Sentiment is mixed this morning. The deadly Hamas attack on Israel will have ramifications, but to what extent we do not know.
IG Markets analyst Tony Sycamore is predicting a rocky start to trading.
“Israel has officially declared war and says it won’t stop until Hamas’s military infrastructure is destroyed, which is expected to take months. Putting aside the tragic human cost for the moment, the fallout of the attacks will see the price of crude oil open higher, given downside risks to Iranian production and the reduced probability of Israeli-Saudi normalisation,” Sycamore said.
The Wall St Journal has alleged that Iran helped Hamas plan the devastating attack, which could widen the conflict.
The Journal alleges members of Iran’s Islamic Revolutionary Guard Corps worked with Hamas since August to plan the attack and reportedly gave Hamas the green light last Monday.
The involvement of Iran, if true, could be the catalyst for a long conflict that drags in other Middle Eastern countries.
Accusations that the release of $6 billion in Iranian funds by the US contributed to the attack have been quashed by US Secretary of State Anthony Blinken.
“The facts are these — no US taxpayer dollars were involved,” Blinken said.
“These were Iranian resources that Iran had accumulated from the sale of its oil that were stuck in a bank in South Korea. They have had from day one, under our law, under our sanctions, the right to use these monies for humanitarian purposes. … As of now, not a single dollar has been spent from that account.”
Despite the horror, other analysts are saying the local market could have a strong start, following higher finishes to the ASX and Wall St on Friday.
The benchmark S&P/ASX 200 index advanced 0.4%, or 28.4 points to 6954.2 at the closing bell on Friday. The ASX was led by the banks with the Commonwealth Bank rising 1.1% to $100.04, Westpac 2.1% to $21.44 after Barrenjoey upgraded the stock to a ‘neutral’ rating, ANZ 0.9% to $25.32 and National Australia Bank 1.5% to $28.94. BHP (ASX:BHP) Group Ltd also rallied, gaining 1.3% to $43.97.
However, the ASX lost 1.3% for the week.
The market hasn’t been below 7,000 since March. All eleven ASX200 sectors closed lower led by the Energy (-6.6%), Consumer Discretionary (-1.97%) and Industrial (-1.89%) sectors. The Consumer Staples (-0.34%), Financials (-0.45%) and Real Estate (-0.51%) sectors outperformed.
What happened last week?
Here’s what we saw (source Commsec):
US markets
Rallied on Friday, led by technology shares to a sharply higher close as investors assessed a jobs report that showed US hiring rose broadly in September with slowing wage growth. Large-cap tech names, including Microsoft (NASDAQ:MSFT), Apple (NASDAQ:AAPL) and Nvidia, rose between 1.5% and 2.5%. Shares of Ford advanced 0.8% and General Motors (NYSE:GM) gained 2% after a last minute deal with the autoworkers union helped buoy sentiment. Shares of Exxon Mobil (NYSE:XOM) dipped 1.7% after sources told Reuters that the US oil producer was in advanced talks to acquire Pioneer Natural Resources (NYSE:NYSE:PXD) for around US$60 billion. Pioneer's stock jumped 10.4%.
- The Dow Jones index rose by 288 points or 0.9% after falling as much as 272 points at its session low.
- The S&P 500 index gained 1.2%.
- The Nasdaq index added 211.5 points or 1.6% after both being down 0.9% before registering their biggest daily percentage gains since late August.
- For the week, the Dow fell 0.3%, the S&P 500 gained 0.5% and the Nasdaq rose 1.6%.
European markets
Closed up on Friday, managing to shake off a brief fall due to the strong US jobs report. Retail stocks led gains, rising 2.3%, with shares of online fashion retailer Zalando up 6.5%. Tech stocks gained 1.9% as bond yields pulled back.
- The continent-wide FTSEurofirst 300 index gained 0.8% on Friday but was down 1.1% for the week, notching its third straight decline.
- In London, the UK FTSE 100 index added 0.6% on Friday but still logged a 1.5% weekly loss.
The UK Halifax house price index was 4.7% lower in September than a year ago (survey: -5%), the biggest drop since August 2009.
Currencies were mixed against the US dollar in European and US trade.
- The Euro rose from US$1.0483 to US$1.0598 and was near US$1.0585 at the US close.
- The Aussie dollar lifted from US63.14 cents to US63.99 cents and was near US63.85 cents at the US close.
- The Japanese yen eased from 148.74 yen per US dollar to JPY149.48 and was near JPY149.30 at the US close.
Global oil prices rose by 0.6% on Friday but posted their steepest weekly losses since March, after another partial lifting of Russia's fuel export ban compounded demand fears due to economic headwinds.
