The ASX was dragged down by the tech sector (-2.7%) yesterday after a broad sell-off of tech shares.
All 11 ASX sectors ended the day in the red and the ASX/S&P 200 closed 0.7%, or 49 points, lower at 7,229.2. The All Ordinaries also fell 0.7%.
Today doesn’t look to be much better.
ASX 200 futures are trading 21 points lower, down -0.29% as of 8:20 am AEST.
Over in the US, major benchmarks were flat ahead of the country’s central bank meeting.
It is likely the US Fed will hold rates, however spiking oil prices are having an impact on inflation.
What happened overnight?
Here’s what we saw (source Commsec):
US markets
Edged higher on Monday in a choppy session, with few catalysts and little conviction heading into the US Federal Reserve's two-day monetary policy meeting.
Shares of Tesla (NASDAQ:TSLA) dropped 3.3% as Goldman Sachs (NYSE:NYSE:GS) lowered its earnings estimates for the electric vehicle giant. Ford shares slid 2.1% as the United Auto Workers strike continued.
Shares of pharmaceutical company Moderna lost 9.1%, making it the biggest decliner in the S&P 500 index. Co-founder and board chairman Noubar Afeyan sold 15,000 shares for around US$1.64 million. But Apple shares (NASDAQ:AAPL) climbed 1.7% after Goldman Sachs and Morgan Stanley (NYSE:NYSE:MS) both gave optimistic outlooks for new iPhone demand.
- The Dow Jones index rose by 6 points or less than 0.1%.
- The S&P 500 index gained 0.1%.
- The Nasdaq index rose by 2 points or less than 0.1%.
Fell on Monday in a broad risk-off move ahead of policy meetings by the US Federal Reserve and the Bank of England this week amid worries that interest rates will remain higher for longer than previously expected.
All index sectors traded in the red except for telecommunications stocks, which were flat.
Shares of Societe Generale (EPA:SOGN) dropped 12.1%, the most since March 2020, after the bank’s new strategic plan disappointed investors. Nordic Semiconductor shares slipped 10% after the chipmaker reduced quarterly revenue and margin forecasts.
- The continent-wide FTSEurofirst 300 index fell by 1%.
- In London, the UK FTSE 100 index slid 0.8%, led by a 6.1% fall in the automobiles and parts index.
Were mixed against the US dollar in European and US trade.
- The Euro rose from US$1.0654 to US$1.0697 and was near US$1.0690 at the US close.
- The Aussie dollar fell from US64.47 cents to US64.16 cents and was near US64.35 cents at the US close.
- The Japanese yen dipped from 147.55 yen per US dollar to JPY147.75 and was near JPY147.60 at the US close.
Global oil prices rose to 10-month highs on Monday as traders weighed concerns about demand against expectations of a supply deficit stemming from Saudi Arabia and Russia's extended output cuts.
Saudi Arabia's energy minister, Prince Abdulaziz bin Salman Al Saud, said "the jury is still out" on China oil consumption, while Saudi Aramco (TADAWUL:2222) revised lower its estimate for 2030 demand.
- The Brent crude price rose by US50 cents or 0.5% to US$94.43 a barrel.
- The US Nymex crude price gained US71 cents or 0.8% to US$91.48 a barrel.
- The copper futures price slid 0.6% as inventories in exchange warehouses climbed. Stocks in London Metal Exchange (LME) warehouses, at 147,575 tonnes, have climbed more than 170% since the middle of July. The aluminium futures price gained 1.6%.
- The gold futures price rose by US$7.20 or 0.4% to US$1,953.40 an ounce. Spot gold was trading near US$1,933 an ounce at the US close.
- Iron ore futures rose by US91 cents or 0.8% to near five-month highs of US$122.20 a tonne as investors continued to monitor Chinese demand for steel.
Fuel prices are surging. Drive past a petrol station in Victoria and you’re looking at prices between $2.04 and $2.29 per litre.
Average petrol and diesel prices are at their highest levels since the initial impact of Russia's invasion of Ukraine.
Major oil-producing countries are being accused of deliberately cutting back on output to generate higher prices, putting profit ahead of economic reason.
Commsec economist Ryan Felsman said the surge would lead to an "inflationary pulse" that washed through the Australian economy.
"Certainly petrol prices flow through to higher headline inflation," Felsman said.
"So, that's where the pain point for the Reserve Bank is going to be and a lot of the central banks."
Felsman said interest rates could rise if the oil price shock lasted long enough and was pushed by other inflationary pressures including China’s economic woes.
"China is the biggest importer of oil globally," Felsman said.
"And the economy, particularly the property sector and the malaise it's in at the moment, certainly may be a weight on demand for oil going forward.
"Really, in the near term we're expecting to see petrol prices remain around these levels, around $2.20 to $2.30 a litre, and that is not going to improve any time soon.
"Unfortunately, it looks like we're in for a period of higher petrol prices, at least for the next month or so."
Crude oil prices are currently hovering above $US90 a barrel, but could go higher if OPEC+ countries led by Saudi Arabia and Russia extend production cuts by more than a million barrels a day until the end of the year.
The group controls up to 40% of the world’s oil.
"They have the instrument called supply cuts, which they can any time bring to the market and increase the oil price," Mukesh Sahdev, the head of oil trading and research analysis at Rystad Energy said.
"In simple language, they want the oil price to be up, they want to generate higher revenues and they have the instrument to do it," he said.
Hans Lee of Market Index reported this morning that: “Oil prices have made an almost vertical move from July lows of US$67 to a now 10-month high of US$92. A combination of production cuts, increasing demand and a steady slide in inventories in the US have all created the perfect storm for traders.
"The impact is already being felt with a range of companies handing down re-jigged earnings guidances.”
Businesses are feeling the pinch. Households are feeling the pinch. Central Banks are monitoring the situation closely and even Joe Biden’s re-election campaign could be affected.
OPEC+ may be laughing, but inflation fears are once again mounting.
On the small cap front
The S&P/ASX Small Ordinaries (XSO) dropped 1.27% yesterday to 2,775.30.
It has been a steady morning for news flow and you can read about the following and more throughout the day.