Australian shares are expected to gain 1.5% at the start of trading today, after Wall St rallied on Friday. Today’s potential rise could be a necessary boost ahead of tomorrow’s likely cash rate hike.
Wall St shook off early weakness on Friday, brought on by disappointing manufacturing data: major US indices fell after the ISM manufacturing index came in at a 2-year low, which again stoked fears that rising interest rates will lead to a recession.
However, stocks rallied due to encouraging views from the ISM index “that shortages are easing more rapidly”.
Of the sectors in the US, Defensives and cyclicals including Utilities, Discretionary and Real Estate outperformed, while Tech, Materials and Industrials underperformed benchmarks. Notably, 67% of US stocks were higher, yet 74% of US stocks traded below their 200-day moving average (76% last Friday, 74% a week ago).
On home turf on Friday, the S&P/ASX 200 dropped 0.4%, or 28.2 points, to 6,539.9 in the first session of the new financial year, taking its weekly fall to 0.6.
The share market was up as much as 0.85% in early trading, but heavy selling into the close caused it to shed more than 0.3% in the final minutes of trading.
The energy and materials sectors were the biggest drain on the market, following a drop in commodity prices. This caused the Aussie dollar to fall to a two-year low on Friday.
However, prior to this, Energy was one of the best performing sectors, up over 3%. Consumer Staples and Materials, were also just in the green. Information Technology and Communication Services were down over 2% followed by Consumer Discretionary, down over 1%.
Looking at some of the stocks that were hardest hit, Mineral Resources Limited dropped 4.1% to $46.28, Woodside Energy Group tumbled 4.4% to $30.45 and BHP Group Ltd (LSE:BHP, ASX:BHP) lost 2.9% to $40.05.
On the winner’s side, Ramelius Resources Ltd gained 7.7% to $1.40 following Street Talk’s report that billionaire Andrew Forrest has abandoned plans to increase his stake in the gold miner. Austal Ltd had a big day with a 25% gain to $2.25 after its US subsidiary was awarded a contract to build boats for the US Coast Guard service.
The best performers in the S&P/ASX top 100 stocks included Iluka Resources Limited up over 6%, followed by Worley Ltd, Computershare Limited (ASX:CPU) and The Star Entertainment Group Ltd all up over 4%.
Here’s what we saw (source Commsec):
- The Euro rose from lows near US$1.0380 to highs near US$1.0486 and was near US$1.0480 at the US close.
- The Aussie dollar lifted from lows near US68.67 cents to highs near US69.18 cents and was near US69.00 cents at the US close.
- The Japanese yen firmed from 136.43 yen per US dollar to JPY135.55 and was near JPY135.75 at the US close.
- Global oil prices fell on Thursday. OPEC+ confirmed it would only increase output in August as much as previously announced (by 648,000 barrels per day) despite tight global supplies, but left traders wondering about future output.
- The Brent crude price lost US$1.45 or 1.2% to US$114.81 a barrel.
- The US Nymex crude price tumbled US$4.02 or 3.7% to US$105.76 a barrel.
- Base metal prices dipped on Thursday. Zinc fell by 6.2% with nickel 4.7% lower. Copper lost 1.7% to log its biggest quarterly slump since 2011. Metals fell between 20% and 40% in the June quarter.
- The gold futures price fell by US$10.20 or 0.6% to US$1,807.30 an ounce. Spot gold was trading near US$1,807 an ounce at the US close.
- The iron ore futures price fell by US11 cents or 0.1% to US$130 a tonne.
Australian market
What's next for the Australian stock market?
Wealth Within founder and chief analyst Dale Gillham gives us his outlook on what to expect from the market.
“The Australian stock market started last week up nearly 3% in the first two days, however, these gains were wiped out in the following two days, which highlights how volatile our market is at present.
“After experiencing six straight days of rises, it is not unexpected to see the market fall for a few days and is nothing to worry about. That said, if the market was bullish, these down days would not be as severe as what we have just experienced, which may be a warning sign.
"As I have stated previously, on numerous occasions, it is too early to tell if the All Ordinaries Index had stopped falling and the past two days has only added weight to this.
“Given this, I believe it is wise to assume further falls are likely and if this is correct, we will soon see price challenge the low of 6,581 points set on June 20. If the market does fall, it will find strong support around 6,200 points and it is unlikely to fall below that level.
“Right now, I recommend investors sit tight and get ready for the next opportunity to buy that will come in the not-too-distant future.”
The US bear
The S&P 500 recorded its worst six months to start a calendar year in 52 years.
The market started 2022 trading in a bear position and never really recovered.
Investors now fear that aggressive monetary tightening by the Federal Reserve and other major central banks in the second half of the calendar year could tip the economy into recession.
The S&P 500 SPX fell 20.6% year-to-date through Thursday’s close – its biggest first-half decline since a 21.1% fall in 1970, according to Dow Jones Market Data.
The large-cap benchmark is down 21.1% from its record finish on January 3. The index earlier this month first ended more than 20% below that early January record, confirming that the pandemic bull market — as widely defined — had ended on January 3, marking the start of a bear.
The S&P 500 has bounced around 3.2% off its 2022 low close of 3,666.77 set on June 16.
Other major indexes are also expected to log historic first-half declines, with the Dow Jones Industrial Average DJIA down 15.3% through Thursday, its worst first half since a 23.2% drop in 1962.
As for the NASDAQ, it dropped more than 29% for the first half, its largest drop on record.