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A busy week of corporate earnings faces a rocky start after Wall Street’s four-week winning run ended as traders grew more cautious about the outlook for interest rates.
ASX futures declined 29 points or 0.41 per cent. The S&P/ASX 200 has good momentum after rising for five straight weeks for the first time since June 2021.
The domestic corporate reporting season continues at full steam this week with updates from household names such as Coles, Woolworths, Qantas, Nine Entertainment, Breville, Flight Centre, Domino’s Pizza and Ampol.
Wall Street
US stocks sold off sharply on Friday as Federal Reserve officials pushed back against the idea of a slowdown in rate increases any time soon. Caution set in ahead of Fed Chair Jerome Powell’s address this week to the annual Jackson Hall Symposium.
The S&P 500 declined 55 points or 1.29 per cent. The Dow Jones Industrial Average shed 292 points or 0.86 per cent. The Nasdaq Composite gave up 260 points or 2.01 per cent.
A rally across the lightly-traded northern summer turned choppy last week as Fed officials challenged market assumptions the central bank may start to reduce the recent pace and size of rate increases. The federal funds target rate hit 2.25-2.5 per cent last month following back-to-back hikes of 75 basis points.
The S&P 500 lost around 1.2 per cent for the week. The Nasdaq skidded 2.6 per cent. The Dow dipped 0.2 per cent.
St Louis Fed President James Bullard said he would “lean toward” another 75bp increase to the federal funds target rate next month. Richmond Fed President Thomas Barkin warned recent economic reports suggested the US economy may have accelerated since the last rate hike, rather than cooled. The “urge” at the bank was to front-load rates to contain inflation, he added.
Investors will get a clearer idea of the central bank’s current thinking when Chair Powell addresses the bank’s annual economic symposium at Jackson Hole this Friday.
“I think everybody is just waiting for Jackson Hole, so I think there will be a lot of speculation over what Powell is going to say for the next five days,” Brad Conger, deputy chief investment officer at Hirtle Callaghan & Co, told MarketWatch.
An increase in treasury yields weighed on growth stocks such as tech. Rising rates have a bigger impact on growth stocks because their valuations depend most on expectations for future earnings. Facebook owner Meta Platforms, Google parent Alphabet and Amazon were among the biggest drags.
Meme stocks retreated after activist investor Ryan Cohen sold his entire stock in Reddit favourite Bed Bath & Beyond. Shares in the firm tumbled 40.54 per cent. AMC Entertainment slid 6.58 per cent. GameStop shed 3.8 per cent.
Australian outlook
The bullish mood on equity markets deteriorated last week as negative developments on bond markets indicated bond traders were more bearish than their equity counterparts. The yield on ten-year US treasuries flirted with 3 per cent for the first time in nearly a month, suggesting recession fears were on the rise.
Some of the frothier corners of the trading world also lost traction. The rally in meme stocks soured. Cryptocurrencies gave back a sizeable chunk of their gains since the June meltdown.
The dollar is back under pressure, trading this morning at 68.72 US cents after poking its head above 71 US cents at the start of last week.
All that speaks to a growing sense of caution as a new week gets underway. The S&P/ASX 200 starts in a good place after booking a fifth week of gains last week and a ten-week closing high.
Coal miners provided some of last week’s best returns. Whitehaven climbed 11.2 per cent across the week to an all-time high. New Hope gained 12 per cent. Positive trading updates lifted IPH 16.9 per cent, Brambles 12.4 per cent and Treasury Wine Estates 8.5 per cent.
Growth fell back out of favour as bond yields rebounded. Zip Co slumped 15.4 per cent ahead of this week’s earnings report. Telix Pharmaceuticals and Novonix shed 15.1 per cent.
Reporting season continues this week. Companies reporting today include Star Entertainment, Ampol, Lendlease, Southern Cross Media, NIB, Adbri, Adairs, Reliance Worldwide, EML Payments and Altium.
Potential highlights across the rest of the week include: Pilbara Minerals, Kogan (Tuesday); Domino’s Pizza, WiseTech, Tabcorp (Wednesday); Woolworths, South32, Nine Entertainment, Zip Co, Appen and Qantas (Thursday); and Wesfarmers and Ramsay Health Care (Friday).
Companies holding AGMs this week include Link Administration (today), ALS Ltd (Tuesday), Fisher & Paykel Healthcare (Wednesday), Straker Translations (Thursday) and Infratil (Friday).
The domestic economic calendar is fairly light this week. Releases include: weekly consumer confidence data, preliminary monthly measures of manufacturing and services activity (Tuesday); and skilled job vacancies (Wednesday).
In the US, the annual Jackson Hole Symposium will cast a long shadow with Fed Chair Powell set to speak on Friday. Before then, Wall Street has flash services and manufacturing data (Tuesday); durable goods (Wednesday); preliminary GDP (Thursday); and the core personal consumption expenditures price index (Friday).
There is one solitary initial public offering pencilled in for the week ahead in Australia: Heavy Rare Earths on Wednesday.
Companies trading ex-dividend will be an added headwind this week. Among the larger names are Santos, Aurizon, Magellan (today); Telstra (Wednesday); and Macquarie Group (Thursday).
Commodities
Iron ore ended a losing week with further weakness as concerns swirled around Chinese demand. A heatwave has prompted steel mills in affected parts of the country to suspend production amid electricity rationing.
“The macro data is not ideal, the real estate drags down the economy, infrastructure construction is affected by the weather and capital supply,” Zhongzhou Futures analysts wrote.
The spot price for ore landed at Tianjin dropped 51 US cents or 0.5 per cent to US$104.21 a tonne, extending its loss for the week to 5.1 per cent. The most-traded ore contract on the Dalian Commodity Exchange dropped 2 per cent on Friday to 673.5 yuan.
BHP‘s US-traded depositary receipts fell 0.67 per cent after the miner’s UK listing rose 0.97 per cent. Rio Tinto shed 2.74 per cent in the US and 0.71 per cent in the UK.
Gold logged its longest losing run since July, dented by rises in treasury yields and the US dollar. Gold for December delivery settled US$8.30 or 0.5 per cent lower at US$1,762.90 an ounce.
The fall was the yellow metal’s fifth in a row. Friday’s close was the weakest in more than three weeks. The NYSE Arca Gold Bugs Index slid 2.54 per cent.
Oil trimmed a losing week. Brent crude settled 13 US cents or 0.1 per cent higher at US$96.72 a barrel. For the week, the global benchmark dropped 1.5 per cent.
Copper rose as some traders bet China could lower lending rates today to support the economy. Benchmark copper on the London Metal Exchange firmed 0.7 per cent to US$8,100.85 a tonne. Nickel improved 2.2 per cent, zinc 0.4 per cent and tin 0.8 per cent. Aluminium eased 0.4 per cent and lead 1.5 per cent.
