Wall St took a bath last night and according to Brian Gould, Head of Trading at Capital.com’s Australian headquarters, with the ASX 200 set to take a breather following a two-month rally.
ASX Futures (SPI 200) imply the ASX 200 will open 43 points lower, down 0.62%, with the ASX expected to hit a two-week low.
“I don’t think markets in the US overnight needed much of an excuse to sell off; following the recent rally, the same inflation and interest rate fears that sit in the back of our minds in Australia are present in the US, and then some," Gould said.
“However, considering we’ve seen 100 basis points in RBA cash rate hikes since the beginning of June, Australian equity markets have performed incredibly well. From a close of 6,433 on June 20, the ASX 200 powered ahead 695 points to finish up almost 11% at 7,128 on August 17, but has since eased back and is now set to open down over 100 points from yesterday’s close – futures are pointing to an open of 6,910.
“So we’re going to break below that key 7,000 level today and with no high-impact news due locally this week, we’ll be reliant on foreign market sentiment as well as the tail end of our local reporting season to dictate direction.
“The key level that the ASX 200 will need to rally back to and hold is 7,000 points – we’ve seen a fair amount of support there since the beginning of the year. If we’re to see another advance higher, we’ll need to see that support come alive again, so we’ll be watching to see how traders react today.”
All 11 US sectors declined and 75% of US stocks declined.
The Dow Jones Industrial Average closed down by 643.13 points, or 1.9%, at 33,063.61, after dropping as much as 699.11 points earlier in the day. The S&P 500 SPX lost 90.49 points, or 2.1%, at 4,137.99 and the Nasdaq Composite dipped 323.64 points, or 2.6%, at 12,381.57.
Last week, the Dow Jones Industrial Average finished down by 54.31 points, or 0.2%, at 33,706.74. The S&P 500 closed down by 51.67 points, or 1.2%, at 4,228.48, while the Nasdaq Composite declined 341.97 points, or 2.6%, to 12,705.22.
“Markets have been too complacent to the outstanding risks to the macroeconomic environment,” said Michael Reynolds, vice president of investment strategy at Glenmede, which oversees $45 billion in assets from Philadelphia. “We see the risk of recession at 50%, maybe higher than that, in the next 12 months. Based on where we sit, the market looks a little overheated at these valuations and we continue to be underweight equities.”
“The risk to earnings is what matters most to investors and there’s downside risk here for markets,” Reynolds told MarketWatch.
The S&P 500’s failure to break through a key technical level has also raised fears the market will stay in a downtrend.
Federal Reserve Chairman Jerome Powell is expected to deliver a highly anticipated speech on the economic outlook on Friday, but this is unlikely to lighten the mood.
“We’re seeing fears of the Federal Reserve acting aggressively or continuing to act aggressively in hiking interest rates, dragging stocks lower,” said Fiona Cincotta, senior financial markets analyst at City Index in London. “The market is having this realisation that the Fed is unlikely to have a dovish pivot anytime soon, even though there was a softer inflation reading a couple of weeks ago.
“Powell’s speech is going to be the key event this week, but the market is not really expecting a dovish pivot anymore from the Fed, which is why we see equities under pressure and the dollar rallying.”
With the S&P 500 falling below 4,180, the door is open for the index to keep falling to 4,100 or 3,970, according to Cincotta.
Here’s what we saw (source Commsec):
- The Euro fell from highs near US$1.0040 to lows near US$0.9925 and was near US$0.9940 at the US close.
- The Aussie dollar fell from near US69.25 cents to US68.60 cents and was near US68.75 cents at the US close.
- The Japanese yen eased from near 136.70 yen per US dollar to JPY137.60 and ended US trade near JPY137.45.
- Global oil prices rebounded from lows to end only modestly lower. The Saudi energy minister said the OPEC+ producer group could cut production to confront market challenges.
- The US dollar also rose to a five-week high.
- A stronger greenback makes it more expensive for buyers with other currencies in the dollar-denominated oil market.
- The Brent crude oil price fell by US24 cents or 0.2% to US$96.48 a barrel.
- The US Nymex crude oil price fell by US54 cents or 0.6% to US$90.23 a barrel.
- Base metal prices were mixed on Monday. Aluminium, nickel and zinc rose by as much as 0.5% while other metals fell as much as 1.5% with tin down the most.
- The gold futures price fell by US$14.50 an ounce or 0.8% to US$1,748.40 an ounce.
- Spot gold was trading near US$1,734 an ounce at the US close.
- Iron ore futures rose by US16 cents or 0.2% to US$104.37 a tonne.
Zoom downgraded
Zoom has downgraded its guidance for Q3 and the full year.
“Zoom has epitomised work from home culture, and although growth is slowing, they are still adding enterprise customers with growth of 18% year-over-year as they beat earnings expectations,” eToro market analyst Josh Gilbert said.
“Competition from Microsoft with its Teams offering is a worry for Zoom shareholders as the cash-rich tech giant will flex its diverse enterprise offering at a time when Zoom is struggling to scale its business.
“It’s hard to see a bright future for Zoom as growth dwindles, competition intensifies and companies spend a pretty penny to attract workers back. This couldn’t be more evident with its downgraded guidance for Q3 and the full year.
“Its main job will be retaining the user base it has built, and retention alone won’t help its share price."
Pilbara Minerals books big profit
Pilbara Minerals Ltd (ASX:PLS) has delivered a strong profit of $561.8 million on the back of increasing global demand for lithium raw materials and positive pricing conditions for spodumene concentrate.
Company revenue was reported at about $1.2 billion with positive earnings before interest, taxes, depreciation and amortisation of $814.5 million.
On describing FY2022 as "an incredible year", Pilbara Minerals' managing director and chief executive Dale Henderson said, “The fact that we have achieved such a strong profit result despite the significant headwinds of Covid-19, the WA mining industry’s labour and supply shortages and rapid cost inflation is testament to the outstanding efforts of our employees and contracting partners.
"The restart of the Ngungaju Plant during the year, together with capacity improvements at the Pilgan Plant enabled increased production volumes to sell into this strong pricing environment.
"The business is in an enviable position, supplying product into a burgeoning growth market with a clear pathway for further production growth off a performing operating base."
Pilbara shipped 361,035 dry metric tonnes (dmt) of spodumene concentrate, up 28% on FY21.
In Europe
It’s the same story in Europe, with investors worried about recession risks. There were also worries about tightening gas supplies after energy giant Gazprom said that Russia will halt natural gas supplies to Europe for three days at the end of the month.
Uniper, Germany's top importer of Russian gas, declined 7.7% to hover near a record low.
The pan-European STOXX 600 index lost 1.0%. The German Dax index fell by 2.3%. The UK FTSE index fell by 0.2%.
In London trade, shares of Rio Tinto rose by 0.6% while shares in BHP rose by 1.7%.