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Aussie shares were poised to open higher after the dollar plunged to a two-year low as China reimposed Covid restrictions in several parts of the country.  

ASX futures rallied 18 points or 0.28 per cent as the falling dollar made local shares cheaper for holders of other currencies. 

US stocks retreated overnight in risk-averse trade at the start of a huge week of corporate earnings reports and ahead of another potentially explosive inflation report.

The dollar skidded more than 1.5 per cent to its lowest since May 2020 as China’s pursuit of zero Covid weighed on commodity markets. Iron ore, US oil, gold and copper declined. Brent crude settled little changed.

Wall Street

Wall Street’s main indices fell as investors braced for inflation data and a first taste of how rising rates and inflationary pressures are affecting corporate profits.

The S&P 500 dropped 45 points or 1.15 per cent. The Dow Jones Industrial Average shed 164 points or 0.52 per cent. The Nasdaq Composite lost 263 points or 2.26 per cent.

“It’s a nervous market,” Rob Haworth, senior investment strategist at U.S. Bank Wealth Management, told Reuters. “It’s all about the kick-off to earnings season and what inflation tells us tomorrow.”

The second-quarter reporting season gets underway tonight with a trading update from PepsiCo. Delta Air reports tomorrow night before the first of the heavyweights on Thursday. The last two sessions of the week bring updates from financial giants Morgan Stanley, JPMorgan, Wells Fargo and Citigroup.

Investors are worried, not so much about trailling earnings but by the deteriorating profit outlook as consumers react to rising prices and the prospect of sharply higher interest rate payments.

“It really hasn’t mattered what people have reported in the way of revenue earnings. It’s been the talk that they’ve had about how they expect their future business to look.” Tim Lesko of Mariner Wealth Advisors told CNBC.

Inflation has yet to put in a convincing peak in the US. Wednesday night’s consumer price index is expected to continue a run of “hot” reports. However, economists are hopeful core inflation – the measure favoured by the Federal Reserve – will show a reduction.  

China-facing stocks declined after authorities in various parts of the country announced restrictions to contain the highly-transmissible BA.5 omicron Covid variant. Shanghai and Guangzhou reintroduced mass screening in several districts. A town in Henan province locked down 700,000 residents. Six million people in three other cities faced temporary restrictions.

Casino owners with operations in Macau slumped after authorities shut down gaming venues for a week, the first such shutdown in two years. Wynn Resorts dropped 6.46 per cent. Las Vegas Sands shed 6.31 per cent.  

Australian outlook

The S&P/ASX 200 looks set to recoup some of yesterday’s 76-point tumble as a plunging dollar encourages overseas buyers.

The dollar traded as low as 67.16 US cents overnight before trimming its loss to 1.57 per cent at 67.37 US cents.

The Australian share market slumped yesterday as news of fresh Chinese Covid restrictions filtered through. Commodity prices fell, dragging the Aussie dollar with it. (The Aussie tends to get lumped in with so-called commodity currencies, such as the Brazilian real and South African rand.)

Also supporting today’s cautiously positive outlook, Wall Street perhaps did not fall as much as anticipated overnight, allowing room for a modest ASX rebound.

Trade in the US was predominantly defensive. Utilities was the only sector to see a gain of any significance, rising 0.64 per cent. Real estate and consumer staples were near flat.

The three rate-sensitive sectors dominated by ‘Big Tech” spearheaded losses. Communication services dropped 2.8 per cent, consumer discretionary 2.76 per cent and technology 1.42 per cent.

Energy fell 0.89 per cent, financials 0.83 per cent and materials 0.27 per cent.

Back home, consumer and business sentiment data this morning will give an insight into the early effects of interest rate rises. Westpac releases its monthly consumer confidence report at 10.30 am AEST. NAB follows with a monthly business confidence update at 11.30 am.

Commodities

Raw materials wilted under the threat of creeping lockdowns in China. Local governments in various parts of the country introduced restrictions to rein in new infections as authorities continue to pursue zero Covid.

“Relentlessly negative covid headlines out of Gansu, Guangdong, Henan, Macau, Shanghai and Zhejiang over the weekend will pour ice-cold water over sentiment from Monday onwards,” Atilla Widnell, managing director at Navigate Commodities, said.

The most-traded iron ore contract on the Dalian Commodity Exchange fell 3.3 per cent to US$110.37 a tonne.The spot price for ore landed at Tianjin declined US2.11 or 1.9 per cent to US$111.65 a tonne.

Benchmark copper on the London Metal Exchange retreated 2.9 per cent to US$7,572.25 a tonne. Copper prices have fallen sharply this year as weakening Chinese demand caused a build-up of warehouse stocks.

“There was a bit of a rally last week, but the market is struggling again,” Liberum analyst Tom Price told Reuters. “China is trying to stimulate, but at the same time it has a zero-COVID policy. The growth outlook isn’t great.”

Aluminium lost 2.4 per cent and zinc 1.1 per cent. Other metals fared better. Lead rose 1.7 per cent, nickel 1.3 per cent and tin 3.5 per cent.

BHP‘s US-traded depositary receipts dropped 3.53 per cent. Its UK listing declined 2.34 per cent. Rio Tinto gave up 2.2 per cent in the US and 0.49 per cent in the UK.

Oil markets finished mixed as traders weighed tight supply against the demand implications of fresh Chinese lockdowns. Brent crude reversed early losses to settle eight US cents or 0.1 per cent ahead at US$107.10 a barrel. The US benchmark, West Texas Intermediate, fell 70 cents or 0.7 per cent to US$104.09.

Gold logged its weakest close in more than nine months as a surging US dollar undermined buying interest. Metal for August delivery settled US$10.60 or 0.6 per cent lower at US$1,731.70 an ounce. The NYSE Arca Gold Bugs Index fell 1.21 per cent.

“The precious metal’s price action is very much driven by the dollar index, which is holding on to its strength,” Naeem Aslam, chief market analyst at AVATrade, said.

“The fact is that US [employment] data has provided support for the Fed’s hawkish monetary policy, it is highly likely that the next interest rate will be 75 basis points, and this means that the dollar will pick more strength, and the gold price is likely to lose more shine.”

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