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Australian stocks look set to open lower for the fourth time in five sessions following a mixed close on Wall Street after the Federal Reserve reaffirmed its commitment to bringing down inflation.
The S&P/ASX 200 will start the session 20 points or 0.28 per cent in the red, according to futures action. The Australian benchmark closed at a five-week low yesterday.
Overnight, oil fell for a sixth session. Iron ore dropped after China imposed new trading caps. Gold and industrial metals also declined. The Australian dollar dipped below 68 US cents for the first time since the opening week of January.
A long list of companies reporting earnings today is headed by Qantas and Nine Entertainment. Also today: business spending data.
Wall Street
Two of Wall Street’s three main indices turned negative following the publication of a summary of this month’s Fed meeting. The minutes showed the central bank wants “substantially more evidence” of progress in lowering inflation before pausing the current rates cycle.
The S&P 500 faded to a loss of six points or 0.16 per cent. The Dow Jones Industrial Average dropped 85 points or 0.26 per cent. The Nasdaq Composite held on to a gain of 15 points or 0.13 per cent.
The central bank minutes confirmed the Fed remains committed to bringing down inflation that is still “well above” target levels.
Officials noted “inflation data received over the past three months showed a welcome reduction in the monthly pace of price increases but stressed that substantially more evidence of progress across a broader range of prices would be required to be confident that inflation was on a sustained downward path,” the minutes said.
Stocks lost ground as the US dollar index added to gains and bond yields trimmed earlier falls. Stock losses were cushioned by news “almost all” policymakers supported a 25 basis point rate hike last month. Only “a few” participants favoured a larger 50 bp increase.
“The Fed minutes confirmed what many have been thinking in that while inflation is slowing, it’s not yet to a level that the Fed will deem appropriate to stop hikes. The worst of inflation may be in the rear view, but it remains well-above the Fed’s target,” Mike Loewengart, head of model portfolio construction at Morgan Stanley Global Investment Office, said.
“Bottom line is that many market headwinds aren’t going away and investors should expect volatility to stay as they parse over the impact rates being higher for longer will have.”
A bullish start to the year has given way to second thoughts in recent weeks as robust economic data and disappointing inflation figures forced investors to reassess the likely top of this rates cycle.
Wall Street Suffered its worst session since mid-December on Tuesday. The Dow, S&P 500 and Nasdaq all shed at least 2 per cent following a surge in bond yields.
Australian outlook
The overnight action offers no relief for Australian investors wondering when to get back into the market. The S&P/ASX 200 looks set to retest yesterday’s five-week low as an earnings disappointment from Rio Tinto, released last night, adds to pressures.
Materials was one of two US sectors to log a gain overnight, rising 0.68 per cent. However, ASX heavyweights Rio and BHP missed the bus (more below).
The US consumer discretionary sector was the other riser, ticking up 0.52 per cent. Real estate took the biggest hit, losing 1.01 per cent.
A double whammy of rates news drove the Australian dollar to a seven-week low this morning. The Aussie initially fell as markets repriced the top of this rates cycle in the wake of yesterday’s weaker-than-expected wages data. The local unit took another step down as the greenback was boosted by this morning’s Fed minutes. The Aussie was lately off 0.86 per cent at 68.04 US cents after dipping below 68 US cents.
A heavy list of companies reporting earnings today includes Qantas, Star Entertainment, Ramsay Health Care, Nine Entertainment, Atlas Arteria, The Lottery Corporation, Zip Co, Bega Cheese, MyState, APA, Cleanaway Waste, Qube, Insignia, Medibank, Smartgroup, Accent Group, Blackmores, HMC Capital, Auckland International Airport, Airtasker, Nanosonics, The Reject Shop, Pexa, Perpetual, Pepper Money, IDP Education, Maggie Beer, Eagers and Australian Clinical Labs.
Macquarie Group, JB Hi-Fi, Iress, GWA Group and Whitehaven trade ex-dividend.
Quarterly business spending figures at 11.30 am AEDT will offer a window into the outlook for the economy. Shifts in investment are an indicator of optimism or pessimism in the private sector.
Reserve Bank Deputy Governor Michele Bullock is due to testify today before the Parliamentary Joint Committee on Corporations and Financial Services in Sydney, but not until after this afternoon’s market close.
Commodities
Iron ore fell after China’s Dalian Commodity Exchange imposed trading limits to curb speculation in the market. The exchange announced open positions of companies that are not members of the exchange will be capped on certain contracts at 1,000 lots and on others at 2,000 lots.
The trade cap follows Chinese government complaints about high prices and alleged price manipulation in the market. Benchmark iron ore declined 0.7 per cent to US$130.20 a tonne.
Rio Tinto lost 3.35 per cent in the US and 3.56 per cent in the UK after halving its dividend in response to a sharp decline in profit. The miner’s first-half result, posted last night, showed a 38 per cent fall in first-half profit as costs increased and ore prices declined.
BHP‘s US-traded depositary receipts fell 3.13 per cent. The miner’s UK listing gave up 3.38 per cent.
Oil sank for a sixth night amid concerns central bank rate hikes will drag western economies into recession.
“The oil market still has a recession obsession,” Phil Flynn, senior market analyst at The Price Futures Group, said. “Oil prices were under pressure as rate fears are raising larger concerns of oil demand destruction.”
Brent crude settled US$2.45 or 2.95 per cent lower at US$80.60 a barrel.
Gold finished fractionally lower in regular trade before adding to its loss after the Fed minutes as the greenback rallied. Gold for April delivery settled US$1 or less than 0.1 per cent weaker at US$1,841.50 an ounce.
In recent trade, the yellow metal was down US$7.80 or 0.4 per cent at US$1,834.70. The NYSE Arca Gold Bugs Index slid 2.31 per cent.
Strength in the greenback weighed on dollar-denominated industrial metals. Benchmark copper on the London Metal Exchange declined 0.69 per cent to US$9,137 a tonne. Aluminium dropped 2.21 per cent, nickel 1.16 per cent, lead 2.33 per cent, zinc 1.08 per cent and tin 2.46 per cent.
Battery metal miners sank to a fresh four-week low. The Global X Lithium & Battery Tech ETF declined 0.67 per cent to a fourth straight loss on the New York Stock Exchange.
