Opening Call: The Australian share market is to open higher.
U.S. stocks declined, once again failing to hold onto early gains. The yield on the 10-year Treasury slipped to 1.80%, as the yield curve narrowed substantially. The WSJ Dollar Index strengthened to 90.75, helping push both gold and oil prices lower.
Australia’s S&P/ASX 200 fell 1.8%, moving into correction territory with the market down over 10% from its highs in August. Almost all sectors ended the day in the red, with utilities and energy the only sectors to finish higher, up 1.2% and 2.1% respectively. Technology stocks were the worst performers, closing 5.0% lower.
U.S. stocks dropped in another frenzied session as investors try to gauge how monetary policy and the prospects for the economy will affect corporate profits and stock valuations. The Dow Jones Industrial Average rose as much as 600 points early in the session, but settled less than 0.1% lower. The S&P 500 fell 0.5%, while the Nasdaq Composite gave up all its morning gains, losing 1.4%.
The range between the session’s highs and lows wasn’t as wide as in other sessions this week, but it did continue the run of erratic trading. The volatility is a reflection of the difficulties investors are having in not only responding to the Federal Reserve’s plans for monetary policy, but in preparing to live with what will be a long-term change in that policy, said Yung-Yu Ma, the chief investment strategist at BMO Wealth Management.
“What gets priced in and when is difficult at this point,” he said. If inflation comes down quickly on its own, that will release some pressure. If it doesn’t, and the Fed has to be aggressive in fighting it, “that’s going to take its toll on the market.”
Gold futures ended with a 2% loss, as the U.S. dollar popped higher a day after the U.S. Federal Reserve signaled that it would soon be appropriate to raise interest rates as early as March. Prices for the haven precious metal extended their decline after data revealed that the U.S. economy expanded at an annual 6.9% pace in the fourth quarter. Economists polled by The Wall Street Journal had forecast gross domestic product to rise by 5.5%.
“Gold sank after the upside surprise on Q4 GDP, which implies that the Fed will have even more leeway in tightening monetary policy,” said Brien Lundin, editor of Gold Newsletter. Mr. Lundin said he expects to see continued “volatility in the gold price until the Fed actually begins to hike rates in March,” adding that “history tells us that the metal’s price is weak before a tightening cycle, but rallies strongly once hikes actually begin. “February gold fell 2% to settle at $1,793.10 an ounce.
Oil prices fell from their highest levels in more than seven years. Investors remained focused on the threat of a Russian attack on Ukraine. “The market is on guard for a potential disruption of supply because globally supplies remain very tight,” said Phil Flynn, senior market analyst at The Price Futures Group. Meanwhile, a “blowout” U.S. gross domestic product number also raised some concerns that the Federal Reserve might be even more aggressive in raising interest rates,” he said. “That is playing into the speculation that we could see five interest rate increases this year.”
Oil’s move came on the back of a stronger dollar, which weighed on dollar-denominated oil prices, said Mr. Flynn, but “the market is still concerned about this tight supply situation in the rising geopolitical risk” environment. West Texas Intermediate crude for March delivery fell nearly 0.9% to settle at $86.61 a barrel on the New York Mercantile Exchange. March Brent crude, the global benchmark, shed 0.7% to settle at $89.34 a barrel on ICE Futures Europe, after trading as high as $91.04.
Major currencies were weaker against the US dollar in European and US trade. The Euro fell from near US$1.1227 to US$1.1130 and was near US$1.1140 in late US trade. The Aussie dollar fell from US70.97 cents to US70.20 cents and was near US70.30 cents in late US trade. And the Japanese yen fell from near 114.60 yen per US dollar to JPY115.48 and was near JPY115.35 in late US trade.
European sharemarkets rose on Thursday. Defensive sectors led gains with both healthcare and utilities up 2% and telecom up 1.7%. Banks, which benefit from rising rates, rose by 1.4%. Shares in Deutsche Bank rose 4.4% after posting the biggest profit in a decade. The pan-European STOXX 600 index rose by 0.7%. The German Dax index rose by 0.4%. And the UK FTSE index lifted by
1.1%. In London trade, shares in Rio Tinto rose by 2.5%. Shares in BHP gained 1.9%.
Earlier Thursday, Chinese stock indexes fell to multimonth lows amid a selloff across regional markets, with heavy losses among software, construction machinery and electronics companies. Investors may be cautious ahead of the upcoming Lunar New Year holiday and wish to mitigate risks from uncertainties in overseas markets, China Fortune Securities said. The Shanghai Composite Index dropped 1.8% to its lowest closing since July.
The Shenzhen Composite Index shed 2.9% and the ChiNext Price Index lost 3.3%, hitting their lowest closing levels in more than eight months. Hong Kong’s Hang Seng Index gave up 2.0%, weighed by broad declines across sectors. Chinese education-related stocks were among the worst performers amid concerns of possible tighter regulations.