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Australian stocks were set to open lower for a second day after US investors unloaded companies most exposed to higher rates and an economic slowdown as the Federal Reserve clamps down on inflation.
US stocks booked solid falls after the Fed mapped out plans to tighten monetary policy sharply this year. The greenback and treasury yields rallied. Bonds and equities declined. Crude oil, iron ore and most metals also softened.
ASX futures fell 21 points or 0.28 per cent. The S&P/ASX 200 dropped 0.5 per cent yesterday to its lowest close in a week.
Wall Street
US stocks retreated ahead of the release of the minutes from the latest Fed meeting and retained most of those losses in volatile trade in the aftermath. The minutes showed the central bank gearing up to go hard on inflation this year.
The Nasdaq Composite led the selling for a second day, falling 315 points or 2.22 per cent. The S&P 500 dropped 44 points or 0.97 per cent. The Dow Jones Industrial Average eased 145 points or 0.42 per cent.
The minutes indicated the bank will allow its balance sheet to contract by US$95 billion per month. “Many” committee members wanted the bank to go harder on rates, increasing the bank’s target rate by 50 basis points, rather than 25 points last month.
“Many participants noted that — with inflation well above the Committee’s objective, inflationary risks to the upside, and the federal funds rate well below participants’ estimates of its longer-run level — they would have preferred a 50 basis point increase in the target range for the federal funds rate at this meeting,” the minutes said.
The yield on ten-year US treasuries climbed to a three-year high. The US dollar index rose to its highest since last May.
Growth stocks that depend most on borrowing declined. Nvidia shed 5.88 per cent, Tesla 4.17 per cent, Meta Platforms 3.68 per cent and Microsoft 3.66 per cent.
Defensive assets such as consumer staples, utilities and healthcare advanced. Johnson & Johnson gained 2.6 per cent, Walmart 2.32 per cent, Procter & Gamble 1.43 per cent and Coca-Cola 1.01 per cent.
“Today and yesterday you’re really starting to see the equity market catch up with the bond market,” Chris Zaccarelli, CIO at Independent Advisor Alliance, said. “And by that, I mean equities are starting to price in a more aggressive Fed. You’re starting to see a bid for safety, you’re seeing that classic risk-off move.”
Australian outlook
The S&P/ASX 200 looked set to open under mild pressure for a second day. However, the scale of the falls so far suggests Australian investors see higher rates as predominantly an American problem, thanks to a sluggish RBA. The presumption may be that the ASX could provide a haven for US funds looking for a new home.
Value stocks were back in vogue as investors bought companies whose earnings would best withstand higher rates and inflationary pressures. Boring old utilities jumped 2 per cent. Real estate and healthcare gained 1.55 per cent, consumer staples 1.39 per cent.
The energy sector rallied 0.54 per cent even as US crude slid back under US$100 a barrel. The materials sector shed 1.12 per cent as ore and metals declined.
Tech and other growth sectors copped the worst of the selling for a second night, falling more than 2 per cent. Afterpay’s US parent Block shed 5.26 per cent. Financials were also weak, falling 0.66 per cent.
On the domestic economic calendar, measures of services-sector activity and trade were due this morning. Scentre Group hold its AGM.
IPOs: a double-header today for the first time in weeks, perhaps months. Lord Resources at 11.30 am AEST is looking for lithium, nickel, copper and gold at five projects in WA. International Graphite at 12.30 pm is developing a graphite production facility in WA.
The dollar wilted 1 per cent to 75.11 US cents as the greenback strengthened against all major currencies.
Commodities
Oil settled at a three-week low after the International Energy Agency announced plans to release 120 million barrels from reserves.
The US crude benchmark, West Texas Intermediate, slumped US$5.73 or 5.6 per cent to US$96.23. Brent crude settled US$5.57 or 5.2 per cent lower at US$101.07 a barrel.
Iron ore prices were mixed as trade picked up after a two-day public holiday. The most-active futures contract on the Dalian Commodity Exchange climbed 4.1 per cent to an eight-month high. However, the spot price for ore landed in China declined US$2.20 or 1.4 per cent to US$160.07 a tonne.
“The sluggish property market in China has dented steel and iron ore consumption… but iron ore destocking has started,” analysts with Huatai Futures wrote.
BHP and Rio Tinto traded mixed but little changed in overseas trade. BHP‘s US-traded depositary receipts edged up 0.18 per cent after the miner’s UK stock dipped 0.25 per cent. Rio Tinto added 0.1 per cent in the US and lost 0.18 per cent in the UK.
A strengthening US dollar capped buying interest in dollar-denominated industrial metals from holders of other currencies. Benchmark copper on the London Metal Exchange dropped 1.4 per cent to US$10,286.75 a tonne.
Aluminium gave up 0.8 per cent, lead 1 per cent, zinc 0.8 per cent and tin 1.3 per cent. Nickel climbed 0.5 per cent.
Gold dipped ahead of the Fed minutes before regaining its losses. Metal for June delivery settled US$4.40 or 0.2 per cent lower at US$1,923.10 an ounce. Prices had lately recovered to US$1,928.40 in electronic trade. The NYSE Arca Gold Bugs Index edged up 0.15 per cent.
