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The share market looks likely to open lower ahead of January employment data and the biggest day of the interim earnings season.
ASX futures eased 19 points or 0.28 per cent as US stocks continued a recent run of mixed finishes. The Dow eked out a new closing high. The S&P 500 and Nasdaq both finished red.
Iron ore pushed towards US$170 a tonne as Chinese trade resumed. Oil advanced. Gold slumped to its lowest level since June. The dollar held around 77.5 US cents.
The half-year earnings season climaxes today with updates from a quarter of the S&P/ASX 20 index of heavyweights, including CSL, Fortescue Metals, Woodside Petroleum, Wesfarmers and ANZ. The market also has its first chance to react to Rio Tinto’s half-year report and record dividend announced late yesterday.
Wall Street
Inflationary worries continued to cast a cloud over US action. A surge in retail sales and pick-up in producer prices helped drive the ten-year treasury yield to its highest level in a year. That in turn fuelled a rotation out of growth companies that rely on cheap debt back into value companies that fell furthest during the pandemic.
The value-heavy Dow Jones Industrial Average outperformed for a second night, rising 91 points or 0.29 per cent. The growth-heavy Nasdaq Composite slumped 82 points or 0.58 per cent. The S&P 500, a mix of both, eased a point or 0.03 per cent.
“Investors are just refocusing their attention back on to inflationary worries and perhaps the valuation aspect of the market, especially as it relates to the more technologically related companies,” Robert Pavlik, senior portfolio manager at Dakota Wealth Management, told Reuters.
Retail sales jumped 5.3 per cent last month, sharpening fears inflation is taking off after several dormant years. The producer price index, which measures the prices businesses obtain for goods and services, spiked 1.3 per cent. CNBC said the increase was the largest since 2009.
Treasury yields climbed to 1.33 per cent, their highest since last February. Higher interest rates raise the spectre of Federal Reserve action to reduce stimulatory measures. Higher borrowing costs are also a headwind for listed companies, particularly those that rely on debt to fund growth.
Verizon and Chevron fuelled much of the Dow’s outperformance after Warren Buffett’s investment vehicle revealed large positions. Verizon jumped 5.2 per cent. Chevron added 3 per cent.
Australian outlook
A soft start looks likely following another consolidation session in the US. There is a lot of rotation going on across the Pacific, but the headline numbers have been pretty static of late.
The S&P/ASX 200 has moved steadily higher during the month-long domestic earnings season, but suffered a setback yesterday as bond proxies responded to a 14-month peak in Australian yields. The index fell 32 points or 0.46 per cent.
Earnings season reaches fever pitch today with half-year reports from CSL, Fortescue Metals, Wesfarmers, South32, Crown Resorts, Star Entertainment. Origin, Orora and Perpetual. There are full-year reports from Woodside Petroleum, Iress, Santos, Coca-Cola Amatil and Oz Minerals, and a quarterly update from ANZ. Investors will also have a chance to react to Rio Tinto’s interim report, released after the close of Australian trade yesterday.
On any other day, the monthly employment report at 11.30 am EST would be the main event. The consensus among economists is for a drop in the jobless rate to 6.5 per cent from 6.6 per cent. The economy was expected to have created around 30,000 new positions.
Energy was once again the pick of the US sectors, rising 1.5 per cent. The financial sector edged up almost 0.4 per cent. Materials dipped 0.1 per cent. Technology took the biggest hit, falling 1 per cent. Bond proxies were mixed, but mostly higher.
The dollar climbed 0.22 per cent to 77.52 US cents.
Commodities
Gold retreated for a fourth straight night, finishing at its weakest level since June. Metal for April delivery settled $26.20 or 1.5 per cent lower at US$1,772.80 an ounce. The NYSE Arca Gold Bugs Index dropped 2.6 per cent.
This week’s collapse in prices comes as the rise in bond yields sucks investment funds from alternative assets, such as metals. Silver, copper, platinum and palladium also finished lower.
Oil continued to a grind higher as freezing weather in the US shut down production and closed refineries. Brent crude settled 99 cents or 1.6 per cent higher at US$64.34 a barrel.
Shares in Rio Tinto finished modestly lower in overseas trade after the miner announced a record dividend and a 20 per cent bounce in underlying profit. The company’s US-listed stock eased 0.13 per cent and its UK-listed stock 0.4 per cent. BHP edged up 0.11 per cent in the US after shedding 0.71 per cent in the UK. The spot price for iron ore landed in China climbed $3 or 1.8 per cent to US$168.95 a tonne as trade resumed after the Lunar New Year holiday.
