Opening Call: The Australian share market is to open higher.
U.S. stocks ended lower as bond yields hit two-year high. The yield on the 10-year Treasury note was at 1.87%, compared with 1.77% on Friday. The WSJ Dollar Index rose 0.41% to 89.63. Oil futures rose to their highest since 2014 after an Abu Dhabi oil facility was attacked. And gold futures ended lower for a third session, pressured by firmer dollar and rising yields.
Australia’s S&P/ASX 200 index closed 0.3% higher, overcoming weakness in mining stocks, to claw back some of the prior week’s losses. Retail, energy and tech sectors led the gains. The heavyweight materials sector was the biggest loser, dropping 1.0% on weakness from gold and iron-ore miners.
U.S. stock indexes fell and bond yields hit two-year highs as investors fretted over whether the Federal Reserve will raise interest rates more quickly and aggressively than expected. Investors, coming off a holiday weekend that had closed markets on Monday, sold stocks and bonds across the board. All three indexes fell, with the S&P 500 sliding 1.8% and the Dow Jones Industrial Average shedding 1.5%. The Nasdaq Composite Index retreated 2.6%, leaving it close to entering a correction, or a drawdown of 10% or more, from a recent closing high.
“Markets are still trying to find a level for rate increases. It was only in October the market was expecting one rate hike for 2022 and now it’s expecting four,” said Edward Park, chief investment officer at U.K. investment firm Brooks Macdonald. “That’s reflecting the level of uncertainty we have in the market right now about the path of Fed policy.” Several financial companies have reported results showing profits have begun to ebb following a year in which many benefited from the tumultuous pandemic economy. Goldman Sachs was the latest to report, showing a decline in fourth-quarter profits, sending shares down 7% and acting as a major drag on the price-weighted Dow.
Gold prices ended lower, giving up early gains that followed downbeat U.S. economic data and an overall decline in global stock markets. The precious metal posted a third straight decline as Treasury yields rose to levels not seen since 2020 and the dollar strengthened.
February gold declined by 0.2% to settle at $1,812.40 an ounce after trading as high as $1,822.40. The precious metal posted declines on Thursday and Friday, before Monday’s Martin Luther King, Jr. holiday, but still scored a 1.1% advance last week. Investing in gold in recent weeks has closely followed concerns about inflation and moves in the U.S. dollar, which the commodity has been pricing in.
Crude-oil prices climbed to levels not seen since 2014, with geopolitical tensions in focus after an attack on an Abu Dhabi oil facility. Goldman Sachs warned that “surprisingly large” supply deficits could see Brent prices top $100 a barrel next year.
West Texas Intermediate crude for February rose 1.3% to $85.79 a barrel on the New York Mercantile Exchange, following a 6.2% gain last week, its fourth weekly rise in a row, according to Dow Jones Market Data. March Brent crude, the global benchmark, added 0.8% to trade at $87.20 a barrel on ICE Futures Europe, after last week’s 5.3% weekly advance.
Iran-backed Houthi rebels from Yemen claimed responsibility for the attack on the oil facility in Abu Dhabi that killed three people on Monday and caused a fire at the capital of United Arab Emirates’s international airport. Goldman Sachs rolled out higher oil price forecasts, setting a 2023 Brent spot target of $105 a barrel in 2023, with 2022 headed for $96 a barrel, it said.
Major currencies were mostly weaker against the US dollar in European and US trade. The Euro fell from highs near US$1.1404 to lows near US$1.1312 and was near US$1.1320 at the US close. The Aussie dollar dipped from highs near US72.04 cents to lows near US71.68 cents and was near US71.80 cents at the US close. But the Japanese yen firmed from near 114.95 yen per US dollar to
JPY114.46 and was near JPY114.60 at the US close.
European sharemarkets closed lower on Tuesday. The panEuropean STOXX 600 index shed 1%, with technology stocks dropping 2.2%. The German Dax index also slid 1%, despite the German ZEW economic sentiment index lifting from 29.9 to 51.7 in January (survey: 32). The UK FTSE index dipped by 0.6%. In London trade, shares in Rio Tinto (+0.9%) and BHP (+0.1%) both lifted.
The Nikkei Stock Average closed 0.3% lower, dragged by steel and auto stocks amid continued concerns about potential Federal Reserve rate increases. Chinese shares ended mixed, with gains from coal companies and declines among renewables. Coal stocks got a boost from rising prices of the fuel, Daiwa Capital Markets said. It expects coal companies’ earnings to stay resilient in the first quarter as prices stabilize. The benchmark Shanghai Composite Index ended 0.8% higher. The Shenzhen Composite Index and ChiNext Price Index both closed lower, down 0.3% and 0.8%, respectively.