The ASX is expected to open lower today, with ASX 200 futures down 0.2%, or 16 points, to 7043.
The subdued start is, in part, due to end of financial year volatility. Wall Street’s finish last week, will also have some influence.
eToro market analyst notes, “The ASX may see a shaky start to the week following a negative session on Wall Street on Friday alongside a wave of uncertainty from geopolitical tensions in Europe. It is unclear how the current geopolitical situation will play out, even if it seems a truce has been reached. The bottom line is that markets hate uncertainty, so we’re likely to see volatility increase this week– especially with the VIX at its lowest level in three years.
“Fresh concerns of global conflict will add to the list of conditions investors are currently fretting over, such as inflation and higher interest rates. The uncertainty could see risk-off sentiment prevail, and investors may flock to safe havens, meaning assets like Gold and USD could catch a bid this week while investors seek a clearer picture of what’s ahead.
“Away from geopolitical tensions, investors' fears are focused on ‘higher for longer’ rates, with Atlanta Fed President Raphael Bostic saying he’d be comfortable keeping rates at current levels long into next year. Markets may be pricing in a couple more hikes from the Fed, but on the anticipation that rate cuts could begin early in 2024 or sooner. US Stocks wrapped up their worst week since March, with the Nasdaq snapping eight straight weeks of gains as Q2’s AI-fuelled rally begins to slow.
“It’s a big week on the economic front for Australia, with two key data sets being handed down: Monthly Inflation and Retail Sales. These releases will be key to the RBA’s next move, and inflation, in particular, will need to come in well below market expectations to dissuade Philip Lowe and Co from pressing ahead with a predicted hike next week."
All of this uncertainty, led to the S&P 500 breaking a five-week winning streak. While in Europe, the UK's main index fell another 0.5% to finish the week at 7,462 points.
IG's Axel Rudolph struck a cautious tone.
"The FTSE 100 is trading back in negative territory year-to-date and is fast approaching its March banking crisis low as worries of a UK recession due to rapidly rising interest rates mount," Rudolph said.
What happened at the close?
Here’s what we saw (source Commsec):
US markets
Slipped on Friday as investor anxiety rose that central banks will have to drive interest rates higher to tamp down inflation.
Rate-sensitive megacap stocks weighed heaviest on the tech-heavy Nasdaq index, led lower by Microsoft (NASDAQ:MSFT) (-1.4%), Tesla (NASDAQ:TSLA) (- 3%) and Nvidia (-1.9%). The Philadelphia semiconductor index slid 1.8%.
Goldman Sachs (NYSE:NYSE:GS) shares fell by 1.5% on reports the investment bank faces a large write down for its 2021 acquisition of fintech firm GreenSky. But used car marketplace Carmax posted better-than-expected quarterly profits, sending its shares surging by 10.1%.
At the close of trade, the Dow Jones index fell by 219 points or 0.7%. The S&P 500 index dipped 0.8% and the Nasdaq index shed 138 points or 1%. For the week, the S&P 500 lost 1.4%, ending five consecutive weeks of gains. The Nasdaq also dropped 1.4%, snapping an eight-week winning streak and posting its worst weekly performance since March. The Dow was 1.7% lower, ending a three-week positive run.
European markets
Extended declines into a fifth straight day on Friday, the longest losing streak since December. The continent-wide FTSEurofirst 300 index fell by 0.3% with energy (-2.2%) and mining (-1.7%) shares down by the most.
Shares of Siemens Energy plunged 37.3% after it withdrew its annual profit outlook. Over the week, the FTSEurofirst 300 index dropped by 2.7%.
The euro zone flash composite purchasing managers' index sank to a five-month low of 50.3 in June from May's 52.8 (survey: 52.5).
The UK FTSE 100 index shed 0.5% on Friday with homebuilders leading declines, down by 2.9%. For the week, the UK FTSE 100 index lost 2.4%.
Currencies
Currencies were weaker against the US dollar in European and US trade.
- The Euro fell from US$1.0930 to US$1.0843 and was near US$1.0900 at the US close.
