Stocks tipped for a fall as focus turns to US debt ceiling talks
The benchmark S&P/ASX 200 Index advanced 1.1 per cent last week after the US Federal Reserve shocked investors by keeping its $US85-billion-a-month asset-buying program at full steam. The market was expecting a $US10 billion taper.
But the optimism that spread across the globe may be short-lived. On Friday, the ASX gave up 0.4 per cent, after rising more than 1 per cent on Thursday after the Fed's decision.
The losses were sharper in overseas trade on Friday night, with Wall Street slipping off its record highs. The Dow Jones Industrial Average fell 185 points, or 1.2 per cent, while the S&P 500 shed 23 points or 0.7 per cent.
The nosedive came after the president of the St Louis Federal Reserve Bank, James Bullard, said the Fed could start scaling back its massive bond-buying program at its next meeting in October, if the economic data was strong enough.
Mr Bullard said the Fed was looking for signs of further strength in US payroll and employment figures. "To the extent that these two important labour market indicators continue to show improvement, the likelihood of tapering policy action will continue to rise," he said.
ASX SPI futures indicated a soft start to the week, down 23 points. CommSec chief economist Craig James said that made sense, adding that last week's rally was a bit of an overreaction.
"All the Fed was saying was that they are delaying [tapering] not cancelling it," Mr James said. "The US is actually going quite well.
"And markets were already weaker on Friday, following a bit of profit-taking."
Mr James pointed to losses to ASX heavyweights BHP Billiton and Rio Tinto in their respective London listings in overnight trade on Friday as pulling Australian shares further into negative territory on Monday.
The miners' losses came after Mr Bullard's comments triggered a fall in metals prices. Copper slipped off its month high of $US7368 a tonne, to $US7280 at Friday's close.
Ongoing concerns about the US debt ceiling, which Congress must decide on mid next month, are expected to further weigh on investors this week.
But AMP chief economist Shane Oliver said local markets could also get a boost when purchasing managers' indexes (PMIs) are released in China, Europe and the US, with China's figures predicted to show Australia's biggest trading partner is on the mend again.
But he agreed with Mr James, saying overall the big question was whether sharemarkets had run a bit too hard and too fast. "With these debt ceiling negotiations on the way in the US, it's quite possible we might have a bit of a speed bump or correction over the next month or so," he said. With AAP
Frequently Asked Questions about this Article…
Economists say last week’s rally on the S&P/ASX 200 looked a bit overblown after the US Federal Reserve surprised markets by keeping its $US85 billion-a-month asset purchases. Comments from a Fed official suggesting tapering could begin if US labour data strengthens, a pullback on Wall Street, and ongoing US debt ceiling concerns have all increased the risk of a short-term slide in Australian shares.
Tapering talk raises the prospect that the Fed will start scaling back its bond-buying program, which can reduce global liquidity and dent investor optimism. The article notes Fed comments from the St Louis Fed president helped trigger falls on Wall Street and contributed to weaker sentiment for ASX stocks.
BHP Billiton and Rio Tinto saw losses in their London listings after Fed tapering comments contributed to a fall in metals prices. Because miners are heavyweight constituents of the ASX, their weakness can pull the overall market lower and is an important signal for investors to monitor.
Yes. The article points out copper slipped from a month high of about US$7,368 a tonne to US$7,280 at Friday’s close, and that fall in metals helped drive losses in mining stocks—showing how commodity price moves can quickly affect resource-heavy indexes.
The US debt ceiling is a legal limit on how much the US government can borrow. The article says ongoing concerns about upcoming debt ceiling negotiations in Congress are expected to weigh on investors, because political uncertainty around raising the limit can increase market volatility.
The article highlights purchasing managers’ indexes (PMIs) due from China, Europe and the US. AMP’s chief economist said China’s PMI is expected to show improvement, which could help Australian markets, while stronger US employment and payroll data could increase the likelihood of Fed tapering and hurt sentiment.
Both CommSec’s Craig James and AMP’s Shane Oliver warn the rally may have run a bit too hard and too fast. They suggest a modest ‘speed bump’ or correction over the next month is possible, especially with debt ceiling negotiations and the potential for stronger US data that could prompt tapering talk.
Keep an eye on ASX SPI futures (which were down 23 points in the article), US payroll and employment figures, metals and commodity prices (especially copper), PMI releases from China/Europe/the US, and developments in the US debt ceiling negotiations—these were all cited as key near-term influences on market direction.
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