ASX set to open higher even as Big Tech losses pull Wall Street lower

The Australian sharemarket is set to open higher this morning, raising hopes for a reprieve after it slumped to a six-year low on Tuesday as the Reserve Bank kept rates on hold and suggested it was in no hurry to cut them again.

ASX futures were up 17 points, or 0.2 per cent, to 8829 as of 6.35am AEDT. The local bourse fell 0.9 per cent on Melbourne Cup Day amid broad-based declines, led by miners, energy stocks and utilities. The Australian dollar was 0.8 per cent weaker at US64.85¢ at 6.44am.

Shares drifted lower on Tuesday after the RBA confirmed it was leaving the cash rate at 3.6 per cent and admitted it may have misjudged the extent of inflation pressures across the economy that lift the cost of living for consumers and businesses. Kicking off higher this morning, the ASX would be shrugging off a sell-down on Wall Street overnight, which was led by big tech stocks.

Tech stocks pulled the US market down overnight.Credit: Bloomberg

The S&P 500 fell 1.1 per cent in afternoon trading as the tech giants that had been driving the US market’s rally this year were now leading losses. The Dow Jones Industrial Average fell 0.7 per cent, and the Nasdaq composite sank 2 per cent. The majority of stocks within the S&P 500 fell, and technology companies were the biggest weights dragging the market lower.

A chorus of Wall Street executives has been warning investors to brace for a pullback amid lofty valuations, which fuelled worries about whether the market has run ahead of itself.

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At a time when traders have started questioning the need for a breather, the chiefs of giants from Capital Group to Goldman Sachs and Morgan Stanley noted the possibility of a pullback as a healthy development. Not only are sentiment and technical indicators flashing signs of overheating, but the narrow leadership of big tech has made some investors uncomfortable.

“Tough to argue against that,” said Elias Haddad at Brown Brothers Harriman & Co. “While the stock market rally is not irrational (backed by solid company earnings and easier monetary policy), it does reflect a degree of exuberance judging by elevated investor bullishness and options market positioning.”

Palantir Technologies, which had more than doubled so far this year, slumped 7.4 per cent despite reporting results that beat analysts’ forecasts.

Nvidia also reversed course from a day earlier, falling 3.2 per cent, while Microsoft fell 1 per cent. Their huge values give them outsize influence over the market’s broader direction.

Bucking the trend, Apple shares rose 0.6 per cent after a report that the tech giant is preparing to enter the low-cost laptop market for the first time, developing a budget Mac aimed at luring away customers from Chromebooks and entry-level Windows PCs.

Wall Street remains focused on corporate earnings. Roughly three out of every four companies within the S&P 500 have reported their latest results, which have been mostly better than analysts expected.

“However, expectations for technology firms seem higher, and disappointments appear to be having a disproportionately negative effect,” Paul Christopher, head of global investment strategy at Wells Fargo Investment Institute, wrote in a note to investors.

Norwegian Cruise Line slid 14.7 per cent after giving Wall Street a mixed earnings report and forecast. Uber slumped 6.3 per cent despite reporting financial results that beat analysts’ expectations.

Several big companies will report their latest financial results later this week, including McDonald’s, Expedia Group and Qualcomm.

The latest round of corporate profit reports and forecasts have taken on more significance for Wall Street amid the US government shutdown. Investors and economists are trying to gauge the health and direction of the world’s largest economy without the latest government updates on inflation and employment.

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The lack of timely economic data has also left the Federal Reserve without many of the resources it needs to make decisions on interest rate policy. That has added more doubts to whether the central bank will continue cutting its benchmark interest rate amid stubborn inflation and a weakening job market.

The central bank cut rates in October for the second time this year. Fed Chair Jerome Powell has cautioned that further rate cuts aren’t guaranteed. Other Fed members have since also expressed concerns about more cuts with inflation remaining above the central bank’s target of 2 per cent.

Wall Street is forecasting a 70 per cent chance of a rate cut at the Fed’s next meeting in December, according to CME FedWatch. That’s down from a 90.5 per cent a week ago.

Outside of earnings, Tesla fell 4 per cent after Norway’s sovereign wealth fund, one of the electric carmaker’s biggest investors, said it will vote against a proposed compensation package that could pay CEO Elon Musk as much as $US1 trillion ($1.5 trillion) over a decade. There will be more than a dozen company proposals up for a vote on Thursday during Tesla’s annual meeting, but none have generated more division than Musk’s potentially massive pay package.

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Yum Brands jumped 6.1 per cent after the company said it is considering selling its Pizza Hut unit, which has struggled to compete in a crowded pizza market.

Novo Nordisk slipped 1 per cent after it raised its offer to buy drugmaker Metsera, which jumped 18.3 per cent. Novo Nordisk is trying to outbid rival Pfizer, which rose 0.3 per cent.

Oil fell after a four-day run of gains, pressured by a strong US dollar and a backdrop of oversupply. West Texas Intermediate declined by as much as 1.8 per cent to trade below $US61 a barrel as the US currency climbed to the highest level in over three months, weighing on crude.

Gold prices fell the most in a week due to the greenback’s rise and as traders considered the outlook for the Fed’s rate policy. Bullion has staged a power advance since late August as investors bet on further easy money by the US central bank. Despite its recent steep declines, the precious metal is still up more than 50 per cent this year. Any changes in the Fed’s rate path may derail bullion’s price rally as higher rates are typically negative for the non-yielding metal.

European markets were mostly lower and Asian markets fell overnight.

Treasury yields edged lower in the bond market. The yield on the 10-year Treasury edged down to 4.09 per cent from 4.10 per cent late on Monday.

with AP, Bloomberg, AAP

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