ASX futures added 23 points or 0.4 per cent to 6412 as of 7.30am on Thursday but the gains are unlikely to last with US stock futures in the red.
The S&P 500, a broad measure of the market, fell 0.1 percent on Wednesday, breaking a two-day rally. The Dow Jones Industrial Average fell 0.2%. The tech-heavy Nasdaq Composite fell 0.1%. Bonds climbed with a flight to safety.
Mr. Powell testified to Congress on Wednesday and was set to appear again on Thursday (Friday AEST). He said the central bank will continue to hike interest rates until it sees clear signs that inflation is moving down to its 2% goal.
An economic downturn is “certainly a possibility,” Mr. Powell said Wednesday at the congressional hearing. “We are not looking to provoke, and we don't think we need to have to provoke a recession, but we do think it is absolutely essential” to curtail inflation.
In a separate comment, Federal Reserve Bank of Philadelphia President Patrick Harker said Wednesday that a modest contraction in growth in the US economy lies ahead, but that he anticipates the job market to remain strong.
On Tuesday, the S&P/ASX 200 finished 0.2 per cent lower at 6508.5, after a rebound mid-session, restarted its downward spiral.
The benchmark gained as much as 0.5% an hour after, led by a positive lead from US equities. It then fell as US stock futures slipped, with technology, consumer discretionary and real-estate sectors among those worst affected on recession fears.
Xero, WiseTech and Computershare lost 0.7% to 3.0%.
Former red-hot buy now, pay later company Zip Co's shares dropped a further 11.4% to 46.5c from an all-time high of more than $14 last year. A statement from its co-founder and chief executive, Larry Diamond, said that the company was well financed and continued to execute on its business plan to capitalize on “a very strong market opportunity.”
The stock prices of travel agents Webjet, Flight Centre and Corporate Travel Management fell between 2.0% and 4.1%.
Commonwealth, NAB, ANZ and Westpac banks dipped 0.1% to 0.9%.
The ASX 200, which jumped 1.4% on Tuesday staving off a seven-day losing streak, is currently up 0.5% this week.
In commodity markets, Brent crude oil dropped 4% to US$110.07 a barrel. Iron ore remained on the slide, down 5.6% to US$109.40. Gold futures fell 0.02% to US$1838.40.
Bond markets have rallied both here and abroad on the fear of an economic slowdown. Australian 2 Year government bond yield was 2.96%, down. The 10 Year bond yield was 3.98% down. The yield on 2 year US Treasury notes fell to 3.06% and the yield on the 10 year US Treasury notes has fallen back down to 3.16%.
The Australian dollar sagged to 69.23 US cents, having previously closed at 69.68. The Wall Street Journal Dollar Index, which measures the US dollar against 16 other currencies eased to 97.12.
Asia
Chinese stocks slipped, dragged down by electronics and software companies, with the solar-energy sector higher. The Shanghai Composite Index lost 1.2% to 3267.20, closing down for a third consecutive session. A worsening of US economic data and global central banks’ monetary tightening may weaken the market's risk appetite and weigh down the A-share market, Shanxi Securities writes in a note. Shares of Luxshare Precision fell 5.2%, and iFlytek lost 3.8%, while polysilicon producer Tongwei gained 2.6%. The Shenzhen Composite Index lost 1.3% and the ChiNext Price Index slid 0.6%.
Hong Kong stocks fell, with the benchmark Hang Seng Index down 2.6% at 21008.34 as broad-based losses were led by energy companies. Oil majors followed crude-oil benchmarks lower on sharp declines as macroeconomic uncertainties weighed. PetroChina dropped 4.2%, Cnooc was down 3.8% and Sinopec shed 2.8%. Other losers included Alibaba Health Information Technology, which fell 14%, and Sunny Optical Technology, off 7.4%. On the plus side, this "will provide a massive inflationary reprieve [and] provide a parachute for the global soft landing," according to a note from SPI Asset Management managing partner Stephen Innes.
The Nikkei Stock Average fell 0.4% to 26149.55, giving up earlier gains on continued fears over interest rates and inflation. Markets will be looking for comments from Fed Chairman Jerome Powell in testimony to Congress later in the day when he will lay out his views on inflation. Energy stocks lagged after oil prices dropped on inflation concerns. Japan Petroleum Exploration fell 3.0%, Inpex lost 3.9% and Idemitsu Kosan fell 3.3%. USD/JPY was at 136.34, after hitting earlier 136.72, its highest intraday level since 1998 according to FactSet, compared with 136.62 late Tuesday in New York.
Europe
European markets declined after lacklustre Asian trading and ahead of a lower US open predicted. The broad pan-European Stoxx Europe 600 was down 0.7 percent, the French CAC 40 was down 0.8 percent and the German DAX fell 1.1 percent.
