It's an uncertain start to the week for the Australian sharemarket after unexpectedly strong US employment growth increased expectations that the Federal Reserve will raise interest rates this month.
ASX 200 futures were down just 1 point at 9,002, pointing to a broadly flat open. However, that indication preceded a weekend escalation in tensions between the US and Iran, adding uncertainty to Monday’s session.
Oil prices remain elevated as the countries exchange attacks and the Strait of Hormuz remains effectively closed, increasing global inflation and supply-chain risks.
ASX slips back below recent momentum
The S&P/ASX 200 finished Friday down 0.2% at 9,005.90.
Domestic investors will receive ANZ job advertisements data on Monday, offering another indication of labour-market conditions and potential wage pressures.
Several companies will trade ex-dividend, including Michael Hill, HUB24, Perseus Mining, Super Retail Group and Pro Medicus. Their shares may open lower to reflect the value of the detached payments.
Iron ore and copper prices advanced on Friday, providing some support for Australian miners, although the sharp fall in gold could weigh on precious-metals stocks.
Strong US jobs growth lifts rate-hike expectations
The US economy added 162,000 jobs in August, nearly three times the consensus forecast of 56,000.
Payroll figures for June and July were also revised higher by a combined 55,000 jobs. Labour-force participation increased while unemployment remained at 4.1%.
The stronger report increased the implied probability of a Federal Reserve rate rise in September to 60.4%, up from 49.4% a day earlier.
Investors are now looking towards US inflation figures on September 11, with annual consumer price growth expected to remain at 3.4%. The Federal Reserve’s next policy meeting concludes on September 16.
Wall Street closes lower
US sharemarkets retreated as investors considered whether the resilient labour market would give the Federal Reserve sufficient scope to raise borrowing costs to fight inflation.
The Dow Jones Industrial Average fell 271.86 points, or 0.5%, to 53,414.25. The S&P 500 declined 0.4% to 7,718.60 and the Nasdaq Composite lost 0.3% to 26,506.99.
The S&P 500 nevertheless recorded a modest gain for the week.
Consumer discretionary stocks led the sector declines, while technology and industrial companies posted modest gains.
Semiconductor stocks rose 3.4% and outperformed the broader market, although the sector remains about 18% lower for the quarter. Software and services shares fell 2.1% after gaining 24% over the same period.
SanDisk surged 11.89%, KLA gained 7.25% and Coherent advanced 6.60%. Advanced Micro Devices climbed 4.7%, Micron Technology rose 6.1% and Nvidia added 0.8%.
Lululemon Athletica was the S&P 500’s largest decliner, falling 17.39% after reporting weaker-than-expected revenue and again lowering its full-year forecasts.
Fair Isaac dropped 16.72% after US housing regulator Bill Pulte directed Fannie Mae and Freddie Mac (OTCQB:FMCC) to allow lenders to use the VantageScore credit-scoring system. TransUnion fell 5.9% and Equifax declined 6.4%.
Autodesk lost 8.24%, while Adobe dropped 7% after announcing that long-serving chief executive Shantanu Narayen would be succeeded by an internal candidate.
Bond yields rise
US Treasury yields increased as the jobs report strengthened the case for higher interest rates.
The benchmark 10-year yield rose 2 basis points to 4.78%, while the policy-sensitive two-year yield gained 4 basis points to 4.37%.
Australian bond yields were also elevated, with the 10-year yield at 5.19% and the three-year yield at 4.76%.
The Federal Reserve must balance persistent inflation against the risk that another rate increase could slow economic growth and weaken employment.
European markets little changed
European sharemarkets were broadly steady.
The FTSEurofirst 300 gained 0.1% to 2,596.45, while the UK’s FTSE 100 was unchanged at 10,831.09.
Germany’s DAX rose 0.2% to 26,046.40 and France’s CAC 40 eased 0.1% to 8,278.77.
Volkswagen surged 5.9% to a two-month high after its supervisory board reached a turnaround agreement that avoided an escalation with trade unions and shareholder Lower Saxony. The broader European automotive index gained 1.1%.
Asian markets mixed
Asian markets finished mixed on Friday.
China’s Shanghai Composite fell 0.3% to 3,930.12 and the Shenzhen Composite declined 0.8% to 2,492.96.
Hong Kong’s Hang Seng Index gained 1.7% to 25,650.87, while Japan’s Nikkei climbed 1.3% to 65,020.94. India’s BSE Sensex added 0.5% to 76,515.43.
Australian dollar holds around US72 cents
The Australian dollar was steady at around US72.03 cents.
The euro traded at US$1.1614, while the Japanese yen was at ¥156.26 per US dollar. The New Zealand dollar was little changed at US58.82 cents.
Bitcoin edged 0.2% higher to US$79,959.62.
Oil rises as Middle East conflict escalates
Brent crude increased 0.8% to US$96.28 a barrel on Friday, while West Texas Intermediate gained 0.2% to US$91.48.
Brent advanced 9.2% over the week and US crude rose 9.7% as renewed military exchanges between the US and Iran threatened global supplies.
Geopolitical uncertainty increased further over the weekend amid disputed claims concerning vessels in the Strait of Hormuz. The US also reported striking Iranian oil tankers in retaliation for missile attacks against Navy warships.
The disruption is feeding into higher fuel and transport costs. US retail diesel prices reached a record US$5.85 a gallon on Friday, potentially increasing freight costs and broader inflationary pressure.
Gold falls as rate expectations rise
- Gold futures fell 1.4% to US$4,476.60 an ounce after the employment report strengthened the US dollar and lifted bond yields. Spot gold was at US$4,427.69.
- Copper gained 0.3% to US$6.597 a pound, recording its tenth consecutive weekly advance.
- Iron ore futures edged 0.2% higher to US$99.57 a tonne, while aluminium declined.
What to watch
ANZ job advertisements will lead the Australian economic calendar, while Middle East developments and oil prices are likely to shape broader market sentiment.
US sharemarkets will be closed on Monday for the Labor Day holiday, leaving Australian investors to assess the implications of the strong jobs report and heightened geopolitical tensions without a fresh Wall Street lead.