Aussie shares were set to open lower after Wall Street fell on the prospect of more aggressive monetary policy to fight inflation.
US stocks skidded as hawkish comments from a leading Federal Reserve official drove bond yields to three-year highs.
Oil, copper and gold declined. Iron ore inched higher. The dollar pushed towards 76 US cents.
ASX futures fell 48 points or 0.64 percent, signalling early pressure after two days of gains. The Australian benchmark put on as much as 60 points yesterday before slashing its gain to 14 points after the RBA opened the door to rate increases.
Wall Street
Rate-sensitive growth stocks sold off after Federal Reserve Governor Lael Brainard said she expected the central bank to start running down its balance sheet rapidly as soon as next month. The yields on ten-year US treasuries flew to three-year highs, driving down tech and other growth sectors seen as most dependent on borrowing.
The Nasdaq Composite sank 328 points or 2.26 percent. TheS&P 500shed 58 points or 1.26 percent. TheDow Jones Industrial Average dropped 281 points or 0.7 percent.
“The way the market is acting today, the playbook is defense with commodities linked sectors outperforming, while technology underperforms on the concern of high interest rates,” Keith Lerner, chief market strategist at Truist, said. “There’s concern about the economy and the Fed’s ability to maneuver a soft landing.”
Brainard told a conference the Fed would raise rates “methodically”, but needed to reduce its US$9 trillion balance sheet at a “considerably” quicker pace than after the GFC. The bank accumulated assets to support the economy through the pandemic.
Brainaird said the bank could start to “reduce the balance sheet at a rapid pace as soon as our May meeting.”
Her comments ahead of the release tonight of the minutes from the last central bank policy meeting appeared to catch investors off-guard. Brainard had previously been seen as one of the more dovish members of the Fed. She is expected to become the bank’s next Vice Chair.
CFRA Research’s Sam Stovall said investors were worried by “the speed and aggressiveness of the Fed with its balance sheet reductions”.
Deutsche became the first major Wall Street bank to forecast a recession.
“We see two negative quarters of growth and a more than 1.5% pt rise in the US unemployment rate, developments that clearly qualify as a recession, albeit a moderate one,” the bank’s economists told clients.
Big Tech led the retreat, dragging the Nasdaq to its heaviest loss in about a month. Nvidia shed 5.22 percent, Netflix 2.9 percent, Amazon 2.55 percent, Apple 1.89 percent and Microsoft 1.3 percent.
Australian outlook
Central banks are setting the market mood this week. TheS&P/ASX 200rose to within 16 points of its highest close of the year before the Reserve Bank confirmed yesterday afternoon it will soon join a global move to raise rates.
It was all downhill from there. The ASX 200 slashed its advance by three-quarters and looks like giving more back this session.
Wall Street knew monetary policy would tighten, but seemed to believe it had more time before the Fed began to reduce its holdings. Brainard’s comments put an end to that illusion.
Growth sectors led the retreat. The tech sector shed 2.19 percent and consumer discretionary 2.35 percent.
Energy was also weak, falling 1.51 percent as crude unwound some of Monday’s advance. The two sectors with the biggest weighting on the ASX – materials and financials – lost almost 0.8 percent. BHP and Rio Tinto declined in overseas trade (more below).
Defensive sectors eked out slender gains. Utilities advanced 0.67 percent, health 0.18 percent, consumer staples 0.07 percent and real estate 0.06 percent.
Takeover target CIMIC holds its AGM today. Chinese markets resume trade following a two-day public holiday. Caixin releases its services-sector PMI at 11.45 am AEST.
IPOs: the listing of Sarytogan Graphite originally pencilled in for today has been pushed back, new date to be announced.
The dollar continued its push towards 76 US cents, rising 0.45 percent to 75.77 US cents.
Commodities
Natural gas and coal rallied as Europe weighed a ban on Russian energy. France’s finance minister said the EU would target Russian oil and coal following evidence of possible war crimes in Ukraine.
US natural gas futures climbed 5.6 percent to their highest close since January. US coal prices broke above US$100 a short ton for the first time since 2008.
Oil turned lower with US equities. Brent crude settled 89 US cents or 0.8 percent weaker at US$106.64 a barrel. The US benchmark fell 1.3 percent to US$101.96.
Iron orecontinued to rise in thin, holiday-affected trade in China. The spot price for ore landed at Tianjin rose 27 US cents or 0.2 per cent to US$162.27 a tonne.
BHP‘s US-traded depositary receipts dropped 2.03 percent after the company’s UK stock shed 1.15 percent. Rio Tinto lost 1.09 percent in the US and 0.2 percent in the UK.
Goldwilted as rising treasury yields drew funds towards assets with a coupon. Metal for June delivery settled US$6.50 or 0.3 percent lower at US$1,927.50 an ounce. The NYSE Arca Gold Bugs Index declined 2.44 percent.
“Market expectations that the [Federal Reserve] will accelerate the pace of tightening, are capping the demand for gold,” Ricardo Evangelista, senior analyst at ActivTrades, said. “As Treasury yields continue to rise, so does the cost of holding nonyielding bullion, and further bond market weakness is likely to trigger more pronounced losses for gold.”
Copper hit its highest in a week before fading with other risk assets. Benchmark copper on the London Metal Exchange finished 0.2 percent weaker at US$10,433 a tonne. Zinc declined 2.1 percent and tin 0.4 percent. Aluminium gained 0.4 percent, nickel 0.2 percent and lead 0.3 percent.