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Futures traders expect the share market to unwind yesterday’s gains after US stocks slipped from record levels and key commodities declined.  

ASX futures fell 33 points or 0.44 per cent, signalling a soft start to Spring. End-of-month institutional buying helped the S&P/ASX 200 rise 30 points or 0.41 per cent yesterday.

US stocks trimmed solid monthly gains overnight. Weak Chinese economic data drove iron ore down more than 3 per cent. Oil also retreated. Gold edged higher. The dollar firmed above 73 US cents.

Wall Street

The Street’s main indices eased from record levels as a rise in yields undercut tech stocks, offsetting gains in real estate and consumer stocks.  

The S&P 500 retreated six points or 0.11 per cent. The Dow Jones Industrial Average shed 39 points or 0.11 per cent. The Nasdaq Composite lost seven points or 0.04 per cent.

A lacklustre end to the month saw minimal change as the S&P 500 wrapped up a seventh straight winning month. For August, the broadest of the three benchmarks gained around 3 per cent, the Nasdaq 4 per cent and the Dow more than 1 per cent.

The S&P 500 recorded its 53rd record close of the year on Monday. The index has risen around 20 per cent for the year and has more than doubled since the pandemic low in March 2020.

Tech stocks came off the boil overnight as the yield on ten-year US treasuries climbed almost three basis points to its first gain in three sessions. High-growth stocks are seen as more vulnerable to rises in borrowing costs.

Index heavyweight Apple dropped 0.84 per cent, Microsoft 0.56 per cent and Facebook 0.34 per cent. Zoom tanked 16.69 per cent after reporting a slowdown in growth   

“It is hard to rationalise the surge that tech stocks have been seeing,” Sandi Bragar, managing director at Aspiriant, told Reuters. “While technology is a really good industry, its prices and valuations are really hard to keep up with and investors are looking for other areas with much higher upside.”

The real estate sector, a traditional hedge against inflation, climbed 0.62 per cent. The sector gained roughly 3 per cent for the month amid debate about the outlook for lending rates and inflation. Communication services rose 0.27 per cent, boosted by a positive outlook for the sector from Wells Fargo.

Australian outlook

Futures action suggests traders believe yesterday’s 30-point rise was little more than end-of-month institutional window dressing (a practice whereby professional investment managers reputedly pump up the index to inflate their monthly returns, then let the air out next session).

Losses in the US were mild. Other factors at play today include a firmer dollar and the effects of yesterday’s weak Chinese factory data on US miners and iron ore prices.  The dollar rallied 0.35 per cent overnight to 73.16 US cents.

The recovery in ore prices stumbled after August Chinese manufacturing figures came in weaker than expected as Covid shutdowns limited demand. The spot price for ore landed in China fell US$5.15 or 3.3 per cent to US$152.60 a tonne. That helped lower BHP’s US-listed stock by 2.26 per cent and its UK-listed stock by 0.99 per cent. Rio Tinto shed 1.3 per cent in the US and 0.41 per cent in the UK.

This morning’s downbeat futures reading may also reflect uncertainty over today’s wild card: the second-quarter Gross Domestic Product report at 11.30 am AEST. While the consensus among economists is for positive growth of around 0.5 per cent, the threat of a negative surprise is genuine. Several economists downgraded their predictions in recent days as input measures disappointed.

Why should equity investors care? Because the economy is almost certainly contracting this quarter and back-to-back quarterly declines would mean the economy was in a technical recession. There are implications for rates and for the Reserve Bank’s plan to wind back its bond-buying program.  

The S&P/ASX 200 rose 30 points or 0.41 per cent yesterday to extend its advance for the month to 142 points or 1.9 per cent. The index has improved for 11 straight months.

US sector analysis offers limited guidance this morning. Real estate +0.62 per cent, consumer discretionary +0.37 per cent and communication services +0.27 per cent offered the best returns. Energy fell 0.73 per cent, technology 0.56 per cent, materials 0.31 per cent and financials 0.09 per cent.

Commodities

Oil retreated as traders waited to hear how much damage Hurricane Ida inflicted on refineries and production facilities on the US Gulf Coast. Brent crude settled 60 US cents or 0.8 per cent lower at US$71.63 a barrel.

“The flooding caused by Ida is going to slow the efforts in assessing how much damage has been done to oil production and refineries,” Brian Swan, global commodity analyst at Schneider Electric, said. “Almost the entire state of Louisiana lost power on Monday, keeping significant refining capacity offline until it can be restored.”

Gold caught a bid from soft US consumer confidence data. Metal for December delivery settled US$5.90 or 0.3 per cent higher at US$1,818.10 an ounce. The NYSE Arca Gold Bugs Index firmed 1.53 per cent.

Aluminium hit a ten-year high as prices on the London Metal Exchange played catch-up with Asia following a UK holiday. Benchmark aluminium firmed 2.4 per cent on the LME to US$2,739 a tonne. The rise came after China imposed tougher restrictions on smelters.

Copper gained 1.1 per cent, nickel 2.9 per cent, zinc 0.1 per cent and tin 0.6 per cent. Lead declined 2.4 per cent.

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