ASX Today: US bubble fears weaken outlook

A new month has a negative start after disappointing vaccine news and bubble fears helped seal Wall Street’s worst week since October.

American equities fell about 2% on Friday as speculative mania brought up memories of the dot.com boom and collapse.

Future Australians fell 34 points or 0.5 percent. The S & P / ASX 200 anticipated some of Friday’s US weakness with a 42-point drop, but looked likely to open this morning at its lowest level since early December.

Gold rose for the first time in seven sessions. Iron ore increased slightly. Industrial metals fell. Oil continued to drift sideways. The dollar opened about 76.2 US cents.

Wall Street

US stocks added to the falls earlier in the week as the war between retail and hedge funds resumed and Johnson & Johnson reported disappointing vaccine results.

The S&P 500 sank 73 points or 1.93 percent. The Dow Jones Industrial Average lose 621 points or 2.03 percent. The Nasdaq composite lost 266 points or 2%. The declines closed weekly declines between 3.3 and 3.5 percent for the three major indices.

Reddit’s retail army resumed its pursuit of heavily sold stocks after popular trading platforms such as Robinhood waived restrictions imposed in the previous session. GameStop climbed 67.9% and AMC Entertainment climbed 53.7%.

While the sight of retail traders defeating well-funded hedge funds has tickled the public imagination, the separation of valuations from fundamentals has raised bubble concerns. Regulators are said to have looked at recent market action after trading volumes last week hit their highest level since 2014.

There is way too much leverage in the system, and were starting to see signs that this excess leverage was going to be unwound in a way that will create headwinds for the stock market and other risky assets for more than a few days, Matt Maley, chief strategist of the market at Miller Tabak, told CNBC.

Johnson & johnson was the biggest drag for the Dow Jones, dropping nearly 3.6% after reporting an overall efficacy rate of 66% for its single-dose vaccine. The vaccine appears to be less effective against recent mutations.

Australian perspectives

The market appears destined to turn negative for the year shortly after 10 a.m. AEDT as stocks fall to a fourth consecutive loss. Friday’s reversal session here proved a definite omen of what was to come in the United States.

It remains to be seen whether global markets have rebounded. What is evident is that investors need a return to stability on Wall Street before the bleeding stops.

The weekend was disappointing Covid news. As restrictions have been reinstated on the east coast in recent days as infection rates plummet, Perth and other parts of WA entered a hard five-day lockdown last night after a guard from quarantine security has tested positive. Internationally, access to vaccines has become a contentious issue, with production problems and competition for supplies increasing tensions. Any threat to Australia’s access would undermine confidence in the economic outlook.

The US action on Friday spared no sector. Falls ranged from 0.6% for utilities to 3.4% for energy stocks. Finances and materials both fell 2 percent.

Back home, the semester sex season starts this week and continues through February. Most Big Guns report later in the month, but updates are due this week by: Temple & Webster and Credit Corp (tomorrow); Amcor and BWP Trust (Wednesday); Nick Scali (Thursday); and REA Group (Friday).

The reserve bank returns in action this week. The board is having its first meeting of the year tomorrow. Governor Philip Lowe addresses the National Press Club on Wednesday, then testifies before the House Economics Committee on Friday. The central bank issues a quarterly statement on monetary policy on Friday.

The US quarterly season is mostly late, but this week brings reports from Amazon, Exxon Mobil, Pfizer and Spotify. Manufacturing and employment reports later in the week will also have an impact.

The dollar fell 0.18 percent to 76.24 US cents.

Basic products

money topped gold amid a short Reddit-inspired squeeze. Silver for March delivery was 99 cents or 3.8% higher at US $ 26.914 an ounce, extending Thursday’s lead by 2.1%. The metal gained 5.3% last week after posters on the WallStreetBets forum suggested the metal was ripe for the collective approach that took GameStop to extraordinary heights.

Gold for the February delivery, it settled for $ 9.10 or 0.5 percent at US $ 1,850.30 an ounce. The NYSE Arca Gold Bugs index was down 0.37%.

A slight rebound in iron ore proved no protection for BHP and Rio Tinto. BHP’s US-listed stock fell 3.65 percent and its UK-listed stock fell 2.47 percent. Rio Tinto lost 2.66% in the United States and 1.69% in the United Kingdom. The spot price for iron-ore landed in China edged up $ 1.85 or 1.2 percent to US $ 158.05 per tonne.

Copper hit its lowest level of the month as the US dollar strengthened and stocks fell. The London Metal Exchange’s benchmark copper fell 0.2 percent to US $ 7,862.40 per tonne. Aluminum gave up 0.1%, nickel 0.6%, lead 0.3%, zinc 0.5% and tin 0.5%.

Oil lost momentum at the end of a strong month. Brent stabilized 6 cents or 0.1 percent lower at US $ 55.04 a barrel. Brent’s most active contract rose 7.6% in January after Saudi Arabia pledged to cut production.