Wall St pulled back on global growth concerns amid several companies unveiling weak profit outlooks ahead of the ECB rate decision, US consumer price index this week and the Federal Reserve meeting next week.
Good morning. I’m Melissa Darmawan for Finance News. This is your market outlook.
The Australian sharemarket is set to give back its gains after Wall St’s close.
Wall St retreats ahead of CPI data
US stocks closed lower after two days of gains as concerns of slowing global growth weighed on investor sentiment.
At the closing bell, the Dow Jones lost 0.8 per cent to 32,911, the S&P 500 fell 1.1 per cent to 4,116 and the Nasdaq was down 0.7 per cent to 12,086.
Why the reaction?
Firstly, volumes were a third lower on Wall St amid the 10-year treasury yield above 3 per cent which means that investors were sitting on the sidelines due to several factors.
Investors digested bearish company outlooks and news about staff layoffs, signalling that the economy could be headed towards stagflation. High inflation, slow growth and high unemployment. Despite the tight labour market, if companies expect profit to weaken, input costs to be high, laying off staff is one means to help reduce their cost base.
Secondly, this concern was then echoed by the World Bank and now the Organisation for Economic Cooperation and Development’s (OECD) cutting its own global growth forecast. The OECD did say that they don’t see a prolonged stagflation ahead which is a slightly warmer tone compared to the World Bank, however, they did jack up their inflation targets.
Thirdly, we have the consumer price index figures on Friday, the producer prices and the Federal Reserve rate decision next week.
There are uncertainties there because the colour from Jerome Powell’s speech is what tends to move markets. The central bank has made it clear that they are looking to hike rates by 50 basis points. The other unknown is the impact from the help from the Biden administration. To help ease prices at the pump, the US government tapped into the strategic petroleum reserves and the latest report from the Energy Information Administration fell by 7.3 million barrels last week to 519.3 million barrels.
What this means is that investors will remain cautious as they watch the oil price. It rose 2.5 per cent to US$122.42. This could explain why energy was the only sector to move higher on the S&P 500 by 0.2 per cent. Real estate was the worst performer, down 2.4 per cent.
In other news, Chinese EV maker BYD is set to supply Tesla with batteries “very soon.” There are a lot of shortages in the electric car industry when it comes to parts, especially batteries. An interesting part of the deal is a media report last week in China suggesting that the carmaker is looking to fast track this strategy by striking a deal to buy six mines in Africa to cover the company’s lithium demand for the next 10 years. Lithium Americas and Livent tumbled in the range of 4 per cent.
Let’s take a look at what this means for the Aussie market today.
Figures around the globe
Across the Atlantic, European markets closed lower. Paris and Frankfurt both fell 0.8 per cent, while London’s FTSE lost 0.1 per cent. On the London Stock Exchange, Rio lost 0.4 per cent, BP added 1.1 per cent and Shell rose almost 1 per cent.
Asian markets closed higher, Tokyo’s Nikkei gained over 1 per cent, Hong Kong’s Hang Seng advanced 2.2 per cent while China’s Shanghai Composite added 0.7 per cent.
Yesterday, the Australian sharemarket closed 0.4 per cent higher at 7,121.
Taking all of this into the equation, the SPI futures are pointing to 0.8 per cent fall.
What to look out for today
Materials were the second worst performer on Wall St. BHP (ASX:BHP) and Rio Tinto Limited (ASX:RIO) fell in the range of 2.3 per cent each. If we take this weak lead, it could mean some selling pressure today on these miners.
Amid the EV news, lithium miners, Pilbara Minerals (ASX:PLS), Liontown Resources (ASX:LTR), and Lake Resources (ASX:LKE) could be in the spotlight.
In the M&A space, Genesis Minerals (ASX:GMD) has confirmed they have been in takeover talks with gold miner St Barbara (ASX:SBM). Also, Ramsay Health Care (ASX:RHC) could also be in the spotlight amid takeover delays, according to the AFR.
Other companies to keep an eye out for. Qantas (ASX:QAN) have asked office staff to help on the ground during July. Keep an eye out for other travel stocks like REX (ASX:REX), Webjet (ASX:WEB), and Flight Centre (ASX:FLT). Also, the ASX (ASX:ASX).
In data, weekly payroll jobs and wages from the Australian Bureau of Statistics is due.
There is one company set to pay eligible shareholders today
Regal Partners (ASX:RPL)
Iron ore has lost 0.2 per cent to US$146.90. Its futures point to a 0.5 per cent gain.
Gold has gained $2.90 or 0.2 per cent to US$1855 an ounce. Silver was down $0.11 or 0.5 per cent to US$22.07 an ounce.
Oil has added $3.01 or 2.5 per cent to US$122.42 a barrel.
One Australian Dollar at 7:10 AM has weakened since yesterday, buying 72.03 US cents (Wed: 72.33 US cents), 57.41 Pence Sterling, 96.56 Yen and 67.14 Euro cents.
The content is for educational purposes only and does not constitute financial advice. Independent advice should be obtained from an Australian Financial Services Licensee before making investment decisions. To the extent permitted by law, SEQ excludes all liability for any loss or damage arising in any way including by way of negligence.
Sources: Bloomberg, FactSet, IRESS, TradingView, UBS, Bourse Data, Trading Economics, Marketplace, AFR