ASX to dive as Dow plunges on delta worries
In a tweet, Mohamed El-Erian said: “Today’s price action illustrates what can happen when #markets worry about fundamentals/technicals at the same time. Also highlights importance, for markets and the #economy, of avoiding a policy mistake. Market reaction would be much worse if concerns were to arise on all three.”
The US-listed shares of BHP were down 2.7 per cent. Rio Tinto’s fell 3.1 per cent. The spot price of iron ore was steady, holding above $US220 a tonne.
Volatility surged. The VIX rose 22 per cent to 22.5; it was more than 35 per cent higher at one point.
Apple fell 2.7 per cent, Alphabet shed 2 per cent, Facebook dropped 1.2 per cent, Amazon was down 0.7 per cent. Tesla was up 0.3 per cent after trading down for most of the session. Bitcoin was 2.5 per cent lower at $US30,794.40 near 7am AEST on bitstamp.net.
“Fear of stagflation will be a major concern for investors if a resurgence in COVID infections causes economies to slow while consumer prices continue an upward trajectory,” said Peter Essele, head of investment management for Commonwealth Financial Network. “The strong performance of inflation-linked bonds as of late may be an indication that those fears are setting in, with the bus already having left the station.”
Oil was hammered after OPEC and its allies agreed to monthly supply hikes of 400,000 barrels a day, an increase that the International Energy Agency said “may go a long way” toward closing the supply deficit in the market.
Near 5pm in New York, according to Bloomberg pricing, benchmark oil was down 6.5 per cent; US oil was 7.3 per cent lower.
The delta strain may make oil volatile in the near term, but the deal between the Organisation of Petroleum Exporting Countries and its allies would support a “constructive” view on prices, Goldman Sachs said. OPEC+’s planned supply increase is “moderate”, keeping the market in deficit, the bank said.
“Despite some recent setbacks, we think the outlook is considerably brighter than it was then, which is why we still think that US bond yields will rebound,” Capital Economics’ Jonas Goltermann said.
JPMorgan Chase chief global markets strategist Marko Kolanovic agrees, saying he thinks investors have sold too aggressively. “We expect the reflation trade – cyclical stocks, bond yields, high beta stocks, reflation and reopening themes – to bounce imminently as delta variant fears subside and inflation surprises persist.”
“Valuations across the market as a whole had become stretched and we were due for a pullback,” said Chris Zaccarelli, chief investment officer for Independent Advisor Alliance. “We remain optimistic that the economy is on strong footing and, although the path will be uneven, the trend is still toward increasing growth and higher corporate profits.”
Local: RBA board meeting minutes at 11.30am
Overseas data: China central bank rate setting; Japan June CPI; US June housing starts and building permits
TD on China rates: “We expect the PBoC to keep both the 1y and 5y loan prime rate (LPR) fixings unchanged at 3.85 per cent and 4.65 per cent, respectively in line with consensus. While we still think a cut in the LPR is unlikely over coming months the risks of a small easing has grown in the wake of the recent 50bps cut in the RRR.”
ASX futures down 68 points or 0.9 per cent to 7129 near 7am AEST
- AUD -0.8% to 73.45 US cents (Low 73.22)
- Bitcoin on bitstamp.net -2.5% to $US30,794.40 near 7am AEST
- On Wall St: Dow -2.1% S&P 500 -1.6% Nasdaq -1.1%
- In New York: BHP -2.7% Rio -3.1% Atlassian +0.9%
- In Europe: Stoxx 50 -2.7% FTSE -2.3% CAC -2.5% DAX -2.6%
- Spot gold -0.2% to $US1808.99/oz at 12.59pm New York time
- Brent crude -6.6% to $US68.74 a barrel
- US oil -7.5% to $US66.46 a barrel
- Iron ore -0.2% to $US221.04 a tonne
- 2-year yield: US 0.22% Australia 0.03%
- 5-year yield: US 0.70% Australia 0.63%
- 10-year yield: US 1.19% Australia 1.24% Germany -0.39%
- US prices as of 4.59pm in New York
From today’s Financial Review
Value funds return to top of Mercer survey: Value funds have climbed to the top of the Mercer investment survey for the 2021 financial year, reversing years of underperformance.
Top 10 super funds revealed: Eight funds delivered returns in excess of 20 per cent last financial year, as a booming sharemarket helped the super sector post its strongest returns in decades.
Telstra caught in China row: Shareholders are alarmed the telco could be used as a Morrison government tool to outbid China buying the Digicel Pacific phone network.
Brisbane’s Go1 becomes Australia’s newest ‘unicorn’ with mega-raise: The online training marketplace, founded by four former high school friends in 2015, is now worth more than $US1 billion after raising $US200 million from big-name investors.
