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Australian stocks were set to open sharply lower following a tech-led plunge on Wall Street.
ASX futures fell 68 points or 0.94 per cent after the Nasdaq skidded more than 2 per cent.
Energy stocks rose as US oil prices hit a seven-year high. Iron ore, gold and copper also improved.
Wall Street
US stocks sank as a rates-driven rotation out of Big Tech resumed amid worries about inflation and growth as a deadline for raising the federal debt ceiling neared.
The Nasdaq Composite tumbled 311 points or 2.14 per cent. The S&P 500 shed 57 points or 1.3 per cent. The Dow Jones Industrial Average gave up 324 points or 0.94 per cent.
The four largest companies on the S&P 500 by market capitalisation all lost at least 2 per cent. Apple shed 2.46 per cent, Microsoft 2.07 per cent, Amazon 2.85 per cent and Alphabet 2.11 per cent.
The declines came as a bond market sell-off resumed. The yield on ten-year US treasuries pushed briefly above 1.5 per cent and was lately up two basis points at 1.484 per cent. Higher lending rates affect growth stocks most because of their dependence on borrowing to fund future cashflow.
“The financial markets are adjusting leadership to reflect another Covid-induced reopening cycle,” Jim Paulsen, Leuthold Group chief investment strategist, told CNBC. “That is, commodities are rising, bond yields are rising, cyclical sectors and small cap stocks are outpacing, and technology and growth stocks in general are underperforming.”
Facebook sagged 4.89 per cent after whistleblower accusations raised fears of tighter regulation. A former employee accused the social media giant of putting profit before the well-being of users. The company’s Instagram platform also suffered an outage, according to Downdetector.com. Rival social media companies Twitter and Snap fell 5.79 and 5.34 per cent, respectively.
Yields climbed as a deadline for lifting the debt ceiling neared without a deal in sight. President Joe Biden warned he could not guarantee the government would avoid a breach without Republican support. Investors are also cautious ahead of a jobs report on Friday that might lock in the start of the long-awaited Federal Reserve bond taper.
Energy stocks rallied after West Texas Intermediate crude logged its highest close since 2014. The US benchmark climbed US$1.74 or 2.3 per cent to settle at US$77.62 a barrel after OPEC and allies reaffirmed plans to increase production only gradually. The cartel will raise output by 400,000 barrels a month as agreed in July, soothing fears of a larger increase.
“After undertaking dramatic cuts in the second quarter of 2020, the OPEC+ oil producer group has only gradually added supply back to a market that is seeing demand on a path to full recovery by 2022,” Peter McNally, global sector lead at Third Bridge, told MarketWatch.
The global benchmark, Brent crude, rose US$1.98 or 2.5 per cent to US$81.26 a barrel, the highest settlement in three years. Exxon Mobil gained 1.3 per cent, Chevron 0.37 per cent and ConocoPhillips 1.98 per cent.
Australian outlook
The market’s run of reversals appears set to continue. The S&P/ASX 200 surged 93 points or 1.29 per cent yesterday and appears likely to give most, if not all, back. The index has not managed back-to-back gains in a week and a half.
Investors will hope all this churning marks a potential turning point in the downtrend since mid-August, but the index has yet to put in the ‘higher high’ and ‘higher low’ that would signal a trend change. A close below 7186 today would mark a continuation of the current negative pattern.
Energy has been one of the few winners over the last month, hitting a seven-month high yesterday. A 1.63 per cent rally in the US sector points to further gains today. Utilities was the only other US sector to record a rise of any note, up 1.39 per cent.
Tech stocks bore the brunt of the selling, falling 2.36 per cent. Financials lost 0.74 per cent, industrials 0.53 per cent and materials 0.45 per cent.
The Reserve Bank meets today, but is not expected to announce any major shift in policy this afternoon. The bank has previously outlined a timeline for reducing its bond purchases and will leave the cash rate at a record-low 0.1 per cent.
Events in China arguably have more potential to move the market. A trading halt in shares in Evergrande helped drive Hong Kong’s main share index down 2.2 per cent yesterday. Investors are on tenterhooks to see if the troubled property developer can free up enough funds to avoid a default.
The start of a new month brings a flurry of economic data. Reports on retail sales, job advertising and trade are due at 11.30am AEDT.
Companies holding AGMs today include PointsBet, Mirrabooka Investments and Australian Foundation Investment Company.
The dollar firmed 0.15 per cent overnight to 72.85 US cents.
Commodities
Gold miners rose in the US after the yellow metal logged a third straight advance. The gains came as the US dollar softened and tensions on the Taiwan Strait encouraged haven-buying.
Gold for December delivery settled US$9.20 or 0.5 per cent higher at US$1,767.60 an ounce. The NYSE Arca Gold Bugs Index gained 1.6 per cent.
BHP’s US-listed stock retreated 0.35 per cent after its UK-listed stock rose 0.27 per cent. Rio Tinto dipped 0.37 per cent in the US after inching up 0.09 per cent in the UK. The spot price for iron ore landed in China firmed 80 US cents or 0.7 per cent to US$117.80 a tonne.
A 0.3 per cent decline in the US dollar index helped lift most industrial metals. US-traded copper rose 1.3 per cent on Comex to US$4.243 a pound. On the London Metal Exchange, copper advanced 1.3 per cent to US$9,257.50 a tonne. Aluminium added 2.1 per cent, lead 0.2 per cent, zinc 1.1 per cent and tin 1.7 per cent. Nickel dipped 0.3 per cent.
