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The stock market was poised to open lower after rising geopolitical tensions with China and a surge in treasury yields weighed on Wall Street.
ASX futures eased 11 points or 0.16 per cent as US stocks fell for a second session.
The dollar slumped 1.5 per cent as forex traders reassessed the outlook for US interest rates. Oil trimmed Monday night’s sharp fall ahead of a meeting of the Organization of the Petroleum Exporting Countries (OPEC). Gold rose for a fifth night. Iron ore markets were mixed. Copper and other industrial metals declined.
Wall Street
US stocks fell as House Speaker Nancy Pelosi landed in Taiwan, infuriating China and exacerbating tensions between the two countries. Treasury yields jumped after several Fed members played down the prospect of a pause in interest rate hikes.
The S&P 500 dropped 27 points or 0.67 per cent. The Dow Jones Industrial Average shed 402 points or 1.23 per cent. The Nasdaq Composite dipped 20 points or 0.16 per cent.
Pelosi landed safely in Taipei, defying China’s warning of “serious consequences” if her visit went ahead. The House Speaker is the most senior US politician to visit since 1997. China claims the self-governed island as a rogue province.
A long-term critic of the Chinese government, Pelosi said the trip showed “America’s unwavering commitment to supporting Taiwan’s vibrant democracy”. She was due to meet with Taiwan President Tsai Ing-wen this morning.
China responded by launching military drills near the island and announcing plans to test missiles in the sea nearby. Chinese battery producer CATL reportedly announced a pause on plans to build a battery factory in the US because of the visit.
White House national security spokesman John Kirby said the US would not be intimidated.
“There’s no reason for this visit to become a spurring event for a crisis or conflict,” he said.
Asian markets fell sharply yesterday as tensions flared. The Shanghai Composite shed 2.26 per cent. Hong Kong’s main benchmark lost 2.36 per cent.
US treasury yields moved sharply higher as Fed committee members walked back the notion interest rates could come down as soon as next year.
Cleveland Fed President Loretta Mester said it would “take a while to get inflation back to that 2 per cent”. San Francisco Fed President Mary Daly said the Fed’s work was “far from done”.
Chicago Fed President Charles Evans said he hoped the bank could scale back the size of recent hikes to 50 basis points at the next meeting in September, but he expected a series of quarter-percentage point increases until the second quarter next year.
The yield on ten-year US treasuries surged from near 2.5 per cent to around 2.75 per cent. The dramatic increase in the cost of borrowing pressured growth stocks that depend most on lending markets to fund their operations.
Industrial machinery giant Caterpillar was the biggest drag on the Dow, falling 5.82 per cent after warning of falling demand from China.
Australian outlook
The S&P/ASX 200 faces mild early pressure as China and the US rattle sabres. The index was a regional outlier yesterday, edging up five points to a sixth straight gain after the RBA raised the cash rate target to 1.85 per cent, as expected. Asian markets logged solid falls.
The market has good momentum at present, but cannot remain oblivious to global market moves indefinitely. The index pushed up against horizontal ’round-number resistance’ at 7000 yesterday and may need to retrace before any serious attempt to break through.
The dollar was punished overnight as forex markets revised the outlook for the greenback in the light of hawkish comments from various Fed members. The Aussie sank 1.5 per cent to 69.19 US cents.
US sector analysis offers few obvious hiding places. All 11 sectors declined overnight. The two that matter most on the ASX, financials and basic materials, both dropped a little more than 1 per cent. Energy, utilities and communication services were the best of a bad bunch with falls of around 0.2 per cent.
The domestic corporate reporting season brings updates today from BWP Trust, Pinnacle Investment Management and Genworth Mortgage Insurance.
Monthly retail sales data are due at 11.30 am AEST. China releases a services-sector update at 11.45 am.
Commodities
Oil mounted a modest rebound ahead of tonight’s OPEC+ meeting. Brent crude settled 51 US cents or 0.5 per cent ahead at US$100.54 a barrel.
The global oil benchmark sank 3.8 per cent on Monday as soft manufacturing data from China, Europe and the US suggested pressures on demand. The OPEC+ oil cartel may not increase supply at this month’s meeting after unwinding production cuts introduced to support prices during the pandemic economic downturn.
Gold eked out a fifth straight advance, its longest winning run since April. Metal for December delivery settled US$7.90 or 0.1 per cent ahead at US$1,789.70 an ounce.
However, prices later came off the boil as treasury yields took off. The yellow metal was lately down US$11.50 or 0.6 per cent at US$1,776.20. The NYSE Arca Gold Bugs Index slipped 1.1 per cent.
Iron ore markets were mixed again near a four-week peak. Chinese steel mills have reportedly restarted some idled blast furnaces after an improvement in steel margins.
“The recovery in mills’ margins has spurred hopes that production capacity may resume more quickly than expected,” Daniel Hynes, senior commodity strategist at ANZ, wrote.
The most-traded ore contract on the Dalian Commodity Exchange rose 1.45 per cent to 807 yuan. The spot price for ore landed in China eased 12 US cents or 0.1 per cent to US$114.74 a tonne.
BHP‘s US-traded depositary receipts retreated 2.16 per cent. The miner’s UK listing shed 1.43 per cent. Rio Tinto gave up 1.58 per cent in the US and 1.32 per cent in the UK.
Risk-off moves on equity markets weighed on the London Metal Exchange. Benchmark copper eased 0.2 per cent to US$7,808.75 a tonne. Aluminium dropped 1 per cent, nickel 4.6 per cent, lead 0.4 per cent, zinc 0.8 per cent and tin 2.6 per cent.
