The Australian sharemarket is headed for another sharp decline as surging oil prices, rising global bond yields and mounting expectations of further interest-rate increases weigh on investor sentiment.
ASX 200 futures were pointing to a fall of 81 points, or 0.9%, at the open after the benchmark index dropped 1% to 8,819.40 on Thursday.
Brent crude briefly climbed above US$108 a barrel as escalating attacks on shipping threatened already constrained energy supplies, while the Australian dollar fell below US72 cents.
ASX faces another heavy fall
The ASX is set to extend its decline after already falling to a six-week low this week.
Rising global bond yields and weaker commodity prices could place pressure on miners and other interest-rate-sensitive sectors. Copper plunged almost 5%, while iron ore and gold also declined.
Energy stocks may receive some support after oil recorded its largest daily rise in the recent rally, although the broader inflationary implications are likely to weigh on the market.
JB Hi-Fi and REA Group will make dividend payments today. WiseTech Global, Cleanaway Waste Management and CAR Group are among the companies trading ex-dividend, potentially creating an additional drag on the index.
Wall Street records fourth straight fall
US stocks declined for a fourth consecutive session, the S&P 500’s longest losing streak since June.
The Dow Jones Industrial Average dropped 316.56 points, or 0.6%, to 52,064.10. The S&P 500 fell 0.6% to 7,591.70 and the Nasdaq Composite lost 0.7% to 26,081.72.
Nine of the S&P 500’s 11 sectors finished lower. Materials led the retreat with a 1.5% decline, while information technology fell 1%.
Chipmakers weakened, with Nvidia down 2.4% and Micron Technology falling 4.9%.
Apple bucked the broader technology sell-off, gaining around 3.6% a day after unveiling a US$1,999 iPhone.
Skyworks Solutions surged 9.79%, Reddit climbed 6.09% and Charter Communications advanced 4.98%, making them the S&P 500’s three strongest performers.
The Cooper Companies dropped 14.65%, Baker Hughes fell 6.66% and Freeport-McMoRan declined 6.59%.
American Eagle Outfitters tumbled 14% to its lowest level since October after maintaining its annual comparable-sales forecast against a backdrop of uneven discretionary spending.
Inflation lifts rate-rise bets
US producer prices rose in line with expectations during August on a monthly basis as energy costs rebounded.
The annual inflation rate at the wholesale level accelerated to 5.4% from 4.8% in July, reinforcing expectations that higher costs could eventually be passed on to consumers.
A separate report showed fewer Americans applied for unemployment benefits last week, suggesting the labour market remains strong enough to withstand tighter monetary policy.
Markets now assign a roughly 73% probability to the Federal Reserve raising interest rates next week, up from 61% before the latest economic reports.
The US consumer price index for August will be released today, providing the final major inflation reading before the Federal Reserve’s September 16 decision.
Bond yields approach 5%
Treasury yields climbed sharply as investors responded to stronger inflation, elevated oil prices and the prospect of tighter monetary policy.
The US 10-year Treasury yield rose 12 basis points to 4.96%, its highest level in almost three years and close to the closely watched 5% threshold.
The two-year yield increased 16 basis points to 4.59%, while the 30-year yield reached its highest level in more than 19 years.
Australian yields followed global markets higher. The domestic 10-year yield gained 11 basis points to 5.37%, while the three-year yield climbed 13 basis points to 5%.
Higher yields increase borrowing costs and make bonds relatively more attractive than equities, placing additional pressure on share valuations.
European markets hit two-month low
European sharemarkets fell to their lowest level in two months after the European Central Bank raised interest rates and warned that the Middle East conflict was intensifying inflationary pressure.
The ECB lifted its policy rate by 25 basis points to 2.5%, marking its second increase this year.
The FTSEurofirst 300 dropped 0.7% to 2,540.77, while the UK’s FTSE 100 fell 0.6% to 10,608.92.
Germany’s DAX declined 0.8% to 25,361.15, while France’s CAC 40 was unchanged at 8,116.76.
European miners slumped 3.7% as copper prices fell. KGHM, Antofagasta, Aurubis and Anglo American recorded declines of between 5% and 8%.
The copper sell-off followed reports that the White House had yet to decide whether to impose tariffs on refined metal imports.
Asian markets mostly lower
Asian markets were predominantly weaker.
China’s Shanghai Composite fell 0.4% to 3,934.40 and the Shenzhen Composite dropped 1% to 2,502.04.
Hong Kong’s Hang Seng Index declined 1.3% to 24,954.47.
Japan’s Nikkei bucked the trend, edging 0.2% higher to 65,270.95, while India’s BSE Sensex gained 0.2% to 74,902.59.
Australian dollar tumbles
- The Australian dollar dropped 0.9% to US71.57 cents, down from US72.20 cents on Thursday afternoon.
- The euro declined 0.2% to US$1.1608, while the Japanese yen weakened 0.5% to ¥154.38 per US dollar.
- Bitcoin edged 0.3% higher to approximately US$77,227.
Oil jumps more than 6%
Brent crude surged 6.3% to settle at US$107.63 a barrel after briefly trading above US$108, its highest level since May.
West Texas Intermediate jumped 6.7% to US$102.48 a barrel.
Oil has risen from below US$72 in early July as the war with Iran restricts supplies from the Middle East.
The latest increase followed the largest escalation in attacks on shipping since the conflict began. Iran-aligned Houthis seized control of Yemen’s port of Mocha, creating a further threat to traffic through the Red Sea.
The rally has pushed average US petrol prices to almost US$4.28 a gallon, around 34% higher than a year earlier. Higher fuel and transport costs risk feeding inflation across the wider economy.
Copper and gold retreat
- Copper futures plunged 4.9% to US$6.467 a pound following uncertainty over potential US tariffs on refined copper.
- Iron ore fell 0.7% to US$98.68 a tonne as concerns about Chinese demand returned.
- Aluminium declined 1.7% to US$3,451.25 a tonne amid concerns that the Middle East conflict could slow global economic growth.
- Gold futures dropped 1.2% to US$4,407.30 an ounce as higher bond yields reduced demand for the non-yielding metal. Spot gold traded at US$4,315.69.
What to watch
US consumer inflation figures will be the central event for global markets today.
A stronger-than-expected result could reinforce expectations of a Federal Reserve rate rise next week and push bond yields above key levels.
For the ASX, investors will be watching whether energy stocks can offset weakness among miners and interest-rate-sensitive companies as oil remains above US$100 a barrel.
