The share market looked set to open at a two-month low after US stocks sank for a third week as investors fretted about weak consumer sentiment, tax increases and this week’s Federal Reserve meeting.
ASX futures skidded 68 points or 0.92 per cent, signalling the weakest open since late July.
Iron ore fell to a fresh 14-month low. Gold retreated for a third session. Oil eased from seven-week highs. US uranium stocks suffered heavy falls. The dollar closed below 73 US cents.
A quadruple witching session brought no relief from this month’s downtrend. The major indices extended their September losses as four kinds of index and stock futures and options expired.
The S&P 500 fell 41 points or 0.91 per cent. The Dow Jones Industrial Average shed 166 points or 0.48 per cent. The Nasdaq Composite gave up 138 points or 0.91 per cent.
The Dow’s fall sealed a third straight weekly loss, the blue-chip index’s worst run in a year. The S&P 500 fell 0.6 per cent for the week. The broadest of the three indices has lost 2 per cent this month, but remains within 2.5 per cent of its peak. The Nasdaq shed 0.5 per cent last week for a September loss to date of 1.4 per cent.
Stocks struggled last week after the Democrats outlined plans to wind back corporate tax cuts introduced under the Trump administration, and as investors prepared for the possibility the Federal Reserve will this week announce a timeline for reducing emergency support for the economy.
The Fed has laid the groundwork for reducing its bond-buying program, but not yet announced a timeline. Stock prices have more than doubled since the pandemic market low, fuelled by easy money and record-low interest rates. The Fed meets tomorrow and will announce any change to policy on Wednesday night.
Big Tech led Friday’s selling as treasury yields rallied four basis points. Apple, Microsoft, Facebook and Alphabet all declined. Tech stocks have outperformed during the pandemic but are particularly vulnerable to higher rates because of the way the market values them on future earnings.
Concerns about the health of the economy were reignited by soft consumer sentiment data. The University of Michigan’s sentiment index improved less than expected to 71 from a ten-year low in August of 70.3 per cent.
“Consumer sentiment is still in the gutter,” Robert Frick, economist with Navy Federal Credit Union, said. However, retail sales held up well, according to data last week, he added. “Consumers’ anxiety isn’t reflected much in consumer spending,” he said.
Vaccine-makers declined after the Food and Drug Administration knocked back a proposal to give Covid-19 booster shots to the general public. The US regulator instead recommended extra shots for the vulnerable and over-65s only. Pfizer fell 1.3 per cent, BioNTech 3.61 per cent and Moderna 2.41 per cent.
Unless the market mood miraculously improved over the weekend, futures action suggests the S&P/ASX 200 will retest levels last seen in the second half of July. The index has fallen into a gentle downtrend since topping out in mid-August, making a series of lower low and lower highs.
Seasonal factors are at play. September is Wall Street’s worst month by historic measures. Here, the market has been unable to withstand the tide of dividend payments subtracting from stock prices.
The market is also under pressure from a rapid collapse in iron ore, the nation’s most valuable export. Ore prices fell again on Friday, extending their loss for the week beyond 20 per cent. Fortescue Metals fell 16.4 per cent last week. Mineral Resources was another major loser, falling 9.2 per cent.
In the US, materials was Friday’s worst-performing sector, diving 2.06 per cent. Growth stocks and bond proxies also struggled as US treasury yields firmed ahead of this week’s Fed meeting. Utilities dropped 1.59 per cent, technology 1.52 per cent and real estate 0.95 per cent.
Central banks will play a key role in how this week unfolds. The Reserve Bank releases the minutes from this month’s policy meeting tomorrow. Assistant Governor Michele Bullock is due to address an online event on Wednesday.
However, the real fireworks (if any) will happen on Wednesday night when the US Fed releases its policy update. The key question for investors is whether the bank announces the timeline for the long-awaited bond taper or holds off until next meeting. While the era of easy money will continue for some time, just the threat of the taper has ushered in a tougher time for equity markets.
Back home, other economic highlights this week include the weekly consumer sentiment report (Tuesday); August job vacancies (Wednesday); and flash manufacturing and services PMIs (Thursday).
Market holidays today in China and Japan will slow fund flows across the region. Chinese markets will remain closed until Wednesday.
IPOs: with the Emerging Companies Index at all-time highs, it is no surprise to see companies rush to take advantage of strong interest in speculative stocks. The delayed Pearl Gull Iron listing is due to take place today at noon AEST. The explorer has mining title over part of Cockatoo Island off the north-west coast, an area with a history of iron ore mining.
The IPO schedule for the rest of the week currently looks like this: Widgie Nickel, X2M Connect (Wednesday); Forrestania Resources, Revolver Resources (Thursday); and Pacific Edge and Alvo Minerals (Friday). Note listings are frequently subject to delays and cancellations.
AGMs: AGL Energy holds its annual general meeting online on Wednesday. Suncorp and Mercury NZ follow on Thursday.
Dividend payments: companies trading ex-dividend this week include Milton Corporation, Qube (Tuesday); Adbri (Wednesday); and Cochlear, NRW, Eagers Automotive, Vita Life and Cash Converters (Thursday).
The dollar sank below 73 US cents on Friday night, but mounted a fightback this morning, rising 0.26 per cent to 72.62 US cents.
BHP and Rio Tinto slumped to ten-month lows in overseas trade as a rout in iron ore continued. The spot price for ore landed in China dropped US$5.70 or 5.4 per cent to US$100.80 a tonne. The decline extended the spot price’s loss for the week to US$27.95 or 21.7 per cent.
Ore prices have been crunched by Chinese environmental curbs on steel outputs and by demand worries as developer Evergrande’s liquidity worries slow activity in the property market.
“The production cuts really seem to be working,” Erik Hedborg, iron ore analyst at consultancy CRU, said. “Demand for additional volumes is simply not there any more.”
BHP‘s US-listed stock shed 4.42 per cent and its UK-listed stock 4.8 per cent. Rio Tinto lost 2.99 per cent in the US and 3.6 per cent in the UK.
The fierce recent rally in Australian uranium stocks faces headwinds following heavy falls in US players. Uranium Energy dived 8.73 per cent, Energy Fuels 10.42 per cent, NexGen Energy 10.05 per cent, Cameco 6.53 per cent and Denison Mines 5.29 per cent. Spot prices for yellowcake hit a near-decade high last week.
Gold fell for a third session as the US dollar firmed. Gold for December delivery settled US$5.30 or 0.3 per cent lower at US$1,751.40 an ounce. The NYSE Arca Gold Bugs Index dipped 0.54 per cent.
Oil trimmed a fourth week of gains amid signs US production was coming back on-line after Hurricane Ida. Brent crude settled 33 US cents or 0.4 per cent lower at US$75.34 a barrel. For the week, Brent improved 3.3 per cent.
Copper retreated even as China injected liquidity into the banking system for the first time in seven months to help settle jitters over Evergrande’s struggles to meet its debt obligations. Benchmark copper on the London Metal Exchange fell 0.4 per cent to US$9,307.25 a tonne. Nickel eased 0.1 per cent and lead 1.3 per cent. Aluminium firmed 0.5 per cent, zinc 0.1 per cent and tin 0.7per cent.