting ominously offshore,” Chris Rupkey, chief economist at FWDBONDS, said.
The job losses at Morgan Stanley were the latest in a series of layoffs announced in recent weeks as companies prepare for a drop in demand as rising rates bite.
“Fundamentally, we are seeing another round of major layoffs this week and that only increases the odds that we have a hard landing in 2023 and enter a deeper recession than was initially expected,” Adam Sarhan, CEO of 50 Park Investments, said.
Australian outlook
A sharp retrace on Wall Street continued overnight, pointing to another challenging start for Australian traders. The S&P/ASX 200 has weathered the US downturn well so far, but can only ignore global trends for so long. European markets also sank overnight. Asia was choppy and mixed yesterday.
Trade in the US was predictably defensive. Utilities was the only sector to resist the downtrend, rising 0.66 per cent. Next best were consumer staples -0.68 per cent, health -0.74 per cent and real estate -0.79 per cent.
Energy and growth copped the worst of the sell-off. Energy slumped 2.66 per cent, communication services (Google, Facebook) -2.58 per cent and technology -2.14 per cent.
The two sectors with the biggest weighting on the ASX, materials and financials, both shed almost 0.9 per cent.
The dollar’s foray above 68 US cents last week proved fleeting. The Aussie was this morning off another 0.23 per cent at 66.92 US cents.
Today’s big-ticket item on the economic calendar is the Q1 GDP report at 11.30 am AEDT. The consensus among economists is for a slowdown in growth to 0.6 per cent from 0.9 per cent in the last three months of FY22 for an annual growth rate of 6.2 per cent. A surprise in either direction could move the needle on the interest rate outlook.
Piedmont Lithium takes part in Deutsche Bank’s annual Lithium and Battery Supply Chain Conference in New York tonight.
Commodities
Oil dropped close to a 12-month low in the US as traders fretted about the prospect of a US recession. West Texas Intermediate declined US$2.68 or 3.5 per cent to US$74.25, its lowest finish since December 23.
The international benchmark, Brent crude settled US$3.33 or 4 per cent lower at US$79.35 a barrel. Today’s close was the weakest since January 3.
A pause in the current recovery in bond yields helped gold steady after back-to-back losses. Gold for February delivery settled US$1.10 or 0.1 per cent higher at US$1,782.40 an ounce. The NYSE Arca Gold Bugs Index lost 0.73 per cent.
Iron ore eased in choppy action as a recent surge fuelled by China reopening hopes lost momentum. China was reportedly due to announce fresh Covid easing measures as soon as today.
The most-traded ore for May delivery on the Dalian Commodity Exchange fell 0.6 per cent to 780 yuan (US$111.62) a tonne.
BHP‘s US-traded depositary receipts firmed 0.43 per cent. Earlier, the miner’s UK listing dipped 0.08 per cent. Rio Tinto gained 1.32 per cent in the US and 0.16 per cent in the UK.
Copper bounced two cents or 0.6 per cent in US trade to US$3.818 a pound.
