Travel and tourism stocks tumbled and oil entered a technical correction overnight amid fears of a third wave of global Covid infections.
ASX futures eased a modest two points or 0.03 per cent as US stocks closed sharply lower. A dive in the dollar helped cushion the local market against a deeper drop.
Oil slumped almost 6 per cent. Gold fell to its lowest level in a week. Copper declined. Iron ore rebounded.
US stocks fell away late in the session as a resurgence of Covid variants in the US and Europe amid slow vaccine rollouts encouraged traders to dump companies with the greatest dependence on economic revival.
The S&P 500 dropped 30 points or 0.76 per cent on the anniversary of the turning point in the pandemic bear market. The Dow Jones Industrial Average shed 308 points or 0.94 per cent. The Nasdaq Composite gave up 153 points or 1.12 per cent.
Oil collapsed and travel and tourism stocks retreated as lockdowns in Europe cast doubt over the pace of the recovery. Around a third of France re-entered lockdown on Saturday. Germany extended its lockdown until April 18. The World Health Organization said new cases around the world increased by eight per cent last week, a fifth straight weekly rise. New cases in the US crept up by at least five per cent in more than half the country.
“A surge in virus cases in mainland Europe, where the rollout of vaccines has been painfully slow, has cast doubt on resumption of travel in the region,” Fawad Razaqzada, market analyst at ThinkMarkets, said. “Among other things, this is hurting demand projections for crude oil and holidays.”
Brent crude dived $3.83 or 5.9 per cent to settle at US$60.79 a barrel. The decline extended the global benchmark’s retreat from its peak to 12.7 per cent. The US benchmark, West Texas Intermediate, fell 6.2 per cent overnight to finish 12.6 per cent off its pandemic rebound high.
The S&P 1500 airlines index slumped 4.5 per cent. Cruise companies Carnival and Norwegian both fell at least 7 per cent. Theme park operator Disney shed 2.1 per cent, Hyatt Hotels 6.7 per cent, retailer Gap 7.8 per cent and aircraft maker Boeing 4 per cent.
Small caps had their worst session since June. The Russell 2000 fell 3.6 per cent.
Federal Reserve Chair Jerome Powell told a congressional committee the central bank will give the market plenty of warning before dialling back supportive stimulus measures. His comments came after Treasury Secretary Janet Yellen acknowledged asset prices were “elevated by historical metrics”.
“We’ve said that we would start to taper our asset purchases when we’ve seen substantial further progress toward our goals,” Powell said. “When that comes, we’ll communicate well in advance of the time of actually tapering.”
A challenging day ahead for so-called “re-opening stocks“. Airlines, airports, travel agents, theme park operators and oil companies seem likely to bear the brunt of a US sell-off, despite Australia’s superior Covid situation.
Mining stocks were also notably weak in the US: down 2.1 per cent. The industrial sector shed 1.8 per cent, financials 1.4 per cent and energy 1.4 per cent.
So why is our futures lead so mild? Likely the sharp drop in the dollar, a net positive for our export-driven economy. The Aussie dived 1.63 per cent to 76.18 US cents as forex traders flooded back to the perceived safety of the greenback. The S&P/ASX 200 also pre-empted some of the looming weakness yesterday, easing seven points or 0.1 per cent as US futures sold off with Asian markets.
Bond proxies should outperform following a plunge in US yields. The US ten-year treasury yield skidded almost seven basis points to 1.63 per cent. That helped raise the utilities sector by 1.5 per cent, consumer staples 0.4 per cent and real estate 0.4 per cent. Tech stocks would normally also benefit, but seemed to be caught up in a wider bout of “risk off” profit-taking, falling 0.6 per cent.
A rebound in iron ore yesterday was not enough to shield BHP and Rio Tinto from a broader sell-off of assets exposed to any delay in economic recovery. BHP’s US-listed stock dropped 2.36 per cent and its UK-listed stock 0.32 per cent. Rio Tinto shed 2.34 per cent in the US and 0.76 per cent in the UK. The spot price for iron ore landed in China bounced $4.15 or 2.7 per cent yesterday to US$160.50 a tonne.
A rampant US dollar pushed gold to its weakest close in more than a week. Gold for April delivery settled $13 or 0.8 per cent lower at US$1,725.10 an ounce. The NYSE Arca Gold Bugs Index fell 2.9 per cent.
Copper dropped 1.5 per cent to US$4.08 a pound.