Futures traders anticipate a start-of-month sell-off following a mixed finish on Wall Street and a fresh two-year high in the dollar.
ASX SPI200 index futures dived 58 points or 1 per cent as the S&P 500 and Dow Jones Industrial Average slipped in choppy action at the end of their best August in decades.
The Australian dollar punched above 74 US cents for the first time since August 2018.
Aussie outlook
The share market has risen for five straight months since the February-March pandemic sell-down. August delivered a return of 2.2 per cent despite a 0.2 per cent setback yesterday. The first and last sessions of each month bring an element of unpredictability as fund managers rebalance their holdings to meet their funds’ stated objectives.
Overnight, the dollar hit 74.03 US cents on the spot market before easing lately to 73.82 cents, a gain of 0.28 per cent.
The rally in the dollar has strengthened ahead of this afternoon’s Reserve Bank policy meeting. While no major policy changes are anticipated, currency analysts have speculated that recent signs of recovery in the economy may affect the tone of RBA commentary, adding fresh fuel to the rally as the US dollar wallows at two-year lows. The bank meets this morning and releases a policy statement and any change to the cash rate at 2.30pm EST.
Wall Street
The S&P 500 ended its best August since 1986 with an overnight dip of eight points or 0.22 per cent as bank stocks followed government bond yields lower. Bank of America, Wells Fargo and Citigroup all fell more than two per cent.
The Dow eased 224 points or 0.78 per cent after three new component companies joined the blue-chip average, replacing Exxon Mobil, Pfizer and Raytheon Technologies. Two of the newcomers were among the index’s better performers: Salesforce edged up 0.6 per cent and Amgen 0.1 per cent. Honeywell slid 1.7 per cent.
The Nasdaq climbed 80 points or 0.68 per cent as Apple and Tesla were boosted by stock splits. Apple jumped 3.4 per cent and Tesla 12.6 per cent.
The S&P 500’s August tally of 7 per cent was its strongest for that month since 1986. The Dow went even better, rising 7.6 per cent for its best August return since 1984. Both have risen more than 55 per cent from their March 23 pandemic lows.
“Fed officials continue to drive up stock prices by committing to keeping interest rates close to zero for a very long time,” Ed Yardeni, president and chief investment strategist at Yardeni Research in the US, wrote. “Consequently, they are fuelling the melt-up in stock prices.”
Commodities
Australia’s heavyweight miners sold off in US action despite gains in the UK. BHP’s US-listed stock shed 1.38 per cent after its UK-listed stock added 0.59 per cent. Rio Tinto gave up 1.21 per cent in the US and put on 0.55 per cent in the UK. The spot price for iron ore landed in China rose for a second day, up $1.10 or 0.9 per cent at US$124.35 a dry ton.
The US energy sector declined 2.2 per cent as oil retreated at the end of a fifth winning month. Brent crude settled 53 cents or 1.2 per cent lower at US$45.28 a barrel, but gained 4.6 per cent for the month.
US gold miners inched higher as a weak US dollar helped lift precious metals. The NYSE Arca gold bugs index put on 0.9 per cent. Gold for December delivery settled $3.70 or 0.2 per cent ahead at US$1,978.60 an ounce. Silver rose 80 cents or 2.9 per cent to US$28.59.
Chinese copper sealed its longest run of monthly advances in 11 years with a rise yesterday of 0.5 per cent on the Shanghai Futures Exchange. The London Metal Exchange was closed for a public holiday.