Join our daily newsletter At The Bell to receive exclusive market insights
A sharp retreat on Wall Street points to early pressure on the ASX after US investors appeared to give up on a pre-election stimulus deal.
ASX SPI200 index futures skidded 45 points or 0.7 per cent, signalling the S&P/ASX 200 may open below 6200. The index closed yesterday above that psychologically-important technical resistance level at a seven-month high.
Wall Street
Stocks hit their session lows after the Washington Post reported a new coronavirus relief package was not “sounding imminent”, dashing hopes for a deal before the November 3 presidential. The newspaper cited sources close to the discussions.
The Dow Jones Industrial Average dived 411 points or 1.44 per cent, its heaviest fall in almost a month. The S&P 500 also took its biggest hit since September 23, shedding 57 points or 1.63 per cent. The Nasdaq Composite gave up 193 points or 1.65 per cent, falling for a fifth day.
“People are coming around to the idea that it’s a really short time frame and it’s probably not going to happen before the election,” Shawn Snyder, head of investment strategy at Citi’s personal wealth management business, told Reuters.
Stocks had risen earlier in the session on hopes a 48-hour deadline for a stimulus deal from House Speaker Nancy Pelosi might prove a circuit-breaker in the long-running negotiation. Discussions have broken down over the size and shape of the stimulus package. Pelosi and Treasury Secretary Steven Mnuchin spoke this morning and were reported to be pushing for a deal by the end of the day.
Wall Street’s “fear gauge“, the VIX, rose for a sixth session to its highest level in two weeks. All 11 sectors declined. Just one of the Dow’s 30 components rose: Intel gained 0.8 per cent. IBM sank 0.3 per cent ahead of reporting quarterly earnings after the bell.
Australian outlook
The reversal on Wall Street confounds the ASX’s latest attempt to kick decisively clear of a level that has proved a ceiling to investors’ ambitions since June. The S&P/ASX 200 rallied 53 points or 0.8 per cent yesterday to 6229, its best close since March.
Sentiment yesterday was boosted by an easing of lockdown restrictions in Victoria and evidence the Chinese economy was growing, albeit at a slightly slower rate than economists polled by Bloomberg expected. Industrial production accelerated, providing a tailwind for Australian producers of raw materials.
While the outlook for the day is clearly negative, this morning’s decline in ASX index futures is modest relative to the scale of the falls in the US, underlining the growing resilience and independence of the local market.
“I’m talking with clients every day, and I’m looking at the way prices have been moving over the last couple of weeks. It’s clear to me that investor confidence in the Australian share market is returning in a big way,” ThinkMarkets Market Analyst Carl Capolingua said. “Let’s hope it can continue.”
The minutes from this month’s Reserve Bank policy meeting are due for release at 11.30 am EST and will be studied for evidence policymakers are preparing to cut the cash rate next month.
Sector analysis of the overnight US action offers little insight this morning. Nothing was spared, with declines ranging from 0.9 per cent for utilities to 2.1 per cent for energy. Technology stocks fell 1.9 per cent, financials 1.6 per cent and materials 1.2 per cent.
The dollar was caught up in a general retreat from risk, falling 0.42 per cent to 70.62 US cents.
Commodities
An OPEC+ pledge to honour production caps helped cushion oil from a deeper loss as risk sentiment soured. Brent crude settled 31 cents or 0.7 per cent weaker at US$42.62 a barrel.
Gold and US gold stocks traded in opposite directions as the metal attracted haven buying and miners declined with the rest of the market. Gold for December delivery settled $5.30 or 0.3 per cent higher at US$1,911.70 an ounce. The NYSE Arca Gold Bugs Index dropped 1.46 per cent.
A second day of slim gains in iron ore proved a flimsy shield for Australian producers. BHP’s US-listed stock slid 2.01 per cent and its UK-listed stock 1.37 per cent. Rio Tinto shed 1.37 per cent in the US and 0.85 per cent in the UK. The spot price for iron ore landed in China edged up 35 cents or 0.3 per cent to US$119.40 a tonne.
Nickel hit an 11-month high as solid Chinese economic data boosted industrial metals. Benchmark nickel on the London Metal Exchange rose 0.2 per cent to US$15,635 a tonne. Copper gained 0.5 per cent, lead 0.3 per cent, zinc 2.2 per cent and tin 1.8 per cent. Aluminium fell 1.1 per cent.
