Will lower commodity prices weigh down on the ASX 200?

Summary

  • On Wednesday, the ASX 200 is looking to open 0.1% lower, likely to be dragged by energy and mining stocks.
  • Bitcoin tried to recover after falling below US$30,000, and is up by 3.55%, at US$32,628.
  • The benchmark iron ore futures in China fell for a second consecutive session as China’s plans to investigate into commodity prices dented sentiments.

On Tuesday, the Australian benchmark index pared most of the losses incurred after a sizable drop on Monday. The ASX 200 closed the session 1.48% up, at 7342.3. On Wednesday, the ASX 200 is looking to open 0.1% lower, likely to be dragged by energy and mining stocks amid falling commodity prices.

On Tuesday. Wall Street inched upward as market participants were prepared for the US Federal Reserve’s Chairman, Jerome Powell to come out with his opinion on the US economy, while oil and the US dollar both struggled to hold their ground.

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On Wall Street, the Dow Jones rose 0.2%, to 33,945.59, while the S&P 500 gained 0.51%, to 4,246.43. The NASDAQ Composite added 0.79%, to 14,253.28, making it close at an all-time high level. Amazon shot up by 1.49%, boosting the S&P 500 and the NASDAQ, as it entered the second day of its multibillion-dollar online sales event, Prime Day.

Jerome Powell's testimony enabled market participants to sort through the US Fed's thinking, after a policy meeting last week suggested Fed officials expected rates hikes could be there sooner than previously indicated, citing inflation worries. However, Powell has also made it clear that the Fed intends to keep supporting jobs market with its unprecedented monetary support until it returns to normal.

In the bond markets, yields on benchmark 10-year US Treasury notes rose above 1.5% on Tuesday as rising inflation expectations helped steepen the yield curve for the first time since mid-May. However, by closing, the yields were down to 1.4801%.

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In currency markets, the US dollar index fell 0.14% to 91.75 on Tuesday, as the US central bank said that policymakers are forecasting two rate hikes in 2023. That led traders to re-evaluate their bets on the ground that the Fed will let inflation run at higher levels for a longer time before hiking rates.

The Australian and New Zealand dollars ticked up on Tuesday. The Aussie dollar was up 0.21% to US$0.7550, while the New Zealand dollar was up 0.54% to US$0.7023. 

Read More: What’s Making Australian Dollar Weak And NZD Firm?

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Bitcoin began making a comeback, after falling below US$30,000, lows not seen since January 2021. The cryptocurrency last traded at US$32,628, up by 3.55% (as of 7:08 AM AEST) but has nearly halved in value from the peak over the last three months.

Bitcoin and other cryptocurrencies witnessed heavy selling pressure on Tuesday, hurt by a tightening crackdown on trading and mining in China.

Read More: Seven unbelievable facts about cryptocurrencies

Technology shares to gain

The Australian technology sector is poised to open with an uptick as tech-heavy NASDAQ 100 closed at an all-time high in the US. Shares such as Afterpay Limited (ASX:APT), Xero Limited (ASX:XRO) and Zip Co Limited (ASX:Z1P) should be on investors’ radar.

Read More: What’s the link between ByteDance and TikTok?

Crude oil prices softened

On Tuesday, crude oil continued its momentum as commodity traders anticipate an end to pandemic lockdowns will now unleash pent-up travel demand.

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Brent crude futures rose above US$75 a barrel for the first time in over two years, before giving up gains later during the day. It was last down 0.32%, to US$74.66 per barrel, while WTI crude futures was last down 0.8%, to US$73.04 a barrel.

The Australian energy shares such as Oil Search Limited (ASX:OSH), Woodside Petroleum Limited (ASX:WPL) and Origin Energy Limited (ASX:ORG) could be looked upon for intraday price action.

Gold prices edged lower

On Tuesday, gold retreated from higher levels as traders awaited testimony from the Fed chair Jerome Powell for more clarity on the course of monetary policy going forward after it struck a hawkish tone last week.

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Spot gold fell 0.3% to US$1,777.91 an ounce by 1:35 PM EDT, while the US gold futures for August month delivery settled down 0.3%, at US$1,777.4 an ounce.

Gold miners such as Silver Lake Resources Limited (ASX:SLR), Newcrest Mining Limited (ASX:NCM) and De Grey Mining Limited (ASX:DEG) could open with slight downtick.

Metals update

On Tuesday, the benchmark iron ore futures in China fell for a second consecutive session, trimming its gains in 2021 to 31% from more than 50% gain at the peak, as China’s plans to investigate into commodity prices dented sentiments.

The iron ore futures contract for the September month delivery on the Dalian Commodity Exchange (DCE), fell 5.2% to 1,110 yuan (US$171.75) per tonne, its lowest level in two weeks. The futures closed the session 2.7% down, at 1,139 yuan a tonne.

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On Tuesday, copper prices ticked up from 10-week lows as investors waited to find out if Fed’s Powell will give guidance on the pace of US monetary tightening in testimony to Congress.

Local miners to be in focus for the day are Rio Tinto Limited (ASX:RIO), BHP Group Limited (ASX:BHP) and Fortescue Metals Group Limited (ASX:FMG).

Read More: What are battery metals? Why is their demand growing?


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