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The share market was poised to open modestly lower for a fourth session after the hottest inflation report in 31 years pulled US stocks further from record levels.
Wall Street’s major indices finished sharply underwater as a surge in October consumer prices reignited fears the Federal Reserve will end its asset-buying program faster than planned and raise rates as soon as next year.
ASX futures dipped nine points or 0.12 per cent. The decline was cushioned by a weaker dollar and by the possibility of an upside surprise from this morning’s October jobs report. The S&P/ASX 200 has been under mild pressure all week, retreating 10 points yesterday.
Wall Street
Rate-sensitive growth stocks led the selling as a rise in inflation turned up the pressure on the Fed. Bond markets sold off. Yields rallied, alongside bond proxies and hedges such as gold.
The growth stock-heavy Nasdaq Composite dived 264 points or 1.66 per cent. The broader S&P 500 shed 39 points or 0.82 per cent. The Dow Jones Industrial Average fell 240 points or 0.66 per cent.
Consumer prices jumped 0.9 per cent last month, smashing the 0.6 per cent estimate among economists polled by Dow Jones. The annual increase of 6.2 per cent was also above estimates and the strongest annual rise since 1990.
“Wednesday’s Consumer Price Index showed another month of inflation data well above the Federal Reserve’s inflation target, primarily due to continued supply chain issues and labor shortages. If inflation doesn’t subside, the Federal Reserve may need to taper at a more substantial rate and hike interest rates, which could hurt stocks and bonds,” Nancy Davis, founder of Quadratic Capital Management, told CNBC.
Futures markets indicated a majority of traders now expect the Fed to raise rates as soon as July next year. The odds on a July hike rose to 80 per cent after the CPI.
“Fed funds are pricing in more hikes sooner,” Michael Schumacher, Wells Fargo’s director rates, said.
Bonds sold off in expectation of higher rates, sending yields soaring. The yield on ten-year US treasuries climbed 11 points. Yields had been trending lower in recent days, touching a seven-week low yesterday.
Tech stocks bore the brunt of the selling. Growth stocks are particularly vulnerable to inflation because of the way analysts value future earnings. Apple shed 1.92 per cent, Microsoft 1.53 per cent, Alphabet 2.03 per cent and Meta (formerly known as Facebook) 2.3 per cent.
Tesla pared two days of heavy losses. The electric carmaker bounced 4.34 per cent as rival Rivian debuted with a splash. The electric truck maker jumped 29.14 per cent upon listing. Amazon and Ford both have stakes in the company.
Australian outlook
A wobbly week looks set to continue, at least until the 11.30 am AEDT release of October employment figures. Wall Street had become over-extended and was ready for a retrace. Last night’s consumer data offered a convenient excuse. A touch of late dip-buying took the edge off sharper earlier falls and served as a reminder there is still cash looking for a home.
The S&P/ASX 200 pre-empted this US retrace by a couple of sessions, so local investors are staring at a fourth straight decline. It is important to note losses so far have been minimal: 33 points or a little over 0.4 per cent. In other words, there is no evidence yet of a rush to the exits.
A positive result from today’s jobs report could turn the index around. The consensus among economists is that the jobless rate crept up to 4.8 per cent last month from 4.6 per cent in September. Total employment is expected to increase for the first time in three months, by around 50,000. However, if the pandemic has taught us anything, it is to expect the unexpected where data is concerned.
Bond proxies and gold miners provided havens overnight. The US utilities sector gained 0.7 per cent, healthcare 0.26 per cent and consumer staples 0.28 per cent. The NYSE Arca Gold Bugs Index climbed 2.12 per cent.
Energy stocks were smashed with crude prices, diving 2.97 per cent. Tech stocks sank 1.68 per cent. The materials sector shed 0.71 per cent. Financials also finished underwater, down 0.2 per cent.
The annual general meeting season hots up today with updates from Nine Entertainment, Ansell, Computershare, Nearmap, Austal, Breville, Estia Health, Qube, REA Group, Ingenia Communities and Cooper Energy. Mining heavyweight BHP start its meeting just as the market closes at 4 pm AEDT.
IPOs: Cosmos Exploration lists at 12.30 pm AEDT. Cosmos is an explorer focussed on gold, copper and nickel in NSW and WA.
The dollar declined 0.66 per cent to 73.27 US cents as part of a general retreat from risk.
Commodities
BHP and Rio Tinto tested multi-month lows in US trade after iron ore sank to its weakest level in 18 months. The spot price for ore landed in China declined US$2.95 or 3.2 per cent to US$89.50 a tonne.
The decline came as steel prices continued to slide amid weakening demand from China’s struggling property market. Steel prices have contracted by 11 per cent in the last week.
“The main driver of the fall in iron ore prices from mid-May was the steel output restrictions placed by Chinese policymakers, but what was distinct was, steel prices and margins stayed elevated because demand was still there,” Commonwealth Bank mining and energy commodities analyst, Vivek Dhar, said.
“But steel prices in China are now falling because sentiment in their property development space remains very weak. This declining demand for steel has finally weakened enough to weigh on prices and margins.”
BHP‘s US-listed stock sank 2.01 per cent, overshadowing an attempted recovery in the UK, where its listed stock edged up 0.35 per cent. Rio Tinto slumped 1.73 per cent in the US after gaining 0.1 per cent in UK trade.
Oil succumbed to a jump in US inventories and a strengthening greenback. The US Energy Information Administration reported a third straight weekly increase in crude stockpiles. Brent crude settled US$2.14 or 2.5 per cent lower at US$82.64 a barrel.
Natural gas futures fell for a third session. US futures dropped 2 per cent to US$4.88 per million British thermal units.
Gold was one of the night’s big winners, logging its highest close since June. Metal for December delivery climbed for a fifth night to settle US$17.50 or 1 per cent ahead at US$1,848.30 an ounce.
Copper was already under pressure from strengthening Chinese producer prices. Data yesterday showed factory-gate prices climbed last month at the quickest rate in 16 years. US-traded copper fell 1.1 per cent to US$4.323 a pound.
