Australian shares were poised to open more than 1 per cent higher a day after the market’s worst session in 21 months.
ASX futures bounced 79 points or 1.09 per cent as the shockwaves from Wednesday’s US rates surprise subsided. The S&P/ASX 200 plunged 2.7 per cent yesterday to its heaviest loss since March 2020.
Overnight, US stocks faded in the final hour to modest losses. Iron ore and crude oil advanced. Gold and copper declined. The dollar moved further below 72 US cents.
US stocks steadied as the market continued to adjust to the Federal Reserve’s unexpectedly hawkish outlook for the year ahead. The minutes from the December Federal Open Market Committee released yesterday morning Australian time showed the US central bank preparing to raise rates as soon as March and start unwinding its pandemic asset purchases soon after. The release triggered heavy falls on global markets.
Overnight, the Nasdaq Composite added to its worst loss since February 2021 as a tentative rebound faded. The tech-heavy index wilted 19 points or 0.13 per cent.
The S&P 500 shed five points or 0.1 per cent. The Dow Jones Industrial Average fell 171 points or 0.47 per cent as Apple, IBM and UnitedHealth weighed.
Growth stocks that bore the brunt of Wednesday’s selling were mixed as investors weighed the earnings implications of higher rates. Meta Platforms (Facebook) bounced 2.56 per cent. Nvidia added 2.08 per cent. Tesla shed 2.15 per cent, Apple 1.67 per cent and Amazon 0.67 per cent.
“There are a lot of newer investors in the market that have never seen a rate hike cycle,” Liz Young, head of investment strategy at SoFi, told CNBC. “If you look throughout history it’s not a death sentence for the market, it’s not a death sentence for tech overall.
“Historically, the first rate hike – which is what I think everybody got scared of yesterday – it’s not that detrimental to equities either.”
The Nasdaq Composite tumbled 3.34 per cent on Wednesday as investors dumped companies whose valuations looked less compelling as rates normalise from emergency settings. The S&P 500 shed 1.94 per cent.
Overnight, star stock-picker Cathie Wood’s ARK Innovation ETF closed near a 15-month low. The fund – viewed by some traders as a proxy for speculative tech – skidded more than 7 per cent on Wednesday and lost another 0.6 per cent overnight.
Banks and other lenders rallied as long-term interest rates traded at their highest since April. Lenders benefit from margin expansion under higher rates. The yield on ten-year US treasuries has moved up 21 basis points this year in anticipation of official rate increases.
Citigroup put on 3.28 per cent, Wells Fargo 2.58 per cent and Bank of America 2.01 per cent.
First-time claims for unemployment benefits ticked up to 207,000 last week. Economists polled by the Wall Street Journal predicted claims would fall to 195,000. However, a strong December report on private payrolls on Wednesday raised expectations for tonight’s government jobs report.
Bullish futures point to a strong rebound from yesterday’s bloodbath. The S&P/ASX 200 yesterday appeared to pre-empt a much worse US session than actually occurred overnight. Encouraged by sinking US futures, the Australian benchmark dived 207.5 points or 2.74 per cent.
While the worst did not eventuate, this morning’s futures reading looks exuberant relative to what actually took place. Wall Street wobbled in and out of positive territory before fading in the final half hour. In other words, there was no bounce.
Retail traders enjoyed an armchair ride over the festive period, but yesterday’s action confirmed the institutional crew are back to spoil the party. Trading volumes yesterday were the strongest since mid-December. As JPMorgan Chase put it in a research report, “Santa Claus is leaving town”.
The best sectors for the day ahead according to the US form guide are energy +2.29 per cent, financials +1.55 per cent and industrials +0.45 per cent.
The big four Australian banks were dragged down by yesterday’s sinking tide, but should in theory generate more profits in a higher-rates environment. The outlook for the miners is less promising: materials was the worst of the US sectors, falling 1.24 per cent. Health, utilities and tech were also weak.
IPOs: the second debut of 2022 is scheduled for 2.30 pm AEDT. My Foodie Box is a Perth-based food delivery service taking boxes “from farm to foodie”.
The dollar remained under pressure overnight, falling 0.8 per cent to 71.62 US cents.
Iron ore continued to recover amid speculation about restocking ahead of the lifting of pollution curbs following next month’s Winter Olympics. The most actively traded ore contract on the Dalian Commodity Exchange lifted 4.1 per cent to US$112.47 a tonne, a level last seen in late October.
“After the Winter Olympics, there is an opportunity to relax the production limit,” on steel wrote analysts at Zhongzhou Futures.
BHP and Rio Tinto were mixed in overseas trade. BHP‘s US-listed stock inched up 0.13 per cent after its UK-listed stock shed 0.97 per cent. Rio Tinto gained 1.94 per cent in the US and 0.85 per cent in the UK.
Oil rose for a fourth night, supported by potential supply disruptions in Kazakhstan and Libya. Civil unrest in Kazakhstan spread to the oil-rich west of the country. Libyan output has fallen by 500,000 barrels a day amid damage to pipelines.
“The upward jump in oil prices mostly reflects the market jitters as unrest escalates in Kazakhstan and the political situation in Libya continues to deteriorate and sideline oil output,” Louise Dickson, senior oil markets analyst at Rystad Energy, said.
Brent crude settled US$1.19 or 1.5 per cent ahead at US$81.99 a barrel.
Gold slumped in the wake of the Fed minutes and extended losses overnight. Gold for February delivery settled US$35.90 or 2 per cent lower at US$1,789.20 an ounce. The decline was the precious metal’s largest in six weeks. The NYSE Arca Gold Bugs Index shed 3.29 per cent.
Industrial metals were mixed as the Fed’s rates outlook dampened risk appetite. Benchmark copper on the London Metal Exchange dropped 1.4 per cent to US$9,562 a tonne. Nickel shed 1.47 per cent and zinc 0.25 per cent. Aluminium edged up 0.17 per cent, lead 0.76 per cent, and tin 0.05 per cent.