Australian shares set for retreat as investors mull impact of Donald Trump’s trade policies
The local bourse is set to retreat in the second last session of the year after a sell off on Wall Street as investors mull whether possible trade policies in the US could fuel inflation.
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The Australian sharemarket is set to retreat in the second last trading day of 2024 on Monday amid year-end adjustments and regulatory rebalancing following losses.
Futures markets pointed to a 29 point, 0.4 per cent drop on the ASX 200 at Monday’s opening after it fell 0.6 per cent last week in what is likely to cap off strong pullback for December.
The benchmark S&P/ASX 200 index ended up 0.5 per cent, or 40.9 points, at 8261.8 on Friday, amid light trading volumes as regional optimism was boosted by optimism over China’s economic support packages.
Sentiment however turned throughout Friday trade on Wall Street as the tech-heavy Nasdaq lost 1.5 per cent as shares in Tesla fell 5 per cent as interest rates knocked shares of highfliers lower on concerns that it could result in fewer electric vehicle sales, while those in AI chipmaker Nvidia shed around 2 per cent. The Dow Jones Industrial Average slid 0.8 per cent and the S&P 500 retreated 1.1 per cent.
Stocks have historically performed well around Christmas in what is popularly known as a Santa Claus rally.
SPI Asset Management managing partner Stephen Innes said global stocks have been feeling the weight of year-end adjustments and regulatory rebalancing which have become more profound since the global financial crisis.
“This minor pullback is a dance to the annual tune of the year-end funding premium—when borrowing costs soar as financial institutions tighten up for regulatory scrutiny,” he said.
“This end-of-year financial choreography boosts demand for US dollar funding and spikes borrowing costs. This year, it catalyses a selloff of profitable heavyweight tech stocks, cooling the market fervour from a stellar performance.”
Investors also faced a headwind from an increase in 10-year US Treasury bond yields to around 4.6 percent, which was up nearly 0.9 percentage points since the US Federal Reserve made its first recent interest rate cut in September.
Australian and global shares were heavily sold earlier this month when the Federal Reserve indicated it would likely cut interest rates less than it had previously expected amid uncertainty tied to President-elect Donald Trump’s vow to raise import tariffs, which could boost inflation that is already proving sticky.
Mr Innes said the unpredictable nature of US trade policy under the incoming administration could have significant implications for the global economy and also for markets.
“The debate intensifies around the potentially inflationary impact of new tariffs, which clearly point to higher inflation but lower economic growth due to increased protectionism. This scenario spells trouble for the financial markets,” he said
Local stocks will be heavily guided by events overseas this week with much of the country still off for the Christmas-New Year period. All eyes will be on China’s purchasing managers’ index on Tuesday which is expected to show service PMI lifted from 50 to 50.2 in December, while the US ISM manufacturing index is likely to remain and largely unchanged at 48.5 when released on Friday.
No major economic data is scheduled to be released in Australia except for monthly home values.
Brent crude oil futures rose 1.2 per cent to $US74.20 per barrel on Friday amid a fresh decline in US oil inventories, while markets assessed the outlook of Chinese demand and whether higher supply from non-OPEC+ will drive the global market to a surplus next year
The Australian dollar was buying US62.20c as it remained weak across major currencies. This quarter has seen a rapid deterioration in the value of the dollar with it having fallen about 10 per cent since October 1.
Originally published as Australian shares set for retreat as investors mull impact of Donald Trump’s trade policies
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