Wall St weakens as oil prices tumble

The ASX is set to open lower after US stocks closed August with a slight monthly loss and oil prices dropped.

A fall in oil prices weighed on US stocks. Picture: AP Photo/Richard Drew.

US stocks slipped overnight (AEST), closing out what traders have described as an eerily calm August with slight monthly losses.

Caution also reigned in Europe as falling oil prices hit commodities stocks.

The Australian share market is set to follow the downbeat global leads, with ASX futures 20 points lower at 6.25am (AEST).

Over the course of the month, volatility and trading volumes dropped off, major US indexes moved in a narrow range and investor expectations for stockmarket swings plumbed their lowest levels in years.

Overnight, a tumble in the price of oil weighed on the broader market, after data showed US stockpiles of crude oil increased to another record. Still, traders described relatively few shares changing hands, as has been typical in recent weeks.

One cause of the stockmarket paralysis: questions about the course of US monetary policy. Low interest rates have become the main driver of investments globally, pushing money into any corner of the markets that offer steady income payments.

Investors have gone back and forth this year about when the Federal Reserve is likely to raise rates again after it lifted them in December.

In spring, many investors were anticipating an increase by July. That didn’t happen. Several Fed officials, including Chairwoman Janet Yellen, hinted last week at a conference in Jackson Hole, Wyo., that at least one increase was possible this year, depending on the strength of US economic data.

Some of those bets on low rates have started to reverse. The utilities sector, sought after for its steady dividends, was the worst-performing sector of the S & P 500 in August. The financial sector, shunned by investors this year in part because low rates crimp bank profits, was the S & P 500’s biggest gainer of the month.

US economic data has taken on increased importance for investors who are looking for any catalyst to buystocks that are trading at historically elevated valuations.

On Friday investors will get a reading on hiring and wage inflation in the monthly jobs report. Strong employment figures could bolster the chance of a rate rise in September or December.

Major US stock indexes ended the month at roughly the same level at which they started it. The Dow Jones Industrial Average and the S & P 500 declined slightly more than 0.1 per cent in August.

“There hasn’t been a lot of change in the narrative,” said Stephen Wood, chief market strategist at Russell Investments. “There hasn’t been a lot of change in the mediocrity of economic data. The Fed is still doing a lot of jawboning around whether they’ll raise rates in December versus September.”

Stocks remain comfortably higher in 2016, with the S & P 500 up 6.2 per cent year-to-date.

US crude dropped 3.6 per cent to $US44.70 a barrel Wednesday, sparking a 1.4 per cent drop in energy shares in the S & P 500 index. The S & P 500 declined 0.2 per cent.

The Dow Jones Industrial Average slipped 53 points, or 0.3 per cent, to 18401. The Nasdaq Composite fell 0.2 per cent but still logged a monthly gain of 1 per cent.

The yield on the 10-year Treasury note slipped to 1.568 per cent from 1.570 per cent on Tuesday.

Falling oil prices and recent losses in metals weighed on shares of mining and energy companies, dragging down indexes in Europe and Australia.

European banks continued to gain, however, as investors perceive higher interest rates as beneficial to the sector, widening the gap between what banks can charge on loans and what they pay on deposits. Adding to the sector’s momentum in Europe, Deutsche Bank Chief Executive John Cryan said at a conference that more consolidation among European banks was needed.

The Stoxx Europe 600 declined 0.4 per cent Wednesday and rose 0.5 per cent in August, its second straight month of gains.

The British pound rose 0.4 per cent to $US1.3140 after consumer confidence and house price data suggested the economy remained stable following the UK referendum.

Japanese shares rose as the yen fell against the dollar, benefiting the country’s exporters. Japan’s Nikkei Stock Average rose for the second straight month, adding 1.9 per cent in August.

Dow Jones