Market Open: ASX faces another volatile week as oil, rates and the Fed take centre stage

ASX today – The Australian share market heads into Monday under pressure after the ASX 200 suffered its worst week since March, with investors weighing the impact of higher oil prices, rising bond yields and the prospect of further interest rate increases.

The ASX 200 fell 0.9% on Friday to 8,741.2 points, taking its weekly decline to 2.1% and leaving the index at its lowest closing level since July 2. Mining stocks bore much of the selling, with BHP falling 4.1%, Rio Tinto down 3.5% and lithium producers Liontown and Pilbara Minerals dropping 8.6% and 7.4% respectively.

Wall Street stages a rebound

There was some relief on Wall Street on Friday, with the major US indices recovering after a bruising week.

The Dow Jones rose 1%, while the S&P 500 gained 0.9% and the Nasdaq added 1%. The rebound came as US inflation data landed broadly in line with expectations and oil prices pulled back from their recent highs.

But the weekly picture remains less encouraging. The Dow lost 1.6% over the week, the S&P 500 fell 0.8% and the Nasdaq dropped 0.7%.

Oil remains the market’s big wildcard

Oil is likely to remain one of the biggest influences on markets this week.

Brent crude surged above US$100 a barrel last week as tensions in the Middle East raised concerns about supply disruptions. Prices eased on Friday, with WTI finishing around US$100 a barrel, but crude still gained about 9% for the week.

For Australian investors, that creates a split market.

Energy stocks stand to benefit from higher oil prices, but the broader market faces the opposite effect if expensive fuel feeds into inflation and pushes interest rates higher. That was already evident last week, with Australian government bond yields climbing sharply and the 10-year yield moving above 5%.

The Fed decision is now the week’s main event

Attention will increasingly turn to the US Federal Reserve, which meets this week with its interest rate decision due early Thursday morning Australian time.

Markets are heavily focused on whether the Fed raises rates and, perhaps more importantly, what policymakers signal about the path beyond this meeting.

US inflation rose 3.4% over the year to August, while producer prices increased 5.4% over the year. Higher oil prices are adding another layer of inflation pressure just as central banks are trying to bring price growth back under control.

That means investors will be watching oil, US Treasury yields and the Fed closely for clues about where equities go next.

What to watch on the ASX

The pressure on miners will be an obvious area to watch after materials stocks led Friday’s sell-off.

Gold also deserves attention. The precious metal finished last week around US$4,366 an ounce as higher yields and expectations of tighter US monetary policy weighed on the sector.

Energy stocks, meanwhile, remain one of the few areas with a potential tailwind from the oil rally.

Investors will also be watching the banks after the sector provided some support late last week, although higher bond yields and the possibility of further Australian rate increases remain a concern.

What else is happening today?

RBA Assistant Governor Sarah Hunter is scheduled to speak today, Monday 14th September, giving investors another opportunity to assess how the central bank is viewing the inflation outlook and the impact of higher energy prices.

There is also plenty on the calendar later in the week, including Chinese economic data and the US Federal Reserve decision.

For Australian investors, the key question this week is whether Friday’s Wall Street rebound marks the start of a recovery — or simply a pause in a market still dealing with higher oil prices, inflation and rising interest-rate expectations.

On the market news front:

ROX Resources (ASX: RXL) undertakes high-grade drilling and ore drive extensions at Youanmi;

Forrestania Resources (ASX: FRS) executes two strategic MEGA agreements;

Talga Group (ASX: TLG) and Fortum sign strategic graphite MoU;

Podium Minerals (ASX: POD) reaches MoU for strategic Australia-US platinum partnership;

Encounter Resources (ASX: ENR) identifies high-grade niobium zone at Joyce.

Buck and ore

Now – in forex, the Oz dollar is buying US$0.716

Looking at commodities, all in the greenback,

Iron Ore was up 0.45 per cent to $100.02 per tonne in Singapore today,

Brent Crude was up 3.48% to $108.228per barrel,

Gold was selling at $4330.98,

US natgas futures were 0.96% to $2.8582 per gigajoule.

That’s HotCopper’s Market Open, I’m Colin Sandell-Hay – happy trading.

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