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A late sell-off on Wall Street points to a soft start to Australian trade following three days of gains.
ASX futures sank 79 points or 1.12 per cent as the major US indices extended losses in the final hour, ending at session lows.
Energy stocks dragged as reports of progress in Iran nuclear talks weighed on oil. Gold inched to a fourth-month high. Iron ore climbed 3.1 per cent.
Wall Street
A downbeat session unravelled in the final hour as the heavyweight tech stocks unwound gains. The tech-heavy Nasdaq Composite finished 75 points or 0.56 per cent lower after being up as much as 0.8 per cent. Apple shed 1.12 per cent, Alphabet 1.16 per cent, Amazon 1.17 per cent and Facebook 1.74 per cent.
The broader S&P 500 lost 35 points or 0.85 per cent. The Dow Jones Industrial Average gave up 267 points or 0.78 per cent.
Inflation worries were stoked by a sharp slowdown in house-building last month as the cost of construction materials soared. Housing starts dropped 9.5 per cent, much more than the gentle 1.7 per cent decline predicted by economists polled by Dow Jones.
“Builders are delaying starting new construction because of the marked increase in costs for lumber and other inputs,” Mike Fratantoni, chief economist at the Mortgage Bankers Association, told Reuters. “These supply-chain constraints are holding back a housing market that should otherwise be picking up speed, given the strong demand for buying fuelled by an improving job market and low mortgage rates.”
Concerns about the implications for equities of a sharp increase in inflation sent markets sharply lower last week. The S&P 500 fell 4 per cent in three sessions before staging a partial recovery to end the week 1.4 per cent in the red. The release tonight of the minutes from the last Federal Reserve policy meeting is expected to shed more light on the bank’s inflation outlook.
Telecommunications companies dragged after AT&T announced a dividend cut to fund its purchase of Discovery Inc, owner of the Discovery Channel and other TV brands. AT&T shares sank 5.8 per cent. Verizon shed 1.31 per cent. T-Mobile dropped 3.71 per cent.
The session started well following upbeat earnings updates from retailers Walmart, Macy’s and Home Depot. Walmart, the world’s largest retailer, lifted its full-year earnings outlook.
Australian outlook
Timber. The S&P/ASX 200 shrugged off negative US leads yesterday, but cannot ignore this morning’s nasty late slump. The domestic benchmark gained 42 points yesterday – a third straight advance – but looks likely to give a lot more back this session.
A rising dollar will pressure non-mining exporters and companies with significant US earnings. The Aussie climbed 0.37 per cent to 78.02 US cents.
Energy was the biggest drag in the US, falling 2.63 per cent as US crude gave up two-year highs. Industrials dropped 1.47 per cent, financials 1.35 per cent and materials 1.09 per cent. The tech sector fell 0.82 per cent.
Value stocks fared no better than growth, suggesting broad weakness. The Russell 100 Value Index fell 0.93 per cent, versus 0.6 per cent in the Growth Index. Wall Street has entered a seasonally weak period of the year (sell in May and go away).
Webjet releases full-year results today. Lithium Energy is scheduled to list at noon.
The monthly consumer sentiment survey is due at 10.30am AEST. The quarterly wage price index an hour later may carry more weight than usual with the current focus on inflationary pressures.
Commodities
Iron ore pushed back towards record levels. The spot price for ore landed in China rose $6.75 or 3.1 per cent to US$223.75 a tonne.
Trading action in BHP and Rio Tinto typified the deteriorating market mood over the last 24 hours: up in Australia, rolling over in Europe, lower in the US. BHP, which gained 1.85 per cent here yesterday, lost 0.24 per cent in the UK and 1.52 per cent in the US. Rio Tinto shed 0.4 per cent in the UK and 1.31 per cent in the US.
Gold inched to a fourth straight gain as the US dollar softened. Metal for June delivery settled 40 cents or less than 0.1 per cent higher at US$1,868 an ounce. The NYSE Arca Gold Bugs Index eased 0.07 per cent.
“Investors know that inflation is going to run hot, and it will remain above the Federal Reserve’s target of 2%,” Naeem Aslam, chief market analyst at AvaTrade, wrote. “Higher inflation numbers are going to keep the shine in the gold price, and it is highly likely that we may see the gold price topping the $1,900 mark in the coming days.”
Oil fell after BBC sources reported a potential breakthrough in negotiations over Iran’s nuclear program. Brent crude settled 75 cents or 1.1 per cent lower at US$68.71 a barrel.
US-traded copper climbed 0.3 per cent to just under US$4.73 a pound.
