ASX to drop, global equities fall, despite positive US economic data

ASX to drop, global equities fall, despite positive US economic data

Australian shares are expected to start the day lower tracking overnight losses on Wall Street.

Key points:

  • All three Wall Street indexes end lower
  • Pan-European STOXX 600 index fell 1 per cent
  • Oil prices strengthen as EU leaders to phase out Russian oil

ASX futures were down 58 points, or 0.8 per cent, to 7,178 at 6:51am AEST.

At the same time, the Australian dollar was flat, at 71.76 US cents.

Global equities fell on Wednesday after stronger-than-expected economic data was unable to assuage investor concerns of high inflation and an impending recession, driven partly by rising oil prices.

A report by the Institute for Supply Management (ISM) showed US manufacturing activity picked up in May as demand for goods remained strong, even with rising prices.

The survey followed data released last Friday showing US consumer spending, the largest contributor to American economic output, increased in April, even amid growing concerns of a recession.

Market sentiment, however, has remained bearish, due to the prevailing uncertainty caused by the pace of the US Federal Reserve’s interest rate hikes, and the impact of the Russia-Ukraine war on food and commodity prices.

“There’s a lot of uncertainty,” said Michael Ashley Schulman, chief investment officer at Running Point Capital in Los Angeles.

“If we have a recession, it would be strange and unusual with nearly full employment, companies still hiring and huge demand for things.”

The MSCI world equity index, which tracks shares in 50 countries, was down 0.8 per cent.

Meanwhile, the pan-European STOXX 600 index fell 1 per cent.

On Wall Street, all three main indexes ended lower, driven by stocks in the financials, healthcare, technology and consumer discretionary sectors.

The Dow Jones Industrial Average fell 0.5 per cent, to 32,813, the S&P 500 lost 0.8 per cent, to 4,101 and the Nasdaq Composite dropped 0.7 per cent, to 11,994.

“Rising interest rates and inflation are just compressing valuations,” Mr Schulman added.

“You may like a company, and it may be good and can continue to make profits, but the valuation must still come down because your base interest rate is rising.”

Oil prices continued to strengthen after the move by European Union leaders to gradually phase-out Russian oil, even as China ended its stiff COVID-19 lockdown in Shanghai, which could bolster demand for crude in an already tight market.

Brent crude oil was up, trading at $US115.83 a barrel, by 06:52am AEST.


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