Australian sharemarket tipped to open in red as investors look to growth stocks

The Australian sharemarket is expected to open deep in the red on Monday, with commodities and financials to come under pressure.

The Australian sharemarket is expected to open 1.5 per cent lower on Monday. Picture: NCA NewsWire/David Swift

The Australian sharemarket is expected to open deep in the red on Monday, with commodities and financials to come under pressure as the reflation trade takes a hit and investors shun value in favour of growth stocks.

SPI futures are pointing to a 1.5 per cent, or 110 point, drop at the open, after overseas markets took a beating on Friday as investors come to terms with a more hawkish US Federal Reserve.

Areas of weakness will include the resources sector as the commodity complex falls backwards, CommSec senior economist Ryan Felsman said.

Iron ore, gold and copper miners will be among those nursing their wounds, with all three commodities under pricing pressure, he warned.

The iron ore price dropped 1.6 per cent to $US217.30 a tonne last week, while copper endured its worst week since the Covid-19 pandemic began, plunging 7 per cent. The gold price was also hit hard, slumping 6 per cent over the course of the week to $US1764.

“The reflation trade has been put on hold as the US dollar strengthened after the US Fed meeting,” Mr Felsman said.

“It will be really interesting in markets over the next week or so; we’re expecting a period of heightened volatility.”

But weakness in the Australian dollar could support the sharemarket in terms of overseas buyers, he added.

The Australian dollar fell on Friday to US74.77c by the US close. This is well below the US80c CBA has forecast the currency to get to by year’s end.

Energy producers may be among the better performers on Monday after the oil price rose as OPEC said they expected limited US oil output growth this year.

The local tech sector, which jumped 7 per cent last week, may also be spared from much of a bruising at the start of the trading week, according to Mr Felsman.

“There’s a dynamic playing out where we’re seen the rotation into value wane. Cyclicals and industrials, and banks, could all be under pressure tomorrow. Tech stocks may be down but not quite as much (as the others),” he said.

The rotation from growth to value that has captivated investors for much of this year came to an abrupt halt last week as the US Fed struck a more hawkish tone, indicating rates would move higher in 2023.

The Dow Jones on Friday rounded out its worst week since October, with the index dropping 1.6 per cent in the day’s trade, and losing 3.45 per cent over the week.

The S&P 500 also fell, dipping 1.3 per cent on Friday and 1.9 per cent for the week, while the Nasdaq slipped 0.9 per cent in the last trading day of the week, bringing its weekly decline to 0.3 per cent.

Looking ahead, on the data front, preliminary May retail sales data is released on Monday, with analysts tipping a softer outcome than that seen through March and April.

NSW and South Australia also hand down their state budgets, with onlookers watching for any policy announcements around housing.