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The share market faces early pressure after Wall Street failed to hold early gains amid ongoing concerns about the outlook for interest rates.
The S&P/ASX 200 will open 26 points or 0.35 per cent lower, according to futures action. The Australian benchmark is on track for its first losing week of 2023 after falling in three of the last four sessions.
After a bright start, Wall Street’s main indices rolled over to losses of 0.73 – 1.02 per cent. Resource stocks dragged as oil and gold declined.
Nickel surged more than 6 per cent following allegations of a major fraud involving fake cargoes. Iron ore climbed to its highest in a week in China. The Australian dollar steadied above 69 US cents.
Wall Street
US stocks shed early gains as a strong opening rally in Disney faded, Google parent Alphabet fell heavily for a second day and unemployment claims rose, but not by enough to alter the outlook for interest rates.
The S&P 500 faded to a loss of 36 points or 0.88 per cent. The Dow Jones Industrial Average shed 249 points or 0.73 per cent. The Nasdaq Composite gave up 121 points or 1.02 per cent.
Markets continued to adjust to the likelihood benchmark rates will reach at least 5.1 per cent by July following Friday’s jobs surprise and hawkish rhetoric from Fed policymakers.
“Wall Street couldn’t keep the upbeat mood,” Ed Moya, senior market analyst at Oanda, said. “Some traders placed bets that the Fed will have to do a lot more tightening than what Wall Street is pricing in.”
An uptick in first-time claims for unemployment benefits briefly encouraged investors looking for evidence rate hikes were finally taking the steam out of a red-hot labour market. Initial claims rose 13,000 last week to a seasonally-adjusted 196,000. Economists expected 190,000 claims.
However, the market’s initial enthusiasm soon dimmed, with claims near a pandemic-era low seen as unlikely to affect the Federal Reserve’s thinking on rates.
“The labor market remains tight as a drum and Fed officials will likely see they have more work to do at containing the inflation outbreak. The market is currently discounting an additional 50 bps of rate hikes in 2023 to 5.25%,” Chris Rupkey, chief economist at FWDBONDS, said.
Disney jumped more than 5 per cent in early trade after beating earnings expectations and announcing major job cuts. The initial gain faded to a loss of 1.31 per cent by the close.
A 4.39 per cent decline in Alphabet extended the company’s two-day loss into double-digits. The Google parent company’s share price dived 7.68 per cent on Wednesday following the underwhelming launch of a new chatbot. Investors fear Microsoft’s entry into the artificial intelligence space threatens the company’s dominance.
Australian outlook
The overnight action brings no relief at the end of a challenging week for Australian investors. Barring a black swan, the S&P/ASX 200 looks set for its first weekly decline of 2023.
The market’s golden start to the year faced real pressure this week as the cost of borrowing rose on bond markets. Yields jumped as the notion global interest rates were nearing a top was exposed over the last week as wishful thinking.
Tuesday’s RBA rates statement dashed hopes of a pause here in Australia. In the US, one Fed official after another warned rates were not yet high enough to contain inflation and were likely to remain elevated for the rest of the year.
The Reserve Bank releases a quarterly statement on monetary policy at 11,30 am AEDT that should shed more light on the domestic outlook for inflation and interest rates. Chinese consumer and producer inflation data at 12.30 pm will also have a hand in how this session plays out.
All 11 sectors declined in the US overnight. Alphabet’s woes steered communication services down 2.8 per cent.
The two sectors that matter most to Australian investors finished near the bottom. Materials lost 1.4 per cent. Financials declined 1.22 per cent.
Consumer stocks dodged the worst of the selling. Discretionary stocks dipped 0.21 per cent. Staples lost 0.29 per cent.
The dollar was little changed overnight, lately trading 0.05 per cent higher at 69.32 US cents.
United Malt holds its AGM today. News Corp and REA release earnings.
Commodities
Nickel soared 6.41 per cent on the London Metal Exchange after commodities trader Trafigura discovered nickel cargoes it purchased from a trading partner did not contain the metal. The Geneva-based group said it would take a US$577 million impairment over what it called “systematic fraud”.
“Since late December 2022, a small proportion of the containers purchased from these companies have been inspected as they reached their destination, and were found not to contain nickel. The majority of the shipments remain in transit awaiting further inspection,” the company said.
Trafigura said it had commenced legal proceedings against companies controlled by Indian businessman Prateek Gupta.
Copper bounced off a four-week low as a rally in the US dollar lost heat. Benchmark copper on the London Metal Exchange climbed 1.21 per cent to US$9,000.50 a tonne.
Aluminium rallied 0.63 per cent, zinc 0.32 per cent and tin 0.69 per cent. Lead dipped 0.07 per cent.
Iron ore reached its highest in a week ahead of data expected to show Chinese lending reached a record last month. Economists polled by Reuters predicted yuan loans by Chinese banks reached all-time highs in January as the government encouraged support for the reopening of the economy.
“It is expected that the enthusiasm for downstream procurement will gradually pick up this week,” Huatai Futures wrote in a report.
The most-traded May ore on China’s Dalian Commodity Exchange ended daytime trade 2.6 per cent ahead at 863 yuan (US$127.19) a tonne.
BHP‘s US-traded depositary receipts edged up 0.19 per cent. The Big Australian’s UK listing gained 0.64 per cent. Rio Tinto added 0.04 per cent in the US and 0.46 per cent in the UK.
Oil fell for the first time in four sessions in the wake of data showing US crude stockpiles increased for a seventh week. Brent crude settled 59 US cents or 0.7 per cent weaker at US$84.50 a barrel.
Gold gave up early gains after an increase in unemployment claims lifted the US dollar off session lows. Gold for April delivery settled US$12.20 or 0.7 per cent lower at US$1,878.50 an ounce. The NYSE Arca Gold Bugs Index dropped 2.36 per cent.
Battery metal miners were mixed in US trade. The Global X Lithium & Battery Tech ETF gained 0.09 per cent on the New York Stock Exchange. The VanEck Rare Earth/Strategic Metals ETF dropped 1.28 per cent.
