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The share market’s five-session winning run faces early pressure after the threat of an aggressive rate hike next month fuelled a sharp reversal on Wall Street.
ASX futures fell 65 points or 0.86 per cent as US stocks gave up their gains. The S&P/ASX 200 climbed 0.31 per cent yesterday to its strongest close since last year’s all-time high.
Energy producers and miners retreated despite a broadly positive session on commodity markets. Oil, copper and most base metals advanced. Iron ore eased on weak Chinese import data. Gold fell for a third session. The dollar dropped back under 74 US cents.
Wall Street
US stocks shed strong early gains after Federal Reserve Chair Jerome Powell indicated the US central bank was preparing to raise its target rate by 50 basis points next month.
The S&P 500 swung from an earnings-fuelled gain of more than 1 per cent to a loss of 66 points or 1.48 per cent. The Dow Jones Industrial Average finished 368 points or 1.05 per cent lower after being up more than 330 points. The Nasdaq Composite shed 278 points or 2.07 per cent.
“I would say that 50 basis points will be on the table for the May meeting,” Powell told an IMF panel discussion overnight.
The central banker said “it is appropriate to be moving a little more quickly” with inflation running at a four-decade high, far above the bank’s 2 per cent target. He added that investors pricing in a series of half-point hikes were “reacting appropriately, generally”.
Treasury yields rallied after Powell acknowledged raising rates rapidly without plunging the economy into recession would be difficult. The interest rate on two-year US treasuries passed 2.7 per cent for the first time since 2018. The ten-year yield climbed close to 3 per cent.
“Our goal is to use our tools to get demand and supply back in synch… and do so without a slowdown that amounts to a recession,” Powell said. “It is going to be very challenging.”
“Powell is intimating that avoiding a recession will not be easy. That is new,” Tim Ghriskey, senior portfolio strategist for Ingalls & Snyder, told Reuters. “It’s a relief for the market to hear the Fed admit this, therefore they may be more focused on avoiding this possibility or avoiding any type of deep recession, which is what the market really fears.”
Rate-sensitive growth stocks led the selling. Facebook owner Meta Platforms sank 6.16 per cent, Nvidia 6.05 per cent and Amazon 3.7 per cent. Netflix dropped 3.52 per cent a day after surprising the market with weak subscriber numbers.
The market’s early gains followed upbeat earnings from Tesla, United Airlines and AT&T. The electric car-maker climbed 3.23 per cent after topping analysts’ projections. United soared 9.31 per cent after its CEO talked up “a hockey stick increase of demand” for air travel. AT&T gained 4.01 per cent.
Australian outlook
The market’s Easter party looks likely to end just shy of all-time highs. The S&P/ASX 200 cruised to within eight points of a record on Thursday and closed yesterday just one good session from surpassing last August’s peak. Alas, the run looks to be temporarily over.
US energy producers and miners came in for heavy treatment despite a relatively calm night on commodity markets. The NYSE Arca Gold Bugs Index slumped 4.9 per cent.
BHP was punished for yesterday’s copper and nickel production downgrades. The Big Australian’s US-traded depositary receipts slumped 7.07 per cent, suggesting further pressure today. (The miner’s Australian listing shed 3.06 per cent yesterday. Overnight, its UK stock dropped a modest 2.46 per cent.)
Rio Tinto fell for a second session in the wake of Wednesday’s soft quarterly production data. The miner lost 4.8 per cent in the US and 1.79 per cent in the UK.
The US energy sector shed 3.1 per cent. Devon Energy skidded 5.6 per cent, Chevron 4.61 per cent and Baker Hughes 6.85 per cent.
The prospect of better margins under rising rates failed to shield lenders. US financials dropped 1.54 per cent. Tech shed 1.73 per cent and industrials 1 per cent. Consumer staples was the pick of a bad bunch with a loss of 0.11 per cent.
Back home, preliminary measures of April manufacturing and services-sector activity were due for release today at 9 am AEST.
IPOs: Osmond Resources will list at 12.30 pm today. Osmond is an early-stage mineral explorer focussed on gold and base metals in South Australia and Victoria.
The dollar sank 1 per cent to 73.7 US cents during a classic “flight from risk”.
Commodities
Oil rallied on reports the European Union was close to releasing a plan to phase out Russian oil. Diplomatic sources said officials could outline details as soon as next week. Brent crude settled US$1.53 or 1.4 per cent ahead at US$108.33 a barrel.
Warren Patterson, head of commodities strategy at ING, said the plan would likely include “a gradual phasing out of Russian oil, much like we are seeing with coal. A gradual phasing out would give time for trade flows to adjust in a more orderly fashion and so the impact on price would be more limited compared to an immediate ban.”
Iron ore drifted lower following weak Chinese import figures. A report yesterday showed Chinese ore imports fell to a five-year low last year and continued to soften through the first three months of this year. The spot price for ore landed in China retreated 22 US cents or 0.14 per cent to US$153.35 a tonne.
Gold declined for a third night as rising treasury yields pressured assets that do not pay interest. Metal for June delivery settled US$7.40 or 0.4 per cent lower at US$1,948.20 an ounce.
“This week’s chorus of hawkish Federal Reserve comments and a return to positive real rates have reduced the appeal of both gold and silver,” analysts at Zaner wrote.
Most industrial metals advanced as buyers anticipated Chinese government support for the economy. Chinese and Hong Kong share markets fell yesterday amid on-going concerns about the impact of Covid lockdowns.
Benchmark copper on the London Metal Exchange climbed 0.7 per cent to US$10,272 a tonne. Aluminium gained 1.1 per cent, nickel 1.2 per cent and zinc 0.8 per cent. Lead declined 0.8 per cent and 0.2 tin per cent.
