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ASX to slide, S&P 500 notches sixth straight losing session

Timothy MooreBefore the Bell editor

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Australian shares are poised to open lower after Wall Street closed mixed. The S&P 500 ended lower in a choppy session.

ASX futures were down 40 points or 0.61 per cent to 6466 near 6.30am AEST.

  • On Wall St: Dow -0.4% S&P 500 -0.2% Nasdaq +0.3%
  • In New York: BHP +2.2% Rio +2.3% Atlassian +0.5%
  • Tesla +2.5% Apple +0.7% Amazon -0.6%

The local currency was 0.4 per cent lower; the Bloomberg dollar spot index was little changed. The UK pound recovered the $US1.07 level though not without further swings.

On bitstamp.net, bitcoin was down 0.6 per cent to $US19,019 at 6.35am AEST.

The yield on the US 10-year note edged up 3 basis points to 3.95 per cent at 4.33pm in New York. The UK yield advanced 26 points to 4.50 per cent.

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Federal Reserve Bank of St. Louis president James Bullard said the credibility of the central bank’s inflation target was threatened by hot price pressures and urged further interest rate hikes.

“This is a serious problem and we need to be sure we respond to it appropriately,” Bullard told an economic conference in London. “We have increased the policy rate substantially this year and more increases are indicated,” in the Fed’s latest forecasts.

Rates may need to move to “the 4.5 per cent range”, or about 1 percentage point higher than his projection in April, Bullard said.

However, Bullard also said he was more optimistic about the economic outlook than markets: “You would expect the yield curve to be inverted based on the nominal outlook, and not necessarily based on the prediction of a recession. It is encouraging that the inflation expectations are in the right place.”

At the same conference, Chicago Fed president Charles Evans that he expects inflation to cool substantially over the next two years and pointed to signs that extraordinary demand for labour was easing and supply chains beginning to unsnarl, even as he acknowledged risks to his outlook are skewed to the downside.

“Supply-side repair could continue to move too slowly; events in Ukraine or further COVID-related shutdowns could put additional pressure on costs; and monetary policy may, on the one hand, not rein inflation in enough or, on the other hand, weigh too heavily on employment,” Evans said.

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That called for the Fed to be “watchful” and adjust policy “if changes in economic circumstances dictate”, Evans said.

On Wall Street, shares closed mixed. Earlier in the session, the S&P 500 hit a two-year intraday low; it ended lower for a sixth straight session, its longest losing streak since February 2020, according to Bloomberg.

Consumer staples paced seven of the 11 S&P 500 industry groups lower. Energy paced the advances, in line with oil’s bounce.

In a tweet, Schwab’s Liz Ann Sonders wrote: “S&P 500 has finished in red on 56 per cent of 184 US trading days YTD; on track to have second-highest annual proportion of loss-producing trading days since modern inception in 1957; “top” spot belongs to 1974 with 57.7 per cent.”

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The VIX edged 1 per cent higher to 32.6.

Oil rose from a nine-month low a day earlier, supported by supply curbs in the US Gulf of Mexico ahead of Hurricane Ian.

Prices also drew support from analyst expectations of possible supply cuts from the Organisation of the Petroleum Exporting Countries and allies (OPEC+), which is to meet to set policy on October 5.

Today's agenda

Local: Retail sales August

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Overseas data: UK nationwide house prices September; US pending home sales August

Market highlights

ASX futures down 40 points or 0.61 per cent to 6466 near 6.30am AEST

  • AUD -0.4% to 64.31 US cents
  • Bitcoin -0.8% to $US18,970 at 6.30am AEST
  • On Wall St: Dow -0.4% S&P 500 -0.2% Nasdaq +0.3%
  • In New York: BHP +2.2% Rio +2.3% Atlassian +0.5%
  • Tesla +2.5% Apple +0.7% Amazon -0.6%
  • In Europe: Stoxx 50 -0.4% FTSE -0.5% CAC -0.3% DAX -0.7%
  • Spot gold +0.6% to $US1632.28/oz at 2.41pm New York time
  • Brent crude +2.7% to $US86.29 a barrel
  • Iron ore +1.6% to $US97.60 a tonne
  • 10-year yield: US 3.95% Australia 4.02% UK 4.50% Germany 2.22%
  • US prices as of 4.28pm in New York

United States

Goldman Sachs has closed a $US9.7 billion private-equity fund, its largest since 2007, that seeks to invest in companies with an enterprise value of about $US750 million to $US2 billion, the bank said.

