Slow start expected on ASX

The Australian sharemarket is expected to open lower on Monday following steep declines on Wall Street at the end of last week.

The local sharemarket is expected to start Monday in negative territory following weak overseas leads. Picture: NCA NewsWire/Bianca De Marchi

The Australian sharemarket is expected to open lower on Monday following steep declines on Wall Street at the end of last week amid frenzied retail trading activity.

ASX futures are pointing to a 0.5 per cent drop at the open as investors remain cautious even as the market gears up for a strong earnings season, particularly from the big retailers.

Uncertainty surrounding the trading activity in US stocks such as GameStop and AMC is adding to the negative sentiment, CommSec chief economist Craig James told The Australian.

“With GameStop and the short selling by hedge funds, there’s still a degree of concern for the market.

“There’s also a focus on the continued lockdowns in countries: the French have reimposed borders for non-EU personnel. Add to that the slow rollout of vaccines in a number of countries, and there’s a few issues of concern for investors at the moment,” Mr James said.

While some sectors come under pressure, gold miners are expected to see a degree of support early in the week after the gold price rose by $US9.40, or 0.5 per cent, to $US1,847.30 an ounce.

The iron ore price also rebounded 1.2 per cent in Friday’s session to $US158.05 a tonne, but over the week it fell by $US10.55 a tonne, or 6.3 per cent. The big iron ore miners were also hit in Friday’s trade, with Rio Tinto dropping 1.7 per cent and BHP declining 2.5 per cent.

Onlookers will also be closely watching ASX-listed commercial real estate company Unibail-Rodamco-Westfield, which is headquartered in Paris. Its shares could take a hit as a result of France closing its borders.

Both European and US sharemarkets ended Friday’s session deep in the red, with the focus in the US still very much on the retail trading frenzy that has delivered blistering gains for heavily shorted stocks, including GameStop and AMC Entertainment.

On Friday alone, shares in GameStop jumped 67.9 per cent to $US325, while AMC rose 53.7 per cent to $13.26. At the same time, shares in the heavyweights dropped, with Apple falling 3.7 per cent and Johnson & Johnson posting a similar decline.

The Dow Jones, S&P 500 and the Nasdaq all lost 2 per cent through the session, adding to previous losses to end the week down more than 3 per cent.

Locally, the Australian sharemarket suffered three straight days of losses at the end of last week. The S&P/ASX 200 ended Friday’s session down 0.64 per cent to 6607.4 while the All Ordinaries index dropped 0.68 per cent to 6870.9.

Ahead of earnings season kicking off, Mr James said all indications pointed to a strong season this time around.

“A number of companies have already come out and provided positive forward guidance. For companies to be providing such positivity in the current market is quite encouraging for investors,” he said.

Amcor, Temple & Webster, Janus Henderson and Nick Scali are among the companies scheduled to hand down their earnings results this week.

The news that some companies will return JobKeeper payments was another boost for investor sentiment, Mr James noted. ASX-listed Domino’s Pizza, Super Retail Group and Iluka Resources have each pledged to return millions in subsidies received through the federal government’s coronavirus assistance package.