Aussie stocks are set for another day in the red after the Reserve Bank’s cash rate increase and an underwhelming session on Wall Street.
Benchmark futures imply a 47-point drop at the open, correlating to a 0.65% slump.
What’s new on Wall Street?
New York’s major indices fell back for a second straight day as recession fears play on investor sentiment.
Wells Fargo’s advisory team said in a Tuesday note that heightened worries over the future course of interest rate hikes sent stocks tumbling.
Altogether, 68% of US stocks failed to track gains and just under half of listed companies are performing below their 200-day moving average.
Looking at the sector charts, defensive stocks are on the up — utilities was the only sector to escape the red wave, up a slight 0.66%.
Meanwhile, growth sectors like consumer discretionary and tech fell 1.62% and 2.14%, respectively.
Still, that wasn’t the worst of it — energy brought up the rear with a 2.65% drop.
Commodities and currency
Oil prices have officially dropped to their lowest level since December and Oanda senior market analyst Ed Moya said recession worries were a big factor in the price falls.
“Supplies seem plentiful over the near term and that has everyone hesitating on what was one of the easiest trades of the year,” he explained.
“Energy traders are not confidently buying dips, but they will if the current selloff sends prices close to the levels the Biden administration might refill the SPR, which is in the $70 region.”
For bullion, the market’s a different story — gold seems to be holding its own amid the volatility.
Moya said fears of a recession were sending investors back to their favourite safe-haven metal.
“It is not often we see a stronger dollar, significant pressure on stocks as both gold and the dollar rally.
“Treasury yields are going down as too many investors are now ready to start pricing in a US recession for next year.
“Gold is still comfortably below the US$1,800 level and seems likely to consolidate closer to the US$1,760 region. “
On the currency front, the Aussie dollar turned weaker overnight. It’s buying 67 US cents.
On the ASX
Investors will be watching how the Reserve Bank’s 25 basis point rate hike impacts trading patterns today.
Westpac was the first of the Big Four banks to pass on the rate increase on Tuesday, but NAB, ANZ and Commonweath Bank followed close behind.
Despite this, Insight Investment portfolio manager Harvey Bradley said the market had been pricing a reasonable probability of the RBA pausing and holding rates unchanged following the lower-than-expected October inflation print last week.
“We think it is likely that the RBA will continue to raise rates at coming meetings given the level of inflation in the economy and ongoing tightness in the labour market,” he explained.
“However, their recent commentary has clearly signalled a desire to balance the growth and inflation outlook from here and should the activity data continue to roll over it is likely they will pause sooner rather than later.
“In our view, Australian government bonds are now getting close to fair value, both in outright yields and also relative to other major markets.”
In other news, Strike Energy has raised its stake in the three-way battle for West Aussie gas play Warrego Energy.
Thanks to a series of share swap agreements, Strike has upped its holding in the fawned-over acquisition target to 19.9% — a move that makes it Warrego’s largest shareholder.
But when it comes to how this move impacts its takeover strategy, Strike remains coy.
“For the avoidance of doubt, Strike’s board has not formed any intention with regards to any future transaction that may involve Warrego, and Strike is currently considering all available strategic options,” the company told the ASX this morning.