ASX futures were up 18 points or 0.3 per cent at 6521 at 8:00 am on Tuesday, signalling a positive open.
Overseas, all three major US indexes opened lower, gained back some ground, then faded into the close. The S&P 500 fell 1.2%. The blue-chip Dow Jones Industrial Average fell 0.5%. The Nasdaq Composite Index dropped 2.3 percent, as technology stocks weakened.
Investors are watching for corporate earnings to see how much higher prices and weak consumer sentiment have eroded companies’ profits. Americans see inflation pressures receding over the longer term, a new Federal Reserve Bank of New York report found.
“We’re in a backdrop of, you have central banks, they’re just going to continue to raise interest rates and the market narrative underneath all of this is still one of potential rising recession risk.” You’re going to see markets react to various points of data, react to earnings,” said Laura Cooper, a macro strategist at BlackRock, who added that she doesn’t think investors should “buy the dip” at this time. “That gets us into a really volatile period going forward.”
Back home, the S&P/ASX 200 closed 1.1% lower at 6602.2, retreating at the start of the week as materials, tech, consumer and financial stocks erased their gains.
The benchmark index weakened continuously throughout the session after advancing 2.1% over last week. EML Payments* dropped 25%, following the abrupt departure of its chief executive, to become the worst of 200-plus souls on the ASX, helping sink the tech sector 2.5%.
Gold, iron-ore and lithium stocks all lost ground, while weakness in wealth managers, health insurers and banks more than offset gains by general insurers in the financial sector.
The health sector was the only one to rise, gaining 0.1%.
Iron ore dropped 4.8% to US$107.45 in commodity markets, Brent crude oil fell 0.6% to US$106.41 and gold was off 0.6% at US$1731.70.
In local bond markets, the yield on Australian 2 Year government bonds rose for a third consecutive day to 2.56% and 10 Year to 3.50%. Over in the fixed income space, the yield on the 2 Year US Treasury note dipped by 2 basis points to 3.07% and the 10 Year US Treasury note yield 2 basis points lower at 2.99%.
The Australian dollar lost 1.8% to 67.35 US cents at 6:46 am AEST. The Wall Street Journal Dollar Index, which measures the US dollar against 16 other currencies climbed to 99.82.
Asia
Chinese shares ended lower dragged by miners and automakers. A resurgence in Covid-19 infections in China has again struck a nerve in the market and risks breaking a trend of reviving consumption, according to a note from Shanxi Securities. Great Wall Motor dropped 5.0%, while SAIC Motor lost 6.1% after posting June vehicle sales data that lagged behind the broader market. Tianqi Lithium dropped 9.2 percent and Ganfeng Lithium lost 6.7 percent. Electric utility companies were among the gainers, with China Yangtze Power up 2.0% and China Three Gorges Renewables climbing 3.4%. The Shanghai Composite Index lost 1.3% to 3313.58, while the Shenzhen Composite Index was down 1.5% and the ChiNext Price Index fell 1.8%.
Shares in Hong Kong also finished higher, as the benchmark Hang Seng Index showed its largest percentage point lost in around two weeks, down 2.8% to 21124.20, following concerns about increasing Covid-19 outbreaks and lockdowns in China. Macau casino stocks were hit, with Sands China and Galaxy Entertainment down 8.1% and 4.9%, respectively, after city officials decided to close gaming destinations for a week to contain the spread of the virus. The tech sector weakened after Alibaba Group and Tencent Holdings, internet companies, were fined for failing to make proper antitrust declarations. Alibaba lost 5.8% and Tencent slid 2.9%. Ronshine China tumbled 11%, after it missed interest payments on two bonds.
Japanese shares close higher in broad, with the ruling coalition's election victory in Japan cementing the current government's position and has lifted expectations for policy continuity. The biggest winners were Daiichi Sankyo, which jumps 4.4%, Suntory Beverage & Food, which rises 3.7% and Sumitomo Realty & Development, which advances 3.7%. The Nikkei Stock Average advances 1.1% to 26812.30. USD/JPY is at 137.00 after climbing to 137.28 earlier, its highest since September 1998, versus 136.09 late Friday in New York. Following the elections and the death of the former Prime Minister Shinzo Abe, all eyes will be on any developments over economic policies.
Europe
European stocks finished mixed as jitters around spiking natural-gas prices and new China coronavirus restrictions cast a pall. The pan-European Stoxx Europe 600 falls 0.5%, the German DAX sinks 1.4%, the French CAC 40 loses 0.6%. “Understandably the DAX is leading the way in terms of the losses, given its the impact that higher energy prices could have on its base of manufacturing as we head into the second half of the year,” CMC Markets analyst Michael Hewson writes.
Sinch shares fell 28%, after a short-selling research firm accused the Swedish telecommunications group of overstating its results. The largest gas importer in Germany, Uniper plunges 14% following a row between Germany and Uniper’s Finnish owner, Fortum, over the expense of bailing out the utility.
London’s FTSE 100 ended Monday up 0.01%, buoyed by strong utilities performance outpacing other global markets. Indices have struggled broadly at start of the week against a strengthening dollar and fears of recession returning, IG Group PLC chief market analyst Chris Beauchamp says in a research note.
“But while the FTSE 100’s mining constituents are still sharply in the red on the day, losses in London have been whittled down courtesy of a strong performance from the utilities based on hopes the jump in the price of gas will pad their bottom line, whatever hit they may take from headline seeking opportunistic politicians,” Mr. Beauchamp says.
North America
US stocks were down to start the week as investors braced for fresh inflation data and corporate earnings that may shape the path for the Federal Reserve when it comes to interest-rate increases.
All three major indexes started lower, clawed back some ground and sputtered into the close. The S&P 500 fell 1.2%. The blue-chip Dow Jones Industrial Average fell 0.5%. The Nasdaq Composite Index dropped 2.3 percent as technology stocks fell.
Stocks had recently mounted a comeback, with the S&P 500 jumping nearly 2 percent last week. The rally faded on Friday when a stronger-than-expected jobs report indicated the labour market remains hot, increasing the chances that the Federal Reserve can continue aggressive interest rate increases, perhaps triggering a recession. The next big piece of data, the US consumer-price index for June, is due Wednesday.
“The fear of the market is the Federal Reserve actually has to keep going and create a more painful recession,” said Brent Schutte, chief investment officer for Northwestern Mutual Wealth Management. “I think you are seeing inflation measures rolling over already, which I think is good news that we can ease these recession fears and eventually get the market higher.”
Investors are also waiting for corporate earnings reports for signs of how higher prices and weaker consumer sentiment are cutting into profits. Americans see lower long-run inflation increases, a new Federal Reserve Bank of New York report said.
“We’ve got a backdrop where central banks are going to remain raising interest rates, and the underlying market narrative still is one of potentially rising recession risks. “Now we’re going to see markets react to different data points, react to earnings,” said Laura Cooper, a macro strategist at BlackRock, who said she doesn’t counsel investors to “buy the dip” now. “That positions us for a very tumultuous period following.
John Lynch, chief investment officer of Comerica Wealth Management, said his firm, which reallocated its holdings toward value stocks late last year, will review its investments near the end of this month.
“I don’t think there is a realization that if we have a mild, self-fulfilling recession in the first half of this year, we still are going to have an 8 percent print on inflation, and the Fed’s going to have to keep raising” rates, he said.
JPMorgan Chase and Morgan Stanley are among the major financial firms that are set to report earnings on Thursday, while BlackRock, Citigroup and Wells Fargo will do so on Friday. The KBW Nasdaq Bank Index dropped roughly 0.9 percent on Monday.
A number of household-name firms, too, are slated to report earnings this week, including PepsiCo on Tuesday and Delta Air Lines on Wednesday.
“Those are going to be big bellwethers on consumer confidence, on spending.” The guidance will be very important — these guys have really good insight into how the consumer is behaving, and what they expect that to look like for the rest of the year,” said Fahad Kamal, chief investment officer of Kleinwort Hambros.
Twitter fell $4.16, or 11 percent, to $32.65. Elon Musk submitted a statement on Friday evening saying he was ending his $44 billion courtship of the social-media company and that Twitter had breached the merger agreement. Twitter also released a statement saying it planned to sue Mr. Musk.
Other tech stocks declined, with Facebook owner Meta Platforms ending down 4.7% and Netflix falling 5.2%. Broadcom shares fell $15.83, or 3.2 percent, to $482.86 after the microchip company said that the president of its software business was leaving.
Bond markets remained on alert. The US yield curve remained inverted, with yields on shorter-dated bonds sitting higher than the yields on longer-dated debt. The yield on the benchmark 10-year Treasury note slipped to 2.990% from 3.098% on Friday. The yield on the two-year Treasury fell to 3.068%. Yields fall when prices rise.
Oil prices fell further. Brent, a global benchmark for crude, eased less than 0.1% to settle at $107.10 a barrel. It dropped over 4 percent last week.
It is about “the fear that we’re going to come into a very sharp decline in demand on the back of this worsening growth backdrop,” Ms. Cooper, of BlackRock, said. “That’s particularly playing out in the commodity space.”
