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Shares were set to open little changed following a volatile night on Wall Street and commodity markets after strong US economic data reignited inflation fears.
ASX futures ended two points or 0.03 per cent ahead as US stocks trimmed sharp early losses.
The Australian dollar dived more than 1 per cent as the greenback surged. Metals prices fell sharply. Oil closed flat. Iron ore rose before last night’s ructions.
Wall Street
US stocks opened sharply lower as unexpectedly strong jobs data rekindled fears the Federal Reserve will be forced to curtail stimulus spending and raise rates sooner than expected. Bond yields surged, pressuring growth stocks. The market recovered most of its losses as cyclical stocks and the dollar rallied.
The Dow Jones Industrial Average finished 23 points or 0.07 per cent lower after being down 265 points. The S&P 500 lost 15 points or 0.36 per cent. The Nasdaq Composite shed 142 points or 1.03 per cent.
Private-sector hiring hit its fastest pace in 11 months, according to ADP payrolls. The private sector put on 978,000 staff last month, up from 654,000 in April. The increase, the largest since last June, was well ahead of the 680,000 expected by economists polled by Dow Jones.
Claims for jobless benefits also surpassed expectations, dropping below 400,000 for the first time since the early days of the pandemic. First-time claims fell to 385,000 last week from 405,000 the previous week.
A trifecta of strong economic signals was completed by a record expansion in the services sector. The US dollar index, which has been in retreat since the start of the pandemic, climbed 0.64 per cent to its highest level in almost three weeks.
“With ADP knocking it out of the park, and jobless claims breaking that 400k barrier—a pandemic low—all eyes will be on the larger jobs picture [tonight],” Mike Loewengart, managing director at E-Trade, told CNBC. “With seemingly all systems go on the jobs front, the economy is flashing some very real signs that this isn’t just a comeback—expansion mode could be on the horizon.”
While the data boosted stocks leveraged to economic acceleration, tech stocks sank as the yield on ten-year US treasuries jumped more than three basis points to 1.623 per cent.
“The robust jobs data provides a challenge to the inflation narrative as better jobs result in higher spending which would further contribute to the inflationary trends,” Sean O’Hara, president of Pacer ETFs, told Reuters.
The Federal Reserve announced on Wednesday it would start to wind back a corporate credit line introduced to support the economy during the pandemic. Bank of America said the decision was a signal the central bank would tighten monetary policy sooner than the market anticipated.
Buying interest at last night’s lows was stoked by reports the White House offered to scrap a proposed corporate tax hike. President Joe Biden reportedly made the offer in negotiations with Republicans over his proposed infrastructure bill.
Australian outlook
A mild ASX futures number this morning disguises the scale of the ructions overnight in equities, currencies and commodities. At the very least we should expect some significant sector rotation to reflect the changing outlook.
The dollar tumbled 1.1 per cent to 76.59 US cents. A weaker currency is a broad positive for Australia’s export-driven economy because it makes our exports more competitive. Winners from a surging greenback include companies with significant US operations – CSL, James Hardie, Aristocrat Leisure, etc. Importers lose in competitiveness.
Miners will take a hit from weaker commodity prices. (The rising greenback makes dollar-denominated commodities more expensive for holders of other currencies.) The US materials sector closed near flat, but slumps in metals (more below) are likely to weigh more heavily here. BHP and Rio Tinto declined in US and UK trade.
Tech stocks will likely take a hit from a jump in bond yields. US tech sank 0.91 per cent. Two other sectors dominated by Big Tech – consumer discretionary and Communication Services – fell 1.22 and 0.73 per cent, respectively.
The S&P/ASX 200 hit an all-time high yesterday before trimming its gain. The index touched 7181.8 and closed 42 points or 0.59 per cent ahead at 7260.
African explorer Arcadia Minerals was scheduled to list today.
Commodities
Copper slumped more than 3 per cent under US$10,000 on heavy volume after Chinese import premiums fell to their weakest since 2012 and BHP said its Chile production was unaffected by strike action. Benchmark copper on the London Metal Exchange dropped 3.6 per cent to US$9,769.75 a tonne. US-traded copper declined 2.8 per cent to US$4.46 a pound.
“China’s demand could decelerate amid tightening financial condition and slowing credit growth, but this could be mitigated by strong demand from rest of the world,” ANZ analyst Soni Kumari told Reuters.
Aluminium dropped 1.6 per cent, nickel 1.9 per cent, lead 2 per cent, zinc 3.2 per cent and tin 3.5 per cent.
Gold slipped under US$1,900 to a two-week low as the surging greenback dulled demand for hedges. Metal for August delivery settled $36.60 or 1.9 per cent lower at US$1,873.30 an ounce. The NYSE Arca Gold Bugs Index dived 3.57 per cent.
Iron ore advanced in China for a fourth session before dollar-ructions roiled commodities. The spot price for ore landed in China rose $1.75 or 0.8 per cent to US$211.20 a tonne.
BHP’s US-listed stock fell 1.7 per cent and its UK-listed stock lost 1.94 per cent. Rio Tinto shed 1.9 per cent in the US and 2.11 per cent in the UK.
Oil was cushioned by news US stockpiles declined more than five million barrels last week, signalling healthy demand. Brent crude settled four cents or 0.06 per cent weaker at US$71.31 a barrel.
