Markets will continue to decline as we enter a new week of trading.
ASX SPI 200 futures were trading down 0.7% to 7,107, while major US indexes posted weekly declines on Friday, with the S&P 500 finishing at its lowest since May 19, 2021. The Dow Jones Industrial Average down 0.30%, posted its lowest close since March and the Nasdaq Composite down 1.40% saw its lowest finish since November 25, 2020.
Last night, the Dow Jones Industrial Average futures lost 191 points or 0.6%, while the S&P 500 futures declined 0.8% and Nasdaq Composite futures fell 0.9%.
While the stock markets are in a state of decline, so too is Bitcoin, the world’s most popular crypto asset.
Bitcoin fell below $35,000 over the weekend, down 1.18% and down around 4.7% from its level late Friday. This is nearly half its all-time high near $67,800 set in November.
The swings by stocks and crypto assets are increasingly showing tighter correlation.
As reported by MarketWatch’s Frances Yue, data from crypto intelligence company Coin Metrics showed that the correlation between the S&P 500 SPX, -0.57% and bitcoin was at its strongest ever on Thursday.
Here’s what we saw (source Commsec):
- The Euro rose from near US$1.0485 to US$1.0595 and was near US$1.0550 at the US close.
- The Aussie dollar fell from US71.30 cents to US70.60 cents and was at US70.77 cents at the US close.
- Global oil prices rose by around 1.3% on Friday on impending European Union sanctions on Russian oil imports.
- The Brent crude price rose by US$1.49 or 1.3% to US$112.39 a barrel. US Nymex crude rose by US$1.51 or 1.4% to US$109.77 a barrel. Over the week the Brent price rose by 2.8% and the Nymex price rose by 4.9%.
- Base metal prices fell by as much as 3.5% on Friday with zinc down the most. Zinc lost 8.8% over the week but lead lost just 1.6%.
- The gold futures price rose by US$7.10 or 0.4% to US$1,882.80 an ounce.
- Spot gold was trading near US$1,883 an ounce at the US close. Over the week gold fell by US$28.90 or 1.5%.
- The iron ore futures price fell by US$6.76 or 4.7% to US$138.44 a tonne after the Chinese Politburo reiterated support for the current COVID strategy. Over the week iron ore fell by US$7.86 or 5.4%.
Australian market
Best and worst-performing last week
The best-performing sectors were Energy and Utilities up over 1% followed by Industrials up just under 1%. The worst-performing sectors included Communication Services down more than 2% and Consumer Discretionary and Information Technology down over 1%.
Best performers in the S&P/ASX top 100 stocks include Reliance Worldwide Corporation (ASX:RWC) Ltd up more than 8%, followed by Magellan Financial Group Ltd (ASX:MFG) up over 7% and Challenger Ltd (ASX:CGF) up over 5%.
Worst-performing stocks were ARB CORPORATION LIMITED (ASX:ARP) down more than 17%, Goodman Group (ASX:GMG) down over 9% and Domino’s Pizza Enterprises Ltd down over 8% for the week and around 40% this year.
What's next for the Australian stock market?
As we do each week, we asked Wealth Within founder and chief analyst Dale Gillham to give his take on what we can expect from the Australian market.
“The Australian stock market has continued to be volatile.
“I strongly suspect the current volatility is being caused by the big end of town who are using the heightened sentiment to push the market around and profit from ordinary investors, given that most tend to react more on emotions rather than solid analysis.
“The movement in the market last week has not changed my analysis that it could rise up for two to four weeks before falling into a low mid-year. If it falls this week, then the low will occur over the next two to four weeks and earlier than expected. Either way, the market is still looking good for the second half of 2022.”
Westpac highlights strong economy
Westpac Banking Corp has made the call that Australia's economy will expand by 4.5% this year, but slow to 2.5% in 2023.
"The first half of 2022 has been challenging for many customers. Floods, the lingering effects of the pandemic and the impact of the war in Ukraine have set many customers back and created uncertainty," Westpac chief executive Peter King said.
"However, the Australian economy is robust. Consumer spending may be tempered by higher prices and higher interest rates. However, the positives of strong household and business balance sheets, combined with the continued reopening of international borders and local economies, will likely increase economic activity.
"Demand for housing has already shown some signs of easing and rising interest rates are expected to contribute to a moderation in house prices next year.
"As the economy moves into the rising rate cycle, it’s important to remember that rates are moving from a very low base and we already assess loan applications on higher rates, consistent with regulatory requirements."
Westpac itself saw a decline in statutory net profit and cash earnings for the first half of fiscal 2022.
Statutory profit was 5% lower at $3.3 billion, compared to the prior corresponding period. Cash earnings are down 12% to $3.1 billion. Revenue dropped 4% to $10.2 billion and shares in the $83.4 billion capped company last traded at $23.83.
US markets
Nine of 11 S&P sectors were weaker on Friday, with shares in sportswear maker, Under Armour slumping 23.8% after downgrading profit expectations and dragging the index down.
Stocks have fallen for five straight weeks - the longest losing sequence in 11 years.
There was some good news, with the US economy adding 428,000 jobs last month, which was better than expected.
“Job growth was a little better than expected in the survey of business payrolls, while the details of the survey of households were a little worse than expected, with monthly declines in employment and labour force participation after huge increases in March,” Bill Adams, chief economist for Comerica (NYSE:CMA) Bank, said.
Meanwhile, Goldman’s David Kostin says investor anxiety has spiked due to tightening financial conditions.
“P/E multiple compression explains the 13% YTD S&P 500 decline. The 550 bp ‘yield gap’ between the EPS yield and real Treasury yield is near the 10-year median. Looking forward, the path of the market will depend on the Fed’s battle against inflation.
“In our base case, the negative impact on valuation from higher real rates will be partially offset by a narrowing yield gap. If recession risk rises, interest rates may fall but not by enough to prevent equity multiples and share prices from falling further. Recommended strategies: (1) stable earnings growth, (2) high margin vs. low margin growth, (3) high dividend yield and growth.”
European markets
Were also weaker on Friday. Technology shares fell 2.8% and retailers lost 2% but oil and gas rose 0.5%.
Shares in Adidas fell by 3.6% after lowering sales expectations for 2022. Shares in Dutch bank, ING lost 4.7% in response to worse-than-expected quarterly income.
The pan-European STOXX 600 index fell by 1.9% and fell 4.5% over the week - the biggest weekly decline in 2 months. The German Dax lost 1.6% and the UK FTSE fell by 1.5%.
In London trade shares in Rio Tinto fell by 0.7% and shares in BHP fell by 0.1%.