Nervous market eyes wide open; U.S. rate hikes ahead – The Market Herald
Australian stocks were poised to open little change after a global recession warning from economic leader FedEx spurred further selling at the end of Wall Street’s worst week since June.
Major Wall Street indexes fell to two-month lows as investors sold stocks leveraged on the global economy. Iron ore and aluminum declined. Oil cut a third straight losing week. Gold edged above its lowest level in two years.
ASX Futures Contracts fell two points or 0.03% to 6737. The S&P/ASX 200 slipped 1.4% on Friday in its third losing week in the past month. Australia’s benchmark index ended the week just 18 points above a seven-week low.
U.S. stocks fell as a FedEx profit warning deepened doubts about the health of the global economy ahead of a Federal Reserve rate decision.
The S&P500 fell 28 points or 0.72%. The Dow Jones Industrial Average lose 139 points or 0.45%. The Nasdaq Compound lost 104 points or 0.9%.
fedex fell 21.4% to its worst ever loss after withdrawing its full-year guidance. The shipping line said demand had fallen as the global economy “deteriorated significantly”. CEO Raj Subramaniam told CNBC that a global recession was likely.
“Global volumes declined as macro trends worsened significantly later in the quarter, both internationally and in the U.S. We are tackling these headwinds quickly, but given the speed at which conditions have changed, first-quarter results are below our expectations,” the FedEx chief said.
Subramaniam’s warning carried added weight because the company’s earnings are seen as an indicator of global demand. The World Bank warned last week that the world’s three largest economies – China, the United States and the euro zone – were slowing sharply, raising the risk of a global recession.
Rival UPS sank 4.48 percent. Amazon fell 2.18%. General Electric fell 3.66% after its chief financial officer’s warning supply chain pressure caused delays in deliveries.
Analysts cut their S&P 500 earnings forecast over the past three months. Seven of the eleven sectors are now expected to show year-over-year profit declines in the third quarter.
All three major Wall Street benchmarks closed at their lowest since mid-July. The weekly declines of 4.8% for the S&P 500 and 5.5% for the Nasdaq were the largest since June. The Dow’s 4.1% weekly loss was the worst since August.
“It’s been a tough week,” David Carter, chief executive of JPMorgan, told Reuters. “We are facing this toxic mix of high inflation, high interest rates and low growth, which is not good for stock or bond markets,” he added.
A new week dawns with the S&P/ASX 200 near two-month lows and looking fragile. Australia’s benchmark index lost 147 points or 2.1% last week for a third weekly loss in the last four. From a technical perspective, the current market trend is negative, defined by a series of lows and highs since mid-August.
The index closed Friday just 18 points above the September 7 seven-week low. A break below this level would open the door for support around 6600 and then a possible retest of the June lows.
The dollar is also in a downtrend, hitting a two-year low of 66.7 cents US on Friday before bouncing back to 67.17 cents US. A weaker dollar is a plus for exporters, a negative for importers. This year’s decline came as risk aversion lifted the US dollar index to its highest level in about two decades.
nine out of eleven US sectors fell Friday. The winners were on the defensive. Consumer staples gained 0.25% and real estate a meager 0.03%.
The hardest hit were energy -2.17%, industrials -2.06% and materials -1.56%. The financial sector lost 0.97%.
A holiday Thursday and a US rate hike Wednesday night will cast long shadows this week. Thursday is an Australian market holiday to mark the death of Queen Elizabeth II (New Zealand takes the following Monday). Public holidays in the UK and Japan today will also temporarily slow down the global flow of money.
United States Federal Reserve wraps up a two-day meeting Wednesday night and is expected to raise the target federal funds rate by at least three-quarters of a percentage point. The market is currently pricing the probability of a one percentage point increase at 18%.
Domestic Market Highlights economic calendar include minutes from this month’s RBA meeting and weekly consumer confidence data tomorrow and manufacturing and services flash data on Friday.
AGM season is on the horizon. New Zealand companies Mercury NZ and Air New Zealand hold annual meetings on Thursday. Insurer Suncorp is holding its annual general meeting in Brisbane on Friday.
Companies releasing earnings this week include New Hope Tuesday and Washington H. Soul Pattinson and Brickworks Wednesday.
Dividend season starts to calm down from here. Among the companies trading ex-dividend this week are: Qube (Mon); Cochlear, Adbri and Atlas Arteria (Wednesday); and latitude (Friday).
IPOs: The only potential new listing for the week at this point is Australia Sunny Glass on Wednesday.
Oil pared a third consecutive week of losses as doubts over supply helped offset questions over the health of demand as the global economy slows. Brent crude jumped 51 US cents or 0.6% to settle at US$91.35 a barrel. For the week, the international benchmark lost 1.6%.
“Traders began to believe OPEC must do more to control supply if it wants to keep oil prices higher. In the current supply, the chances of prices continuing to fall and we could see crude oil prices easily hitting the $75 mark,” said Naeem Aslam, Chief Market Analyst at AVATrade.
A drop in Chinese property prices helped boost iron-ore lower. New home prices fell 1.3% year-on-year last month, the fastest pace since 2015. Property investment fell at the fastest pace since December.
The most traded mineral contract on the Dalian Commodity Exchange fell 1.2% to 715 yuan ($101.89) a ton. The spot price for ore landed in China fell US$1.52 or 1.5% to US$99.06 per tonne. For the week, the spot price lost US$3.17 or 3.1%.
BHPCertificates of deposit traded in the United States fell 1.41%. The miner’s UK listing fell 0.69%. Rio Tinto fell 0.33% in the US after rising 0.32% in the UK.
Gold hit a two-year low after a report showed US consumers were less pessimistic about inflation. Gold for December delivery was down US$6.20 or 0.4% at US$1,683.50 an ounce. The NYSE Arca Gold Bugs Index gained 0.88%.
For the week, the yellow metal lost 2.6%. Prices have crashed this year as the Fed’s war on inflation drives the greenback to levels last seen in 2002.
“Gold could very well struggle to rally as long as the Fed says fighting inflation remains its No. 1 concern,” Adrian Ash, director of research at BullionVault, told MarketWatch. “The flip, when it comes, could see a quick, clean bounce.”
Copper overcame early weakness in a mixed session for industrial metals. Benchmark copper on the London Metal Exchange jumped 0.3% to US$7,869 a tonne.
“The Chinese economy remains weak and still offers no good reason to go long in the metal. But it’s very risky to be short,” said Gianclaudio Torlizzi, partner at T-Commodity.
Nickel jumped 4.9% to hit US$24,229. Tin gained 1.5%. Aluminum fell 1.3%, lead 1.7% and zinc 0.9%.