“Yesterday was a solid day for US markets, and the view in Asia is far less optimistic. US markets are expected to open weaker, IG analysts say in a note, writing, "Sentiment is fragile. “The highlight will be the first day of testimony before US lawmakers by the Fed president Jerome Powell.”
London’s FTSE 100 finished 0.9% lower on Wednesday as investors digested May’s 9.1% spike in consumer price inflation in the U.K. up from 9% the previous month and the highest level since 1982.
“The UK inflation numbers today seemed somewhat mixed just like the US inflation numbers had been when we got them a couple of weeks ago with core prices moderating, however PPI prices continued to push higher indicating that there remained a considerable amount of price pressure still to come through the pipeline,” CMC Market UK analyst Michael Hewson said in a note.
Commodities trader Glencore was the top loser of the day, falling 6.9%, followed by miner Antofagasta, which lost 6.4%, and Rolls-Royce who had its latest pay offer turned down by Unite the union, and which fell 5.2%.
North America
US stocks dipped Wednesday, after Federal Reserve Chairman Jerome Powell acknowledged that the central bank’s campaign to raise interest rates might lead to an economic downturn.
Investors have been closely monitoring for clues on how the Fed will continue with its efforts to reduce high inflation by raising interest rates. Central bank officials met last week and decided to lift their benchmark interest rate by 0.75 percentage point, their biggest increase since 1994. The S&P 500 had its worst week since March 2020.
The wide US stock index was down 0.1% on Wednesday. The Dow Jones industrial average fell 0.2%. The tech-heavy Nasdaq Composite fell 0.1%.
Mr. Powell appeared before Congress on Wednesday and plans to appear again on Thursday. He indicated that the central bank intends to keep increasing interest rates until it sees solid proofs inflation is cooling to its 2% target.
An economic slowdown is “certainly possible,” Mr. Powell said Wednesday in the congressional hearing. “We’re not looking to provoke and we don’t think we need to provoke a recession, but we do think it’s absolutely essential” to rein in inflation.
In separate remarks on Wednesday, Federal Reserve Bank of Philadelphia President Patrick Harker said a moderate reduction in US economic growth may occur but that the job market should stay strong.
Stocks have swooped and swerved in recent weeks as twin fears of soaring inflation and slowing growth hover over markets. The S&P 500 is heading for its worst first half of a year since 1962, Dow Jones Market Data said. U.S. stocks surged on Tuesday, giving investors temporary relief from a period of whipsaw trading that had brought big declines in stocks and cryptocurrencies.
Investors searched for assets considered safer to hold Wednesday, including US government debt. In bond markets, the yield on the key 10-year US Treasury note fell to 3.155% from 3.304% Tuesday. Yields fall when prices rise.
“People are really grappling with the idea that recession probabilities seem to increase,” said Gavin Stephens, director of portfolio management at Goelzer Investment Management.
In energy markets, Brent crude, the global benchmark for oil prices, fell 2.5 percent, to $111.74 a barrel, its lowest settlement price in a month.
Oil prices have been pressed by concerns that the Fed’s efforts to contain inflation will hit the brakes on the economy and tame demand for fuel. Even so, energy prices are close to historically elevated levels, as Russia’s invasion of Ukraine has sent Western nations racing away from supplies of Moscow.
Oil prices settling from their highs could help keep stocks steady in the near term, as investors seek signs inflation might start to slow.
“We’re going to need to catch a break here in terms of inflation for the stock market to stop going down,” said Brian Barish, chief investment officer at Cambiar Investors.
The drop in crude prices has weighed on shares of energy companies. Occidental Petroleum shares fell $2.10, or 3.6 percent, to $55.77. Halliburton shares dropped $1.46, or 4.4%, to $32.09. The energy sector of the S&P 500 fell 4.2% on the day.
Investors fear bad economic data could be a precursor to a slowdown in US growth, constraining non essential spending. Economists surveyed by The Wall Street Journal have markedly increased the odds of recession, now at 44% over the next 12 months, a level typically reserved for near or in the midst of actual recessions.
“This recession narrative is really starting to lead the market,” said Sebastien Galy, a macro strategist at Nordea Asset Management.
The base metals prices, too, have been hit by recession worries. Copper dropped 2.3 percent to $3.95 a pound, its lowest settle value since February 2021.
“There is certainly an anxiousness in markets and that’s chugging through in volatility,” said Edward Park, chief investment officer at UK investment firm Brooks Macdonald, adding that investors are likely waiting for fresh inflation data or a central bank meeting to get a read on their next trades.
The price in dollars of bitcoin, the largest cryptocurrency by market value, dropped 4.2% from its 5 pm New York yesterday price to $19,967, according to CoinDesk. Cryptocurrency prices have dropped in recent weeks as investors broadly seek to escape speculative assets and question the viability of certain crypto companies.
Shares of cryptocurrency exchange Coinbase Global fell $5.58, or 9.7%, to $51.91.
