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The share market looked set to open almost 1.8 per cent lower following a horror session on Wall Street as weak earnings from retailers revived fears about the US economy.

The Dow tumbled more than a thousand points to its heaviest loss since 2020. The S&P 500 and Nasdaq Composite shed more than 4 per cent.   

ASX futures declined 126 points or 1.76 per cent, signalling a resumption of heavy selling after a four-day respite. The S&P/ASX 200 climbed 1 per cent yesterday, extending its recovery since Friday to 242 points or almost 3.5 per cent.

Commodity prices fell after a hawkish outlook from the Federal Reserve boosted the greenback. The Australian dollar dropped more than 1 per cent.

Wall Street

US stocks tumbled after a weak trading update from Target sharpened concerns about the impact of inflation on corporate costs. Coming hot on the heels of a similar warning from Walmart, the news triggered another bout of bloodletting.

The S&P 500 slid 165 points or 4.04 per cent. The Dow Jones Industrial Average fell 1,165 points or 3.57 per cent. The Nasdaq Composite gave up 566 points or 4.73 per cent.

Target lost a quarter of its market value as investors dumped retail stocks. The retailer reported first-quarter profit halved and margins contracted as it battled rising fuel and transportation costs. The share price fell 24.93 per cent, its biggest loss since the Black Monday rout of 1987.

The themes of the Target update were similar to that of Walmart a day earlier: rising costs eating profits and pushing shoppers towards lower-cost brands. Walmart reported a 25 per cent fall in Q1 earnings. Lowe’s also missed sales expectations.

“It’s clear that transportation costs matter and they’re impacting the largest companies,” Kim Forrest, founder of Bokeh Capital, told CNBC. “So I think investors are scratching our heads going, ‘so, who’s next?’ And they’re giving visibility into what’s happening with the consumer.”

The SPDR S&P Retail ETF dived 8.29 per cent as traders dumped retailers. The consumer staples and consumer discretionary sectors both shed more than 6.3 per cent. Amazon lost 7.16 per cent.

“Retailers are starting to reveal the impact of eroding consumer purchasing power,” Paul Christopher, head of global market strategy at Wells Fargo Investment Institute, told Reuters.

Just eight component companies of the S&P 500 finished higher as the sell-off gained momentum. The S&P 500’s fall was the largest since June 2020.

The growth stocks that have spearheaded this year’s retreat were once again in the firing line. Nvidia shed 6.82 per cent, Tesla 6.8 per cent and Apple 5.64 per cent.

The declines followed hawkish remarks from Federal Reserve Chair Jerome Powell, who pledged to “keep pushing” interest rates higher until inflation cooled.

Australian outlook

Look out below. The tentative optimism that had crept back into the market over the last few sessions has been blown away by Wall Street’s most brutal session of the year.

Retailers will be in the firing line after trading updates from US giants Target and Walmart underlined the impact of rising costs. Inflation may be milder here, but cost pressure has been a recurring theme in recent updates from miners to supermarkets.

The US consumer discretionary sector tumbled 6.6 per cent. Consumer staples lost 6.38 per cent.

Tech stocks also took a heavy hit, falling 4.74 per cent. Materials fell 3.17 per cent, financials 2.8 per cent. Utilities was the closest thing to a haven with a loss of 1.03 per cent.

The S&P/ASX 200 had been in repair mode, rising 1 per cent yesterday on signs wages were not increasing fast enough to rush the RBA into front-loading the rate-hike cycle. A soft employment report this morning would support that narrative.

The April jobs update at 11.30 am AEST could mark a historic moment: the first unemployment rate with a three at the front since 1974. The official rate is expected to drop to 3.9 per cent from 4 per cent in March. The economy is expected to have created around 30,000 jobs. A surprise in either direction would have implications for interest rates.

The dollar fell back under 70 US cents overnight, pressured by a classic “flight to safety”. The Aussie was lately down 1.07 per cent at 69.54 US cents.

Woodside Petroleum and Adbri hold annual general meetings today. Westpac and Pendal Group trade ex-dividend.

IPOs: two companies originally scheduled to list this week have delayed their debuts. TG Metals will list on May 26. Bindi Metals has yet to schedule a new date.

Commodities

Commodity prices declined after Fed Chair Powell appeared to take a tougher line on inflation than previous remarks suggested. The US dollar index pushed back towards 20-year highs. A stronger dollar makes the prices of dollar-denominated commodities more expensive for buyers using other currencies.

Oil tracked US equities as retailer reports underlined the impact of rising costs on consumer demand. Brent crude settled US$2.82 or 2.5 per cent lower at US$109.11 a barrel.

Iron ore fell amid reports steel mills were delaying purchases due to weak downstream demand. The most-traded contract on the Dalian Commodity Exchange dropped 5.3 per cent to 791 yuan. The spot price for ore landed at Tianjin fell US$1.66 or 1.3 per cent to US$129.92 a tonne.

BHP‘s US-traded depositary receipts dropped 2.64 per cent. The miner’s UK listing eased 1.6 per cent. Rio Tinto lost 3.32 per cent in the US and 1.79 per cent in the UK.

Industrial metals unwound some of this week’s gains. Benchmark copper on the London Metal Exchange declined 1.5 per cent to US$9,250.10 a tonne. Aluminium lost 0.9 per cent, nickel 0.8 per cent, lead 2.1 per cent, zinc 1 per cent and tin 3.1 per cent.

“Metals markets remain in down trends and the rallies this week have been largely of a short covering nature only,” Alastair Munro of brokerage Marex told Reuters.

Gold eased for the first time in three sessions. Metal for June delivery settled US$3 or 0.2 per cent lower at US$1,815.90 an ounce. The NYSE Arca Gold Bugs Index gave up 2.67 per cent.

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