ASX to rise, US stocks end lower, snapping rally

The yield on the US 10-year note tumbled 12 basis points to 3.15 per cent at 4.32pm in New York.

On Wall Street, all three benchmarks finished slightly lower, erasing earlier gains as the bear market rally to start the week lost momentum as many strategists forecast. The VIX eased back below 29.

“The stock market could be setting a bear trap,” Ed Yardeni said in a note.

“With sentiment so bearish, the bears might have to scramble to cover their shorts if June’s CPI (to be released on July 13) is better than expected because retailers have had to lower their prices of excess durable goods inventories. Most importantly, let’s watch for possible peaks in food and energy commodities as the global economy slows and their high prices boost supplies of these commodities.”

Dalian iron ore futures tumbled on Wednesday to their lowest in 16 weeks, while a sell-off resumed in Singapore, as worries grew about an oversupply of steel in China.

World crude steel production for the 64 countries reporting to the World Steel Association was 169.5 million tonnes in May 2022, a 3.5 per cent decrease compared to May 2021.

Today's agenda

No local data

Overseas data: Services PMIs for June for Japan, Euro zone, UK and the US; UK public sector borrowing May; US June Kansas City Fed index

Market highlights

ASX futures up 31 points or 0.49 per cent to 6420 near 6.30am AEST

• AUD -0.6% to 69.30 US cents
• Bitcoin -5.2% to $US19,816.21 at 6.40am AEST
• On Wall St: Dow -0.2% S&P 500 -0.1% Nasdaq -0.2%
• In New York: BHP -3.7% Rio -4.1% Atlassian +1.3%
• Tesla -0.4% Apple -0.4% Amazon +0.3% Netflix +4.7%
• In Europe: Stoxx 50 -0.8% FTSE -0.9% CAC -0.8% DAX -1.1%
• Spot gold +0.4% to $US1839.39 an ounce at 2.45pm New York time
• Brent crude -2.6% to $US111.70 a barrel
• Iron ore -5.6% to $US109.40 a tonne
• 10-year yield: US 3.15% Australia 3.98% Germany 1.63%
• US prices as of 4.32pm in New York

United States

JPMorgan Chase said it had started laying off employees in its mortgage business, as elevated inflation and rising mortgage rates slow the housing boom in the United States.

More than 1000 employees will be affected and about half of them will be moved to different divisions within the bank, according to Bloomberg.

Boeing expects supply chain problems to persist almost until the end of 2023, led by labour shortages at mid-tier and smaller suppliers, partly due to the faster-than-expected return of demand, its chief executive said.

Moderna said that an updated version of its COVID-19 vaccine designed to target the omicron variant also generated a strong immune response against the fast-spreading omicron subvariants BA.4 and BA.5.

Europe

The pan-European STOXX 600 closed down 0.7 per cent, paring early loss that it took it to its lowest since January 2021.

Data on Wednesday showed soaring food prices pushed British consumer price inflation to a new 40-year high of 9.1 per cent last month, underlining the severity of the cost-of-living crunch. UK’s blue-chip FTSE 100 dropped 0.9 per cent.

Material stocks slid as iron ore and copper prices slumped on China supply and growth worries. Oil and gas stocks slipped 3.3 per cent as crude prices dropped on US President Joe Biden’s plan to cut fuel costs for drivers.

Gains in defensive sectors such as real estate, food and beverages and healthcare capped losses.

Germany’s DAX dropped 1.1 per cent as BASF slid 5.8 per cent after the German chemical group’s CEO said the company is likely to face a considerable downturn early in the second half of the year.

European steel companies such as ArcelorMittal, Voestalpine and Salzgitter fell in the range of 13.1 per cent and 11.1 per cent after JPMorgan downgraded the stocks, saying steel prices are yet to bottom.

Commodities

In a note, Commonwealth Bank’s Vivak Dhar said the fall in the price of iron ore was justified given rising concerns about China’s economic outlook.

“Markets are particularly worried that demand growth expectations linked to China’s pledge to boost infrastructure investment may not materialise, especially with China’s COVID‑zero policy still in play. Doubts over China’s future steel demand growth has meant that markets could no longer ignore current market conditions of oversupply in China’s steel sector.”

Dhar also said China’s COVID-19 zero policy has “magnified downside pressure on China’s property sales and property construction” which accounts for 30 per cent of the nation’s steel demand.

In addition, infrastructure investment (also accounting for 30 per cent of China’s steel demand) has been unable to reach the real economy either with restrictions and lockdowns in place earlier this year, he said.

“While restrictions have eased across China from earlier this year, demand hopes remain uncertain. New COVID‑19 outbreaks in Macau and Shenzhen over the last week highlight the ongoing uncertainty facing China’s economy due to the risk of renewed restrictions.”