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Australian stocks look set to recoup some of yesterday’s heavy loss following a positive night on Wall Street as a rebound in retail sales soothed recession worries.
The S&P/ASX 200 was poised to open 38 points or 0.52 per cent higher, according to futures action.
Investors were left licking their wounds yesterday after a mixed result from Commonwealth Bank and news of an inquiry into savings rates triggered heavy selling in bank stocks. The ASX 200 sank 1.06 per cent to a four-week low.
The day ahead brings January jobs data and trading updates from Telstra, NAB, AMP and South32.
Overnight, a firmer US dollar drove metals prices lower. Gold ended at its weakest level in five weeks. Oil also declined. Iron ore bucked the trend, gaining 2.2 per cent in China. The Australian dollar was knocked down more than 1 per cent.
Wall Street
Wall Street’s main indices overcame early weakness after retail sales saw their biggest surge in almost two years. Stocks opened lower as futures markets adjusted to the prospect of higher rates for longer.
The Nasdaq Composite rose for a third night. The tech-heavy index gained 110 points or 0.92 per cent as Alphabet, Apple and Amazon rose.
The S&P 500 firmed 12 points or 0.28 per cent. The Dow Jones Industrial Average edged up 39 points or 0.11 per cent.
Retail sales surged 3 per cent in January, trouncing expectations for a rise of 1.8 per cent. The recovery assuaged recession concerns after two straight monthly contractions, but also increased the likelihood that the Federal Reserve will keep raising rates to take the heat out of the economy.
The report came a day after data showed inflation ran hotter than expected last month. Market pricing now suggests at least two more rate hikes this year, lifting the federal funds rate to a range of 5-5.25 per cent.
“Consumer demand is not cooling and inflation remains stubbornly high, so what on earth is a Fed official to do? Inflation wasn’t supposed to come back down to target until 2025, but now maybe even more time will be required,” Chris Rupkey, chief economist at FWDBONDS, said.
“Every day the economy does not lose steam, the risks go up astronomically that the Fed will lose patience and make those recession forecasts a reality by jacking up rates too fast and too high. There’s no roadmap for the central bank seeing data like this.”
The yield on two-year US treasuries touched its highest level since early November. On Tuesday, the rate on six-month treasuries cracked 5 per cent for the first time since 2007.
In other economic news, manufacturing activity in the wider New York area contracted for a third month. A separate report showed US industrial output was flat.
Speeches later this week from Federal Reserve policymakers may help clarify the rates outlook. The market is also waiting for earnings from Shopify, Zillow and DoorDash.
Australian outlook
Futures action suggests early relief for the ASX following the market’s second-worst session of the year. The S&P/ASX 200 dived 78.7 points or 1.06 per cent yesterday as the heavily-weighted banks sold off.
A quarterly trading update today from NAB could help settle jitters within the financial sector or throw additional fuel on the fire. Jobs data and a heavy schedule of corporate earnings will determine how the session plays out.
January employment figures at 11.30 am AEDT are expected to show a recovery in the labour market last month. Economists anticipate total employment grew by 19,800 jobs after a surprise contraction of 14,600 jobs in December. The unemployment rate is expected to hold steady at 3.5 per cent.
A second-straight contraction in employment would indicate rate hikes are starting to have an effect, easing pressure on the RBA to keep hiking. A significant rebound would strengthen the case for further increases.
A huge day of earnings brings updates from Telstra, Goodman Group, Newcrest, NAB (quarterly), AMP, ASX, Origin Energy, South32, Sonic Healthcare, Whitehaven Coal, Abacus, Orora, Bapcor, Incitec Pivot, IPH, Magellan, Super Retail Group, Southern Cross Media, Evolution Mining, Domain Holdings and Growthpoint Properties.
GrainCorp and Incitec Pivot hold AGMs.
Big Tech steered the US consumer discretionary and communication services sectors up more than 1 per cent overnight. A fairly patternless session saw strength in utilities +0.64 per cent, industrials +0.63 per cent and materials +0.44 per cent.
Energy -1.78 per cent and healthcare -0.51 per cent were the night’s only drags. Financials inched up 0.16 per cent.
The dollar was hammered down 1.14 per cent to 69.07 US cents as the greenback took wing.
Commodities
Iron ore rallied after China’s central bank pumped additional liquidity into the banking system to stimulate lending.
The People’s Bank of China kept benchmark rates unchanged, but injected an additional US$29 billion into the system. The move followed signs of tighter monetary conditions this month that threatened to stifle the Covid-reopening recovery.
The most-traded May ore ended daytime trade on China’s Dalian Commodity Exchange 2.2 per cent ahead at 865.50 yuan (US$126.30) a tonne.
BHP‘s US-traded depositary receipts slid 0.52 per cent. Earlier, the miner’s UK listing gained 0.75 per cent. Rio Tinto lost 0.37 per cent in the US and gained 0.32 per cent in the UK.
A rising US dollar pressured dollar-denominated commodities. The US dollar index climbed 0.65 per cent overnight to its highest since the first week of January.
Gold, which has an inverse relationship with the greenback, closed at its weakest level since early January. Gold for April delivery settled US$20.10 or 1.1 per cent lower at US$1,845.30 an ounce. The NYSE Arca Gold Bugs Index shed 2.67 per cent.
Fawad Razaqzada, market analyst at City Index, said gold was “already on its knees” and had “fallen further out of favour”.
“For now, the path of least resistance is still to the downside, and the nearest obvious reference point is now at $1,800, which is where gold might be heading to next,” he said.
Dollar-denominated industrial metals succumbed to the same headwind. Benchmark copper on the London Metal Exchange fell 0.88 per cent to US$8,868 a tonne. Aluminium declined 0.96 per cent, nickel 1.87 per cent, lead 2.15 per cent, zinc 2.99 per cent and tin 0.66 per cent.
Oil dropped after US inventories rose for an eighth week. Official US stockpiles increased by 16.3 million barrels, “one of the biggest increases in inventories we have seen in quite some time,” according to Tariq Zahir at Tyche Capital Advisors.
Brent crude settled 20 US cents or 0.2 per cent lower at US$85.38 a barrel. The US benchmark, West Texas Intermediate, dropped 0.6 per cent to US$78.59.
Battery metal miners were mixed in US trade for a second day. The Global X Lithium & Battery Tech ETF advanced 0.31 per cent on the New York Stock Exchange. The VanEck Rare Earth/Strategic Metals ETF sagged 1.31 per cent.