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Orders for non-defence capital goods excluding aircraft, a closely watched proxy for business spending plans, surged 1.3 per cent last month. That was the biggest gain since January.

Data for July was revised higher to show these so-called core capital goods orders gaining 0.7 per cent instead of 0.3 per cent as previously reported. The data is not adjusted for inflation.

A second report from the Conference Board showed its consumer confidence index rose to 108.0 this month from 103.6 in August, beating economists’ expectations for a reading of 104.5. Households’ worries about inflation eased, largely reflecting lower gasoline prices.

Consumers’ 12-month inflation expectations slipped to 6.8 per cent, the lowest since January, from 7.0 per cent in August.

Europe

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Europe bourses fell on Tuesday, extending a sell-off driven by escalating fears of a recession amid aggressive policy tightening by central banks, with London stocks reeling from worries about a new economic plan.

Germany’s DAX slipped 0.7 per cent to November 2020 lows, while Italy’s MIB index lost 1.2 per cent giving back all of Monday’s election relief gains.

The continent-wide STOXX 600 index closed down 0.1 per cent after a volatile session which saw it rise as much as 1.3 per cent.

Gains in miners, energy and healthcare stocks were offset by sharp falls in banks and utilities.

London’s blue-chip FTSE index slipped 0.5 per cent as the pound recovered from Monday’s record lows on worries about the impact from the UK’s “mini budget”.

Goldman Sachs on the UK: “While the economy has likely already entered recession (with Q3 GDP tracking negative), we now look for a shallower recession with non-annualised quarterly growth of -0.1 per cent in Q4, -0.2 per cent in Q1 and -0.1 per cent in Q2.”

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Goldman added: “We estimate that the interventions will raise the public deficit to 7.2 per cent of GDP for 2022/23 and 5.3 per cent of GDP in 2023/24, raising the debt ratio to 104.3 per cent by 2024.”

Commodities

Europe was investigating major leaks in two Russian pipelines that spewed gas into the Baltic Sea on Tuesday as Sweden launched a preliminary probe into possible sabotage to infrastructure at the centre of an energy standoff.

But it remained far from clear who might be behind any foul play, if proven, on the Nord Stream pipelines that Russia and European partners spent billions of dollars building.

“We have established a report and the crime classification is gross sabotage,” a Swedish national police spokesperson said.

Poland’s prime minister blamed sabotage for the leaks, without citing evidence. The Danish premier said it could not be ruled out.

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Russia, which slashed gas deliveries to Europe after the West imposed sanctions over Moscow’s invasion of Ukraine, also said sabotage was a possibility and that the leaks undermined the continent’s energy security.

A senior Ukrainian official, meanwhile, called the incident a Russian attack to destabilise Europe, without giving proof.

“We see clearly that it’s an act of sabotage, related to the next step of escalation of the situation in Ukraine,” Polish Prime Minister Mateusz Morawiecki said at the opening of a new pipeline between Norway and Poland.

Seismologists in Denmark and Sweden registered powerful blasts in the vicinity of the leaks on Monday, Sweden’s National Seismology Centre told public broadcaster SVT. German geological research centre GFZ also said a seismograph on the Danish island of Bornholm had twice recorded spikes on Monday.

Timothy Moore writes on monetary policy, equities, commodities and currencies. He is the overnight markets editor and writes Before the Bell. Connect with Timothy on Twitter. Email Timothy at timothy.moore@afr.com

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