Opening Call: The Australian share market is to open higher.
U.S. stocks were dragged sharply lower on persistently hot U.S. inflation. The yield on the 10-year Treasury note rose to 3.156% from 3.041% on Thursday. The WSJ Dollar Index rose 0.71% to 96.74. Oil prices pulled back as the dollar jumped. And gold booked its best day in a week as investors headed for havens.
Australia’s S&P/ASX 200 index closed 1.25% lower, tumbling to its heaviest weekly loss since April 2020 amid concerns about inflation globally. All 11 sectors fell as the benchmark index followed a negative lead from U.S. equities, which dropped after the European Central Bank outlined a plan to raise interest rates in July. The property-trusts sector led losses, falling 2.9% amid worries over the impact of rising rates on real-estate markets. The energy sector, which has soared recently on higher wholesale prices, shed 1.6%.
A fresh inflation shock hammered stocks anew, heightening investors’ fears that the Federal Reserve could be forced into more drastic action to tame surging consumer-price increases. Declines hit across the board, with rising interest-rate expectations increasing worries about the possibility of the economy slipping into a recession. The Dow Jones Industrial Average fell around 2.7%.
Technology shares slid along with banks and consumer shares, sending the S&P 500 down 2.9% and the Nasdaq Composite Index down 3.5%. All three indexes declined for a second-consecutive week. “Given the high level of uncertainty with regards to the Fed’s path of interest-rate increases, it’s hard to pound the table and say buy stocks, ” said Erik Knutzen, chief investment officer of multiasset strategies at Neuberger Berman.
Gold prices closed higher as investors turned to safe havens following a hotter-than-expected reading on U.S. May inflation numbers, but not before briefly tumbling to their lowest levels in three weeks early in the session. August gold surged 1.2% to settle at $1,875.50 per ounce, marking the highest settlement for the most-active gold contract since May 5, according to FactSet data.
“Ordinarily, the pattern has been that a strong dollar – like today – and when bond yields are up, you have less support for gold,” said Peter Cardillo, chief market economist at Spartan Capital Securities. “Today, the opposite is happening because of the real ugly inflation data we got.”
Oil futures turned lower, erasing early gains after a much hotter-than-expected U.S. May inflation report sent the dollar higher and sank equities. West Texas Intermediate crude for July delivery fell 0.7% to $120.67 a barrel on the New York Mercantile Exchange, trimming its weekly gain to 1.5%. August Brent crude, the global benchmark, was down 0.9% at $122.01 a barrel on ICE Futures Europe, leaving it with a 1.9% weekly gain.
Weakness for crude, however, was relatively subdued, said Edward Moya, senior market analyst for the Americas at Oanda, in a note. “Some traders are entering de-risking mode as prospects for the economy continue to dim, but no one really wants to abandon the best trade of the year, which is oil and energy stocks,” he said.
Major currencies were weaker against the US dollar in European and US trade. The Euro fell from highs near US$1.0770 to lows near US$1.0610 and was near session lows at the US close. The Aussie dollar fell from highs near US71.90 cents to lows near US70.95 cents and was near session lows at the US close. And the Japanese yen eased from 133.20 yen per US dollar to JPY134.41 and was near session lows at the US close.
European sharemarkets fell on Thursday. The European Central Bank (ECB) said it would end its bond buying scheme on July 1 and lift interest rates by 25 basis points. The ECB said it could lift rates by a bigger margin in September. The ECB said inflation would average 6.8% this year, above the 5.1% predicted while economic growth for the year was cut to 2.8% from a previous forecast of 3.7%. The pan-European STOXX 600 index lost 1.4% with losses broad-based. The German Dax index fell by 1.7% and the UK FTSE index lost 1.5%. In London trade, shares of Rio Tinto and BHP both fell by 2.7%.
Earlier, in Asia, Japanese stocks ended lower, dragged by falls in chip-related stocks amid continued concerns about borrowing costs and slower growth. The Nikkei Stock Average fell 1.5%. Chinese stocks closed higher on improved sentiment amid signals that Beijing may act to stabilize growth. The Shanghai Composite Index ended 1.4% higher, the Shenzhen Composite Index rose 1.9% and the ChiNext Price Index advanced 2.3% to 2556.47. Auto and consumer stocks were higher, supported by hopes of stronger demand. Among consumer stocks, snack maker Three Squirrels rose 0.5% and Chinese liquor maker Kweichow Moutai advanced 2.6%.