Outlook for the day: Severely negative. The ASX 200 looks primed to retreat nearly 1.8% from record levels after recession fears triggered a sharp sell-off on Wall Street.
ASX futures: down 144 points or 1.78%
Overnight themes:
US stocks tanked after weak economic data fuelled fears the economy will lose momentum faster than the Federal Reserve can cut interest rates.
The Dow tumbled almost 500 points, finishing 1.21% in the red after being down as much as 1.8%.
The S&P 500 shed 1.37% despite a positive reaction to earnings from Facebook owner Meta Platforms. Shares in the company rallied 4.82%.
The Nasdaq lost 2.3% a day after surging 2.64%. The Russell 2000 index of small caps, which had outperformed recently, dived 3.03%.
Early gains following Meta's earnings evaporated after reports showed a sharp contraction in factory activity and a jump in claims for unemployment benefits.
The Institute of Supply Management's manufacturing PMI declined to an eight-month low of 46.8 last month from 48.5 in June. The scale of the contraction caught economists off-guard. A separate report showed first-time claims for jobless benefits climbed to an 11-month high last week, indicating growing softness in the labour market. Some commentators now fear the Fed has left it too late to start cutting rates.
“The data we have got since the Fed meeting signals all of a sudden that people are now worrying that maybe it isn’t a soft landing and the Fed has vacillated too long” - Tom Fitzpatrick, managing director for global market insights at R.J. O’Brien and Associates (per CNBC).
Recession-sensitive stocks were hit hardest. On the Dow, Boeing dived 6.45%, Chevron 4.89% and Caterpillar 4.24%. Defensive stocks, including healthcare providers, rallied.
Utilities and real estate were the pick of the sectors as treasury yields fell further below 4%. Also positive: consumer staples, health and communication services (Meta).
Tech once again bore the brunt of the selling, falling 3.36%. Energy shed 2.56%, industrials 1.83%, financials 1.38% and materials 0.35%.
The Australian dollar fell below 65 US cents for the first time since May 1 as a "flight to safety" lifted the greenback.
A fund of US battery metal miners slumped near to a four-year low after weak lithium prices prompted American giant Albemarle to scale back development plans for its Kemerton plant in WA. The miner announced yesterday it would halt construction of a planned third production train and place its second train on care and maintenance. The Global X Lithium & Battery Tech ETF dropped 3.11% to its lowest since September 2020.
Industrial metals turned lower after an unexpected contraction in a private measure of Chinese factory activity added to worries about the health of the economy. Caixin's manufacturing PMI fell to 49.8 last month from 51.8 in June, according to a report released yesterday. Readings below 50 indicate shrinking activity. A retreat in metal prices has accelerated since last month's Politburo meeting ended without announcing meaningful stimulus plans.
"It's a guessing game on China. The data is indicating that they need to make a bolder move, make an announcement fairly soon. They had the politburo meeting, which could have been a great opportunity to articulate something meaningful and bold, but they didn't really do that" - Nitesh Shah, commodity strategist at WisdomTree (per Reuters).
Iron ore caught a leg-up from an upbeat demand forecast from Rio Tinto. The miner's CEO said yesterday the company expects solid commodities demand as the Chinese economy grows "plus or minus 5%". Benchmark ore rallied 2.35% in China and 1.91% in Singapore.
New highs for gold failed to protect US precious metal miners from the dour market mood. The NYSE Arca Gold Bugs index fell 1.42% as the yellow metal settled US$7.80 or 0.3% ahead at a new closing record of US$1,280.80 an ounce. The metal cracked US$2,500 for the first time during the session, setting a new intraday peak at US$2,506.60.
Key events today:
Q4 wholesale inflation (PPI) - 11.30 am AEST
US July employment report - tonight
S&P 500: down 76 points or 1.37%
Dow: down 495 points or 1.21%
Nasdaq: down 405 points or 2.3%
Dollar: down 0.75% to 64.99 US cents
Iron ore (Dalian): up 2.35% to US$108.28
Brent crude: down US$1.32 or 1.63% to US$79.52
Gold: up US$7.80 or 0.3% to US$2,480.80
Silver: down 46 US cents or 1.59% to US$28.48
NYSE Arca Gold Bugs: down 1.42%
Bitcoin: up 0.11% to US$64,793
Copper (LME): down 2.41% to US$9,002.50
Nickel (LME): down 1.82% to US$16,190
Lithium carbonate (China futures): down 0.36% to US$11,275
Global X Lithium & Battery Tech ETF: down 3.11%
Uranium (spot): down 1.21% to US$85.50
BHP: down 2.29% (US); down 0.47% (UK)