- The Aussie dollar eased from US67.07 cents to US66.62 cents and was near US66.80 cents at the US close.
- The Japanese yen dipped from 142.76 yen per US dollar to JPY143.86 and was near JPY143.70 at the US close.
Global oil prices eased by around 0.5% on Friday, posting a weekly decline as traders worried interest rate hikes could sap demand despite signs of tighter supplies including lower US crude stocks.
- The Brent crude price fell by US29 cents or 0.4% to US$73.85 a barrel.
- The US Nymex crude price slid US35 cents or 0.5% to US$69.16 a barrel.
- The benchmarks declined by more than 3.5% for the week.
- The copper futures price fell by 2.2% and was down 2% for the week.
- The aluminium futures price shed 1.6% to be 3.7% lower over the week.
- The gold futures price rose by US$5.90 or 0.3% to US$1,929.60 an ounce. Spot gold was trading near US$1,921 an ounce at the US close. Gold fell by 2.1% for the week.
- Iron ore futures dipped by US20 cents or 0.2% to US$112.65 a ton. The steel-making ingredient was down by 0.3% over the week as optimism about China's economic recovery faded.
eToro’s Josh Gilbert hares his three things to watch in Australia in the coming days.
1. Australia Monthly Inflation
It’s a huge week next week, with key inflation data coming that could lend vital insight into the RBA’s next move. Last month, Australian monthly inflation accelerated to 6.8%, driven by increases across rents and fuel.
Phillip Lowe has made it clear that the RBA will do what is necessary to bring inflation under control, which has put the ASX200 under pressure so far this year due to markets pricing in further hikes from the central bank.
The cash rate is currently at 4.1% but the consensus is that the RBA will keep its foot on the gas and raise rates to 4.6% over the next few months. The key factor preventing that rate from coming to fruition would be a sharp decline in inflation.
Recent RBA minutes point towards ‘upside’ risks to inflation, and there are fears over services inflation, with rising electricity costs and soaring rents set to keep feeding inflation. The good news is that inflation is expected to decline to 6.2% for May, but a number below 6% would likely be needed to divert the RBA from raising rates at the start of July.
2. AU Retail Sales
Alongside inflation data next week, the RBA gets another key piece of data with retail sales. Last month’s data showed that the RBA’s extensive tightening cycle is having its desired effect on consumers, with sales flat for April. This is a situation where bad news is good news for the RBA.
Retail sales were flat, but this means that consumption is slowing, a key ingredient in the fight against inflation. Retailers are now feeling the full pain of the RBA’s hiking cycle, with consumers tightening their belts. As the end of the financial year draws to a close in Australia, discounts are starting as retailers look to offload inventory.
The idea of driving volume through markdowns can be useful but unfortunately, it means profit margins erode as a result. We’re already seeing that take shape, with many retailers downgrading their profit guidance with the full extent of the difficulties likely to be evident during reporting season. The expectation is for retail sales to gain marginally for May to 0.1%, but the next six months may see this number decline further as rates continue to rise and the lag of previous hikes takes full effect.
3. Can bitcoin reach a new 52-week high?
It was a big week for bitcoin, with the news that Blackrock (NYSE:BLK) filed an application for a bitcoin ETF. Bitcoin jumped by about US$30,000 for the first time in months but the key level to watch now is a move above US$30,000.
The asset hasn’t traded above this level for a year. A move above US$31,000 would signal a new 52-week high and spur investor optimism, with volumes already rising significantly.
The bottom line here is that this is a tip of the hat from Wall Street to crypto, signalling institutions are clearly keen on this asset, even if it felt crypto had left the conversation for a few months. When it comes to ETF issuance, Blackrock knows a thing or two, with 575 accepted applications and one denial. A potential ETF approval, alongside clearer regulation and a bitcoin halving next year, are crucial catalysts for a solid second half of 2023 for bitcoin. However, there are still risks, from regulatory crackdowns to the potential for higher-for-longer interest rates that may spoil the party.