Weak demand & inflation fears rip through commodity markets: ASX closes 1% lower

Local resources stocks were savaged as traders closed out positions on concerns of rising trade war, monetary tightening, and high inflation. Underlying commodity prices dived before futures pointed to a mild reprieve, helping Australian shares recover from its early 2.5 per cent fall in early trade.

At the closing bell, the S&P/ASX 200 was 1 per cent or 70 points lower at 7,051.

The heavyweight miners drilled lower as the prospect of softer Chinese demand continued to weigh on commodity prices putting further downside pressure on the oil price.

Investors also noted the fall in new Covid-19 cases in Shanghai’s with just 3,104 new infections, down from 3,947 on Sunday, and the lowest since 26 March. However, Bloomberg also noted that the city has tightened restrictions with some neighbourhoods told not to leave their homes, and entire residential buildings moved to isolation on discovery of a single case in the building.

BHP (ASX:BHP) lost a further 2.6 per cent to $45.02, Rio Tinto (ASX:RIO) fell 3.6 per cent to $102.97 and Fortescue Metals (ASX:FMG) closed 2.7 per cent lower to $19.11 amid the iron ore pricing tumbling over 5 per cent.

Meanwhile, energy traders continue to monitor the moves around the European Union’s (EU) efforts to sanction Russian oil. Investors digested the potential softening around the sanctions after learning that the EU may not go all out in banning Russian crude but to at least allow European countries to transport Russian oil, even if they can’t take it into the EU.

It appears that there is more downside to the price of crude amid the softening than upside from the original intention to impose a sanction. Despite what is happening in China and all the talks going on, it’s still an extremely tight market and global markets are under supplied with analysts saying that the oil market will get tighter as China starts to ease its lockdowns.

Woodside Petroleum (ASX:WPL) fell 2.6 per cent to $30.77, Santos (ASX:STO) lost 1.7 per cent down at $7.94, while Beach Energy (ASX:BPT) closed 3.9 per cent lower to $1.61.
Across the banks, NAB (ASX:NAB) and Westpac (ASX:WBC) bucked the trend, gaining 0.3 and 0.2 per cent respectively. Macquarie Group (ASX:MQG) led the declines by 1.1 per cent at $180.02.

In other energy news, Australian manufacturers may be forced to shut plants amid surging gas prices, according to the AFR. Wholesale gas prices in Victoria have tripled or quadrupled to more than $30 a gigajoule while east coast manufacturers are considering shutting down plants. The surge in prices has impacted mainly industrial gas buyers who purchase directly from the spot market, but higher prices will also eventually flow through to contract prices with high international prices and electricity generation outages blamed for the surge in gas prices.

In economic news, business conditions remain resilient, but headwinds are mounting according to NAB. The survey also revealed cost pressures remain acute with labour costs and purchase prices rising to new highs. Output price inflation eased but remains elevated while capacity utilisation continued to edge higher. The business confidence index pulled back from March but was still above its long-run average after several months of increases.

Though on the consumer side, confidence fell to a 20 month low, falling for its fourth straight week after the first official interest rate rise in more than decade, while rising cost pressures The weekly ANZ andRoy Morgan consumer confidence index fell 0.2 per cent to 90.5, well below the monthly average of 112.4 stretching back to 1990.

However, retail sales volumes were at a record high of $93.2 billion for the March quarter, up 4.9 per cent than a year earlier, according to the Australian Bureau of Statistics.

Futures

The Dow Jones futures are pointing to a rise of 196 points.
The S&P 500 futures are pointing to a rise of 32 points.
The Nasdaq futures are pointing to a rise of 162 points.
The SPI futures are pointing to a fall of 82 points when the market next opens.

Best and worst performers

The best-performing sector was Communication Services, up 0.4 per cent. The worst-performing sector was Materials, down 2.4 per cent.

The best-performing stock in the S&P/ASX 200 was PolyNovo (ASX:PNV), closing 15.6 per cent higher at $1.07. It was followed by shares in Pendal Group (ASX:PDL) and Life360 (ASX:360).

The worst-performing stock in the S&P/ASX 200 was AUB Group (ASX:AUB), closing 9.9 per cent lower at $19.73. It was followed by shares in Block (ASX:SQ2) and Chalice Mining (ASX:CHN).

Asian markets

Japan’s Nikkei has lost 0.4 per cent.
Hong Kong’s Hang Seng has lost 2.3 per cent.
China’s Shanghai Composite has gained 0.8 per cent.

Commodities and the dollar

Gold is trading at US$1864.62 an ounce.
Iron ore is 5.5 per cent lower at US$131.35 a ton.
Iron ore futures are pointing to a fall of 5.1 per cent.
Light crude is trading $0.48 lower at US$93.05 a barrel.
One Australian dollar is buying 69.76 US cents.