Markets continue to fall on difficult data and the sell-off in China. By proactive investors
© Reuters Morning catch-up: Markets continue to fall on difficult data and China sell-off
The ASX will continue to fall today, with futures trading 90 points lower, down 1.28% as of 8:20am AEST.
Yesterday, the ASX200 finished 90 points (-1.24%) lower at 7163, trailed by the consumer discretionary (-1.91%), materials (-1.86%) and financials (-1.45%) sectors was pulled down. On the other hand, Utilities (-0.27%) and IT (+0.13%) fared better.
IG Markets analyst Tony Sycamore pointed out several factors affecting the markets.
“Wednesday’s China-led sell-off intensified yesterday as bond markets and higher yields bounced back into the spotlight. In the US, the benchmark 10-year bond yield rose above 3.90% for the first time in four months – a move repeated locally as the Australian 10-year bond yield rose 10 basis points to 4.11 % rose, the highest since October.
“Declines in the rate-sensitive ASX200 financials sector weighed heavily. NAB fell 2.11% to $25.96, ANZ fell 1.92% to $23.53, Macquarie fell 1.76% to $174.55, Westpac fell 1.72% to 21.15 $ and CBA fell 1.33% to $100.43.
“Following the overnight sell-off on Wall Street, the ASX200 is on track to test the bottom of its 3-month trend channel, currently at 7050. Whether the ASX200 can stay above it (closing base) will mean the difference between another trading range in the coming weeks or a test of the year to date lows at 6900.”
Speaking of Wall Street, the S&P500 is in danger of giving up its July gains, threatened by the rally in yields and the possibility of a double top at 4500 in the S&P500 and 15,285 in the Nasdaq.
Sycamore says: “After doing their best to ignore rising yields over the past few weeks, US stock markets didn’t have a chance to move last night as robust jobs data caused Treasury yields to fall across the board Gained another 5 to 11 basis points across the curve.”
Another boost for the markets was the ADP (NASDAQ) jobs report, which rose 497k in June versus 225k expected. The number of jobless claims rose by 1,720,000, the lowest level in four months. Initial jobless claims rose by 248,000, well below the peak of 265,000 three weeks ago. Jobless claims fell by 496,000 to 9.824 million, below forecasts of a 9.9 million rise but still well above pre-pandemic levels.
“Attention tonight is on the all-important release of non-farm payrolls. The market expects the number of employees to increase by 230,000 in June compared to 339,000 in May. The unemployment rate is expected to fall to 3.6% from 3.7% in May. The average hourly wage is expected to rise 0.3% in June, bringing the annual rate down to 4.2% from 4.3%. If, or more importantly, all numbers come in stronger than expected, it will likely make for a very ugly end of the week for US equity markets,” Sycamore said.
What happened overnight?
Here’s what we saw (source: Commsec):
US markets
The decline fell for a second straight day on a rise in US Treasury yields after better-than-expected US private sector hiring data from contract processor ADP.
US companies added the most jobs in over a year in June, while other data showed the US services sector grew at its fastest rate in four months in June. The numbers fueled fears that the US Federal Reserve will hike rates aggressively.
In company news: shares of the big oil company Exxon Mobile (NYSE:) fell 3.7% after forecasting a $4 billion drop in earnings, while shares of some of the year’s best performers including chipmaker Nvidia and electric vehicle maker Tesla (NASDAQ:) fell as much as 2 .1% fell. Shares of Moderna fell 4.3% after the pharmaceutical company announced a deal to develop mRNA drugs in China, despite rising tensions between China and the United States.
At the close, the value was down 366 points, or 1.1%. The S&P 500 index fell 0.8%, shedding 113 points, or 0.8%.
European markets
The index fell to a 14-week low on Thursday amid concerns over a global rate hike following the release of robust US jobs data. Price-sensitive real estate shares led the losses with a minus of 4.2%. Shares in gaming group Embracer fell 13.8% after it raised $182 million in a share offering to institutional investors. German factory orders increased by 6.4% in May (survey: +1%). The continent-wide index fell 2.3%. And the UK slipped 2.2% after hitting its lowest intraday reading since March 20.
currencies
Currencies were weaker against the US dollar in European and US trading.
- The euro fell from $1.0899 to $1.0834 and was close to $1.0890 at the close in the US.
- The dollar fell from 66.87 US cents to 65.99 US cents, and was near 66.25 US cents at the close in the US.
- The Japanese yen weakened to JPY144.64 from 143.56 yen to the US dollar and was near JPY144.05 at the close in the US.
raw materials
Global oil prices were flat on Thursday as traders weighed tighter US crude stocks against the higher likelihood of a US interest rate hike that could dampen energy demand. Crude inventories fell 1.5 million barrels to 452.2 million barrels last week (survey: -1.0 million barrels).
- The price fell 13 US cents, or 0.2%, to $76.52 a barrel.
- U.S. crude oil prices on the Nymex rose just 1 cent, or less than 0.1%, to $71.80 a barrel.
Base metal prices fell on Thursday.
- The price fell 0.9%, weighed down by the weak global economic growth outlook and subdued demand in the main consumer country, China.
- Aluminum futures prices fell 0.8%.
- The price fell $11.70, or 0.6%, to $1,915.40 an ounce. was trading at approximately $1,910 an ounce at the US close.
- Iron ore futures rose 43 US cents, or 0.4%, to $112.27 a tonne on optimism about additional policy stimulus to support China’s faltering post-COVID-19 economic recovery.
What’s happening with small caps?
The S&P/ASX Small Ordinaries closed yesterday at 2,805.9, down 1.27%.
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