US stocks finished lower on Friday to end the week in the red. The market was rattled by a strong May jobs report, which frayed more nerves surrounding the Federal Reserve’s plan to raise interest rates – aggressively.
The Dow Jones Industrial Average lost 349 points, or 1.1%, ending near 32,898, while booking a near 1% weekly drop. The S&P 500 shed 1.6% Friday and 1.2% for the week. The Nasdaq Composite Index took a 2.5% dive to book a 1% weekly drop, after earlier gains in the holiday-shortened week fizzled.
Sentiment in the US is likely to be mirrored by the ASX today, with ASX Futures (SPI 200) implying the ASX will open 32 points lower, down -0.44% ahead of what is to be our own aggressive interest rate hike.
Here’s what we saw (source Commsec):
- The Euro fell from highs near US$1.0760 to lows near US$1.0705 and was near US$1.0720 at the US close.
- The Aussie dollar eased from US72.65 cents to lows near US72.00 cents and was near US72.05 cents at the US close.
- The Japanese yen eased from levels near 129.80 yen per US dollar to JPY131.00 and was near JPY130.85 at the US close.
- Global oil prices rose by around 1.7% on Friday. Investors believe that the planned lift in OPEC+ production will not be sufficient to boost global supplies if China continues to ease COVID restrictions.
- The Brent crude price rose by US$2.11 or 1.8% to US$119.72 a barrel.
- The US Nymex crude price rose by US$2.00 or 1.7% to US$118.87 a barrel. Over the week Brent crude rose by 0.2%. Nymex crude rose by 3.3%.
- Base metal prices were unavailable on Friday due to a holiday in the UK. Over the week aluminium fell 5.1% and nickel fell 0.6%. Other metals rose by 0.3-2.5% with tin up the most.
- The gold futures price fell by US$21.20 or 1.1% to US$1,850.20 an ounce. Spot gold was trading near US$1,851 an ounce at the US close. Over the week gold fell US$1.10 or 0.1%.
- The iron ore futures price rose by US$2.20 or 1.5% to US$144.40 a tonne. Over the week iron ore rose US$10.99 or 8.2%.
Australian market
The Reserve Bank of Australia will meet tomorrow to discuss the cash rate. While interest rates are likely to rise, the question is by how much?
Markets look to be factoring in a 0.4% rise to take the cash rate to 0.75%, following last month’s 0.25% increase, as the RBA moved away from record lows.
On raising the rates, Governor Philip Lowe said he favoured a quarter-point increase in line with the “historical practice of changing the cash rate in increments of at least 25 basis points”.
He did, however, hint that a larger increase could be on the cards saying an “argument for an increase of 40 basis points could be made given the upside risks to inflation and the current very low level of interest rates.”
It’s that larger increase that analysts believe will prevail tomorrow.
What were the best and worst-performing sectors last week?
The best-performing sectors included Energy up over 2% followed by Materials and Consumer Staples up over 1%. The worst-performing sectors were Utilities down over 4% followed by Information Technology and Financials, both down over 1%.
Best performers in the S&P/ASX top 100 stocks were A2 Milk Company Ltd up over 9% followed by South32 Ltd (LSE:S32, ASX:S32, OTC:SHTLF, JSE:S32), Woodside Energy Group Ltd and Fortescue Metals Group (ASX:FMG) Limited, which are all up over 5%.
The worst-performing stocks included Pilbara Minerals Ltd (ASX:PLS) down over 21% followed by Allkem Ltd down over 18% together with a number of other lithium stocks, which have been falling heavily based on reports of declining lithium prices in the coming year. Origin Energy Ltd (ASX:ORG) was also down over 11% while Suncorp Group Ltd was down over 8%.
What's next for the Australian stock market?
“There is an old saying that the stock market rises in stairs and falls in elevators and for the past 15 trading days the All Ordinaries Index has been climbing stairs. It has been rising over four to five days before falling for one or two days in what appears to be the start of a new bullish phase as it is making higher prices with each advance,” Wealth Within chief analyst Dale Gillham says.
“This movement upwards is much more sustainable than what we have seen in the past; so, I suspect in the not-too-distant future we will be able to confirm that the All Ordinaries Index is in a new bullish phase.
"That said, it is still too early to tell, as we need to see the market pullback to test the recent low on May 12 at 7,157 points. If the market falls this week and holds above this low and then turns to rise up again, this increases the probability that we will see a bullish market into the third quarter of 2022.
“I continue to urge investors to exercise patience and caution, as the current mood in our market can change quickly. So, I recommend against trying to grab a bargain, especially in the lithium and technology sectors, at least in the short term.”
US markets
US markets finished the week in the red.
“We are still in a bear market and until proven otherwise the path of least resistance is down,” Maris Ogg of Tower Bridge Advisors, told AFP.
Of the broader economy and inflation Ogg said, “Oil is not going to get better, labour is not going to get better, housing is not going to get better. Housing and labour are in shortage,” she said. “As far as the stock market goes, I would be surprised if the worst is over.”
On the job front, President Joe Biden said the increase in job figures proved the US was weathering the inflation surge.
“We’ve laid an economic foundation that’s historically strong.
“Now we’re moving forward to a new moment where we can build on that foundation — build a future of stable, steady growth — so we can bring down inflation without sacrificing all the historic gains we’ve made.”
Shares in Tesla fell 9.2% on reports that the electric vehicle maker may cut 10% of jobs. Shares in Apple lost 3.9% on a broker report.
European markets
Were also in the red on Friday.
Autos led declines, down 1.6%, with technology down 1.2%. Shares in French auto parts supplier Faurecia slid 6.8% after it launched a 705 million euro (US$758 million) capital raising to fund its acquisition of German rival Hella.
The pan-European STOXX 600 index fell by 0.3% and lost 0.9% on the week.
The German Dax index fell by 0.2%.
The UK market was closed for a public holiday.
God bless the queen if you are that way inclined.