Opening Call: The Australian share market is to open higher.
Markets in Australia were closed in observance of Queen’s Birthday.
The stock market selloff deepened, with the S&P 500 closing in a bear market, as investors took another look at Friday’s red-hot inflation data and liked it even less. Faced with rising chances of aggressive monetary tightening by the Federal Reserve, investors broadly unloaded risk. The S&P 500 slumped 3.9%, with most member stocks down on the day. Meanwhile, a rout in cryptocurrencies highlighted investors’ increasing unwillingness to hang on to their most speculative holdings.
“We’re definitely seeing a risk-off atmosphere, a flight to quality,” said Charlie Ripley, senior investment strategist at Allianz Investment Management. “In that environment, people need to raise cash.” The declines put the S&P 500 in a bear market — down more than 20% from its January high — for the first time since 2020. The Dow Jones Industrial Average fell 2.8%, while the tech-heavy Nasdaq Composite declined 4.7%.
“If inflation is going higher, the Federal Reserve has no choice but to raise interest rates,” said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance. “The higher the Federal Reserve needs to raise interest rates, and the longer they need to keep raising interest rates, the more likely it is that we go into a recession.” On Monday, futures bets showed traders assigned a roughly 81% probability that the Fed will raise interest rates by 2.5 percentage points by the end of the year, according to CME Group. That would equate to a half-percentage-point rate increase at every Fed meeting this year. On Friday, traders placed the chances of that at 50%, according to CME Group.
Gold futures declined, with prices marking their lowest settlement in more than three weeks despite a global equity market selloff as strength in the U.S. dollar outshined the yellow metal’s appeal as a haven investment. Gold prices for August delivery fell 2.3% to settle at $1,831.80 an ounce on Comex. Prices based on the most-active contract settled at the lowest since May 18, according to FactSet data. “Rising rates and soaring yields present a serious headwind for gold short term, because the precious metal pays no income,” said Adrian Ash, director of research at BullionVault.
Oil futures scored their first gain in three sessions after a renewed rise in Covid-19 cases in China and last week’s hotter-than-expected U.S. inflation reading pulled prices to their lowest intraday level in almost a week. West Texas Intermediate crude for July delivery climbed 0.2% to settle at $120.93 a barrel a barrel on the New York Mercantile Exchange after touching an intraday low of $117.47.
August Brent crude, the global benchmark, added 0.2% to $122.27 a barrel on ICE Futures Europe. WTI and Brent touched their lowest intraday levels since June 7. Concerns that China will lock down more cities because of an uptick in Covid, as well as the stock market getting “obliterated” on rising interest-rate expectations, hurt the outlook for energy demand, leading to losses in oil prices early in the session, said Phil Flynn, senior market analyst at The Price Futures Group.
However, concerns over further lockdowns in China appeared to easei n the afternoon, and the focus for traders “flipped back to tight supply,” he said. Edward Moya, senior analyst at OANDA, said oil prices moved higher after the Energy Information Administration signaled that the oil market will remain tight for the foreseeable future.
Major currencies were generally weaker against the US dollar in European and US trade. The Euro fell from highs near US$1.0490 to lows near US$1.0400 and was near US$1.0410 at the US close. The Aussie dollar fell from highs near US70.30 cents to lows near US69.10 cents and was near US69.25 cents at the US close. The Japanese yen rose from near 134.90 yen per US dollar to
JPY133.60 but then weakened to near JPY134.45 at the US close.
European sharemarkets fell on Monday. Investors fear that aggressive rate hikes by the US Federal Reserve to control inflation could sharply slow global economic growth. Travel & leisure fell 5.3%, automakers fell by 4.5% and technology fell 4.2%. French banks fell 4.0-4.7% on uncertainty over lower house election results. The pan-European STOXX 600 index fell by 2.4% to 3-month lows. The German Dax index fell by 2.4% and the UK FTSE index lost 1.5%. In London trade, shares of Rio Tinto fell by 1.9% and shares in BHP fell by 2.2%.
Earlier Monday, Chinese stocks finished mixed, as gains by auto companies were offset by losses among property developers. Demand in the auto industry is strengthening amid supportive government policies, and a sales recovery in the second half could drive the sector’s share prices higher, Guotai Junan Securities said. The Shanghai Composite Index fell 0.9%, the Shenzhen Composite Index ended flat and the ChiNext Price Index was 0.4% lower.
Hong Kong stocks ended the session sharply lower as Asian equities mostly tracked lower. The benchmark Hang Seng Index fell 3.4%. Tech stocks, whose valuations tend to particularly suffer amid higher interest rates, led losses. Japan’s Nikkei Stock Average slid 3.0% on renewed fears over aggressive Fed tightening. Losses on Nikkei were broad-based, with SMC declining 7.2%, SoftBank Group losing 6.85% and M3 down 6.75%.