Australian stocks to drop as China disappoints

Mining and energy stocks will weigh on the local sharemarket on Monday, even after US markets hit fresh highs.

The Australian sharemarket is expected to drop in Monday’s trade. Picture: NewsWire / Max Mason-Hubers

The local sharemarket is set for a downbeat start to the week as investors weigh China’s latest support package for its debt-laden local governments, with materials to come under pressure.

SPI futures are pointing to a 0.4 per cent drop at the open, with energy and mining stocks to drag, and potentially partially offset by strength in the technology and financial sectors.

China late on Friday announced a five-year package totalling 10 trillion yuan ($2.1 trillion) to tackle local government debt. But the absence of fresh stimulus was a disappointment to the market, amid heightened fears of the new headwinds that will come with the return of a Trump presidency.

The lower-than-expected support will drag down mining stocks in the local market, said CommSec chief economist Ryan Felsman. “That announcement out of China was a disappointing stimulus number … and that weighed on metal prices. So we saw copper down 2.8 per cent, aluminium was down 3.5 per cent, gold fell 0.4 per cent and iron ore was 1.3 per cent lower, at $US103 (per tonne),” he said.

Oil prices were also lower as concerns around disruption to supply in the Gulf of Mexico receded. WTI crude dropped 2.74 per cent to $US70.38 a barrel, as Brent dropped 2.33 per cent to $US73.87.

It comes as US markets hit fresh records on Friday, with the S&P 500 topping 6000 for the first time. All three US benchmarks closed the session higher: The S&P 500 pushed to as high as 6012.45 in afternoon trade, before paring the gains to close up 0.4 per cent at 5995.54. The Dow leapt past 44,000 points for the first time, before closing at 43,988.99, and the Nasdaq ended slightly higher at 19,286.78.

Banking and technology stocks may buck the downbeat performance in Monday’s trade, Mr Felsman said.

“We might see a continuation of financial services companies performing quite well, due to the euphoria around (potential) deregulation in the US banking sector,” he noted.

A wave of fresh banking deregulation, along with tax cuts, is widely expected to come under president-elect Donald Trump.

On the data front, all eyes will be on labour force numbers due on Thursday. CommSec is tipping the unemployment rate will inch up to 4.2 per cent.

Elsewhere, consumer and business confidence surveys feature on Tuesday and the wage price index (WPI) for the September quarter is released on Wednesday.