Zoom Video Communications struck a $US14.7 billion all-stock deal to buy cloud-based call center operator Five9 in its largest-ever acquisition, as it looks to expand beyond its core video-conferencing services.
Robinhood Markets is targeting a valuation of up to $US35 billion in its initial public offering in the United States, the company revealed in a filing, setting the stage for one of the highly anticipated stock market listings of the year.
Billionaire investor Bill Ackman will buy up to 10 per cent of Vivendi’s Universal Music Group through his main hedge fund, rather than a special purpose acquisition company (SPAC), after investors and regulators questioned his use of a SPAC.
European shares sank more than 2 per cent on Monday, their worst session in nine months on worries that the fast-spreading delta coronavirus variant could slow the global economic recovery.
Commodity-linked stocks, banks and travel shares lost more than 3 per cent, with the oil and travel and leisure indices hitting February lows.
Extending losses from last week, the pan-European STOXX 600 index was down 2.3 per cent, with all sectors in the red.
The German DAX dropped 2.6 per cent, while Italy’s MIB plunged 3.3 per cent, its steepest one-day drop since October. UK’s FTSE 100 slumped 2.3 per cent as rising coronavirus cases overshadowed optimism about England’s reopening of the economy.
US and allies expose details of China’s cyber attacks: The US is leading a push, along with allies and partners, to expose details of China’s malicious cyber activity.
China’s blue-chip stock index ended higher on Monday, recouping earlier losses, boosted by healthcare and consumer firms and inflows through the Stock Connect scheme.
At the close, the blue-chip CSI300 index was up 0.4 per cent, after falling as much as 0.9 per cent. The Shanghai Composite index was little changed at 3539.12.
At the close of trade in Hong Kong, the Hang Seng index was down 514.90 points, or 1.8 per cent, at 27,489.78. The Hang Seng China Enterprises index fell 1.9 per cent to 9958.56.
Shares in Hong Kong-listed Chinese tech giants were battered after a Shanghai court on the weekend posted a list of “typical unfair competition cases” involving companies including Tencent, Baidu, and Alibaba’s Alipay on its official WeChat account.
Tencent Holdings slipped 2.6 per cent, Alibaba Group dropped 3.3 per cent and Baidu slumped 3.8 per cent. Meituan was the biggest loser on the Hang Seng, falling 5 per cent.
Billionaire Magellan boss says bitcoin going to zero: Hamish Douglass has eviscerated cryptocurrency as one of history’s great collective delusions and warned it is worthless.
The safe-haven US dollar, yen, and Swiss franc rose as investors grew nervous about a raging coronavirus variant that could threaten the outlook for global economic recovery.
The greenback climbed to a more than three-month peak against a basket of major currencies, but has come off its highs as the yen and Swiss franc advanced with the decline in risk appetite.
The US dollar though remained sharply higher against risk-sensitive currencies such as the Australian, Canadian, and New Zealand dollars.
The yen, meanwhile, climbed to its highest in 1-1/2 months versus the US dollar.
Vietnam has pledged not to deliberately weaken its dong currency to gain an export advantage, reaching an agreement with the US Treasury to refrain from “competitive devaluation” and make its monetary and exchange rate policies more transparent.
How energy colossus AGL could be the first victim of a brave new grid: Radical corporate surgery on Australia’s biggest energy company may be too late to save it. Its once bullet-proof business model has fallen victim to death by 2.8 million solar rooftop cuts.
Faltering oil prices, triggered by concern over a third wave of the novel coronavirus and increased confidence OPEC+ would boost production, gave portfolio managers a chance to book profits on tactical short positions.
Hedge funds and other money managers purchased the equivalent of 24 million barrels in the six most important petroleum futures and options contracts in the week to July 13.
The buying partially reversed larger sales of 63 million barrels the week before, position records published by ICE Futures Europe and the US Commodity Futures Trading Commission show.
The United States and Germany are expected to announce a deal resolving their longstanding dispute over Russia’s $US11 billion Nord Stream 2 natural gas pipeline in coming days, sources familiar with the matter said.
Chinese steel futures were range-bound on Monday amid concerns of supply crunch as China stepped up production curbs.
Capacity utilisation rates of blast furnaces at 163 steel mills across China fell to 76.81 per cent, as of July 16, from 77.61 per cent the week earlier, data from Mysteel consultancy showed. That compared with 85.6 per cent in the same period a year earlier.
“Currently, the biggest variate to affect steel prices is crude steel output control policy … which is gradually being implemented and widened,” analysts with Huatai Futures wrote in a note.
The limit to power consumption due to high temperature in Henan province also led to lower steel production, said Huatai.
Shares fall 0.9pc as OPEC, delta lockdowns take their toll: The S&P/ASX 200 Index fell 0.9 per cent to close at 7286 points on Monday as OPEC’s weekend deal saddled energy stocks.