A big week for financial markets looks set for a cautious start as a public holiday in the US tonight adds to the dulling effect of losses on Wall Street.
Australian futures fell 16 points or more than 0.2 per cent after US stocks retreated ahead of tonight's Martin Luther King Jr holiday.
Iron ore rallied. Oil, gold and most industrial metals declined. The dollar rebounded almost 1 per cent.
US stocks sealed their first weekly losses in five weeks as the energy sector slumped and several big banks sold off after reporting earnings. Investors appeared to 'sell the news' after President-elect Joe Biden unveiled his US$1.9 trillion American Rescue Plan.
The S&P 500 dropped 27 points or 0.72 per cent. The Dow Jones Industrial Average shed 177 points or 0.57 per cent. The Nasdaq Composite lost 114 points or 0.87 per cent.
For the week, the S&P 500 and Nasdaq both declined 1.5 per cent. The Dow fell 0.9 per cent, partly cushioned by a stop-start rotation into cyclical sectors in anticipation the economy will gather momentum this year.
A new quarterly earnings season got off to a rocky start. The night's three major reports were all stronger than analysts expected, yet investors dumped shares. Wells Fargo skidded 7.8 per cent, Citigroup 6.9 per cent and JP Morgan Chase 1.8 per cent.
The energy sector dived 4 per cent after the US regulator launched an investigation into a whistleblower complaint about Exxon Mobil. The complaint alleges the company overvalued one of its US shale assets. Shares in the oil giant dived 4.8 per cent.
“Financials and energy have been disappointing... that’s bringing down the whole market,” Chris Zaccarelli, CIO at Independent Advisor Alliance, told Reuters. “This year is the year for financials, energy, materials, industrials. So if there is a day when they’re not leading, it’s not good news for the market.”
Worries about an end-of-year slowdown in the economy were sharpened by weak December retail sales. Restrictions to slow the spread of Covid-19 helped drag sales down 0.7 per cent last month. The soft result followed news last week employment declined in December for the first time in eight months.
This week may get off to a slow start as a US public holiday tonight depresses activity on financial markets. The potential for violent protests leading up to and during the inauguration of Joe Biden on Wednesday adds a level of unwelcome uncertainty. Protests were reportedly planned at state capitals and in Washington DC in the run-up to the event.
Market activity should start to pick up later in the week as the festive season moves further into the rear-view mirror. Participation should improve as traders return to their terminals. Corporate activity should also increase after the festive slowdown. Quarterly operational updates will start to flow from this week until the end of the month.
Among business updates scheduled this week are Rio Tinto (quarterly review, tomorrow), BHP (half-year review, Wednesday), Woodside Petroleum (quarterly, Thursday), South32 (quarterly, Thursday) and Northern Star (quarterly, Thursday). Australian Pharmaceuticals Industries holds its AGM on Wednesday.
On the economic front, Thursday's December jobs report is the key event on the domestic calendar. Consumer sentiment figures are due the day before. Overseas, China reports GDP, industrial production, retail sales and other figures at 1 pm AEDT today.
A busy week ahead in the US includes a swag of quarterly profit reports, Biden's inauguration, possible impeachment proceedings against Donald Trump in the Senate, and reports on housing and manufacturing.
The S&P/ASX 200 struggled for traction last week, closing dead flat on Friday and ceding 0.6 per cent for the week. BHP and Afterpay were the week's standouts: both hit all-time highs. BHP later slumped in overseas trade on Friday night (more below).
Bond proxies outperformed in the US as the yield on US treasuries declined. Real estate, utilities and health were the pick of Friday's sectors. Energy, financials and materials led the retreat, all falling at least 1.4 per cent.
The dollar made a bright start to the week, rising 0.84 per cent to 76.87 US cents.
Covid lockdowns in China took some of the steam out of oil's inexorable rally. Brent crude fell $1.32 or 2.3 per cent to settle at US$55.10 a barrel. Oil hit an 11-month high last week, supported by supply cuts and expectations of improving demand.
“China’s growing health crisis has led to a fall in oil as it is the largest importer of energy in the world,” David Madden, market analyst at CMC Markets UK, said. “The Beijing administration has put 22 million people on lockdown due to rising Covid-19 cases, so demand fears are in circulation.”
Gold ended a choppy week at its lowest level since the start of December. Gold for February delivery settled $21.50 or 1.2 per cent weaker at US$1,829.90 an ounce. The NYSE Arca Gold Bugs Index slumped 3.3 per cent.
BHP and Rio Tinto took heavy hits in overseas markets as a surging US dollar weighed on commodities and mining stocks. BHP's US-listed stock sank 4.43 per cent and its UK-listed stock 3.31 per cent. Rio Tinto shed 5.15 per cent in the US and 3.03 per cent in the UK. The spot price for iron ore landed in China climbed $1.35 or 0.8 per cent to US$172.80 a tonne.
Zinc hit a two-month low and copper declined as the spread of Covid undermined confidence in the global economic outlook. Benchmark copper on the London Metal Exchange dropped 1.7 per cent to US$7,937.40 a tonne. Zinc shed 2.1 per cent, aluminium 0.7 per cent, nickel 1.5 per cent and lead 1.7 per cent. Tin gained 0.9 per cent.