- The Brent crude price rose by US51 cents or 0.6% to US$84.58 a barrel.
- The US Nymex crude price gained US48 cents or 0.6% to US$82.79 a barrel.
- For the week, Brent shed 11.3% and the Nymex slid 8.8%.
Base metal prices rose on Friday.
- The copper futures price gained 2.1% as the US dollar eased, trimming the weekly loss in the metal to 2.7%.
- The aluminium futures price edged higher by 0.1%, but was down 4.4% for the week.
- The gold futures price rose by US$13.40 an ounce or 0.7% to US$1,845.20 an ounce on Friday, ending a nine-day losing streak. Bullion lost 1.1% for the week.
- Spot gold was trading near US$1,832 an ounce at the US close.
- On Friday, iron ore futures lifted US32 cents or 0.3% to US$117.74 a tonne but were down 1.7% over the week.
What's next for the Australian stock market?
As usual Wealth Within chief analyst Dale Gillham gives us his view on what to expect from the market in coming weeks.
"As expected, the All Ordinaries Index experienced its third week down in succession moving to a low of 7,062 points. This level is significant as it is a strong support level for the market and, as mentioned previously, my target price for the fall. That said, while the market may find support and start to rise again, this is not guaranteed.
“While some levels are stronger than others, they are only a guide to where a stock or market may turn and so while we may see signs that the fall has ended in the next week or so, this still needs to be confirmed before we jump into the market. That said, we don’t buy the market, we buy stocks, and some will lead the charge. If a stock you are watching triggers a buy, there is a good probability you will do well.
“I say this because while we may see further falls below 7,000 points, I do believe the end of the move down is either here or very close. Either way, I believe October will close higher than it opened, but I do urge investors to exercise caution as we can’t control the market, only our actions of buying and selling. Given this, it’s better to err on the side of caution rather than jump in early because you think it will be better in the future.”
Three things to watch for the week ahead
Josh Gilbert, Market Analyst at eToro, shares his three things to watch in Australia in the coming days.
1. Consumer Confidence AU
On Tuesday, the latest monthly figures for the Westpac-Melbourne Institute Consumer Sentiment index will be released. Last month, the index fell by 1.5% month-on-month to 79.7, which continued the trend of declining confidence that has continued since a brief spike of 81.3 in July. An additional 1-2% drop in confidence is on the cards for October, given the RBA’s string of consecutive rate hikes earlier this year is now well and truly being felt by households.
The most recent ASX earnings season indicated that many Aussies have tightened the purse strings on consumer goods, and while the Christmas period will undoubtedly provide a boost to retailers, there’s not much relief on the horizon for households in the interim. That said, the RBA’s hiking cycle seems as good as done. It would take a significant surprise in data to change that, especially with the moderation of oil prices in recent days. Therefore, consumer confidence could begin to pull out of a decline anytime from now.
2. US Inflation
Following last week’s key jobs numbers, it is another big week of US data, with monthly CPI handed down on Thursday. US core inflation has continued to trend lower since March, and this week's reading is set to see another fall to 4.2% from 4.3% the month prior.
The risks in this inflation report, like we saw locally in the last few weeks, come from headline inflation following the recent spike in oil prices. Expectations are for headline inflation to remain at 3.7%, but there’s a chance this could move higher to 3.8%, with the decline in inflation stalling since June after reaching a low of 3%.
The fall in oil prices in recent days might give investors some relief that the Federal Reserve won’t be forced to hike rates again, especially as consumer spending slows and core inflation continues to trend lower. Equity markets have been spooked over the last few weeks over the US economy’s strength and rise in 10-year US Treasury Yields. However, a better-than-expected inflation reading would provide a much-needed boost for markets and help subdue some concerns of rates being higher for longer.
3. Chinese Inflation
After moving into deflation in July, Chinese inflation is set to rise modestly in September to 0.1% due to higher energy costs.
Recent policy support won’t be an overnight success and will take time to drive demand that will lift prices. Despite recent measures, concerns remain over the Chinese economy as the property crisis continues to deepen and put further pressure on growth.
On top of CPI, next week, loan data will be handed down, another key data point for demand after rising last month. Unfortunately, given the uncertainty over China’s recovery, the local materials sector remains under pressure, with commodities seeing continued volatility in the near term. The good news is that the worst has likely passed, and we should begin to see China’s economy continue to stabilise, with a recent pick up in production and retail sales, which translates into better news for the local market.
On the small cap front
The S&P/ASX Small Ordinaries finished 0.17% down on Friday and 2.74% for the week.
It has been a steady newsflow for a Monday morning and you can read about the following and more throughout the day: