ASX futures were 53 points or 0.7 per cent lower at 7291 at 7am AEST on Tuesday, indicating a drop at the open.
U.S. stocks fell in the final hours of trading on Monday as fresh readings on service-sector activity and factory output suggested the economy remains robust even as the Federal Reserve raises interest rates to attempt to slow growth.
The S&P 500 shed 2 percent, giving back some of its gains from a November rally, which had been fueled by hopes that the Fed might slow the pace of its interest rate increases. The Dow Jones Industrial Average fell 544 points, or 1.6 percent, and the Nasdaq Composite fell 2.2 percent.
Investors’ expectations for a pivot by the Fed rely on incoming data. Take this past Friday, for example, when in another relatively strong jobs report that caused some of the ebullience in the stock market to wane over concerns that the central bank will have to continue raising rates to cool off the economy.
The rally in November, when both stocks and bond prices went higher, was enough on its own to make a give-back type of day like today inevitable, David Kelly, chief global strategist at JPMorgan Funds, said. “We were due for some kind of relapse,” he added.
In the commodity markets, Brent crude oil fell 3.03 percent to $US 82.98 a barrel, gold declined 1.6% to US$1,768.84.
In bond markets, Australian 2 Year government bond yields decreased to 2.97% and 10 Year yields to 3.36%. The dollar’s slide continued also overseas, the yield on 2 Year US Treasuries fell to 4.40% and the yield on 10 Year US Treasuries dropped to 3.60%.
The Australian dollar fell to 66.92 US cents. The Wall Street Journal Dollar Index, which measures the greenback against 16 others, ticked higher, to 98.13.
Asia
Shares in China closed up across the board, after the blue-chip Shanghai index retook the closely watched 3200 mark for the first time in more than two months on a boost in sentiment from relaxed Covid controls at the weekend. Shares of consumer-related companies, from airlines to food-chain operators, were among those pushing the market higher. Air China rallied 2.3%, China Tourism Group Duty Free Corp. climbed 2.8% and index heavyweight Kweichow Moutai rose 1.9%. The Shanghai Composite Index gained 1.8%, to end at 3211.81, and the Shenzhen Composite Index rose 0.9%, while the ChiNext Price Index was off 0.3%.
Hong Kong shares ended sharply higher on Monday, as investors became more bullish on China’s reopening prospects after several cities made greater strides in rolling back pandemic curbs over the weekend. The benchmark’s Hang Seng Index climbed 4.5% to 19518.29 and the Hang Seng Tech Index gained 9.3% to 4238.20. Gains were led by property developers, consumer goods stocks and casino operators. Longfor jumped 17%, and both Sands China and Xiaomi climbed 14%.
The Nikkei Stock Average finished up 0.2% at 27820.40 as a rise in energy and retail issues helped offset losses in auto and banking shares. Fast Retailing rose 3.1 percent and Inpex advanced 0.5 percent, while Resona Holdings slid 2.7 percent, and Nissan Motor 2.7 percent. The broader market index Topix slid 0.3 percent.
Europe
Stocks in Europe were mostly lower Tuesday, after declines on Wall Street on concerns about the economy and China.
The pan-European Stoxx Europe 600 fell 0.4 percent, the French CAC 40 slid 0.7 percent and the German DAX lost 0.6 percent, though in London, the FTSE 100 rose 0.1 percent as the pound slipped versus the dollar and the euro.
“The all-too tentative steps taken by China towards reopening its economy have patently failed to lift stock markets, which have instead turned back to fretting about the Fed,” wrote IG analyst Chris Beauchamp. “Markets remain haunted by Friday’s jobs report and gains are being extended to the downside as the re-adjustment of a few dovish trades gets under way.
North America
US stocks slumped in the final hours of trading on Monday as a fresh batch of indicators on service-sector activity and factory output showed the economy continuing to hum, even as the Federal Reserve pushes interest rates higher in an effort to tap the brakes on growth.
The S&P 500 fell 2 percent, reversing course after a November rally fueled by hopes that the Fed would ease the pace of its rate increases. The Dow Jones Industrial Average fell 544 points, or 1.6%, while the Nasdaq Composite lost 2.2%.
These investor hopes for a pivot by the Fed, however, are based on incoming data. On Friday, for example, a strong jobs report took some steam out of the stock market on concern that the central bank will need to continue raising rates to keep the economy from overheating.
Two new pieces of data arrived on Monday to bolster that narrative. The Institute for Supply Management’s November US non manufacturing index, a measure of the services sector, was 56.5, an increase from 54.4 in October and above the expected reading of 53.7.
Elsewhere, factory orders increased 1% in October, the Commerce Department said, also higher than what the markets had been expecting, which was an uptick of 0.7%.
The November rally that saw gains for both stocks and bond prices alone was sufficient to ensure a give-back day was inevitable a day like today, said David Kelly, chief global strategist at JPMorgan Funds. “We were due for some kind of relapse,” he said.
“A war or military action against a country like Iran is not immediately good for the stock market, yet investors have been showing signs they are more focused on the good news and betting on a more dovish Fed,” said Karl Chalupa, the chief executive and a co-founder of Gamma Investing Consulting. But he also sees the economy slowing and anticipates equities will go lower once the holidays are over.
“The market was priced off of optimistic news,” he said. “What we can say from our side is that it’s not going to be fulfilled in our opinion.
In corporate news, Tesla shares were down 6.8% after Bloomberg and Reuters reported the electric-vehicle maker was set to lower production at its Shanghai factory in December.
