Weaker tech sector likely to drag ASX lower

The sharemarket is tipped for a weak start to the week as concerns grow about the pace of the global economic recovery.

The big US technology names drove the declines on Wall Street. Picture: NCA NewsWire/Bianca De Marchi

The Australian sharemarket is tipped for a weak start Monday morning following negative overseas leads as concerns grow about the pace of the global economic recovery from COVID-19.

The local sharemarket is expected to open about 36 points, or 0.6 per cent, lower, with analysts counting on the materials sector to provide a degree of support to help cushion the decline.

“The European and US markets were down broadly around about 1 per cent (on Friday). And our market is only expected to be down 0.6 per cent, so we might hold up a little bit better, given the fact that the gold, iron ore and base metal prices were higher,” CommSec chief economist Craig James told The Australian.

Spot gold was trading near $US1950 an ounce at the US close and rose 0.7 per cent over the week. Iron ore, meanwhile, gained 2.6 per cent to $US125.20 a tonne on Friday, but was down 3 per cent over the week.

Low coronavirus numbers in both Victoria and NSW would also provide some encouragement to market watchers, Mr James said. Victoria recorded 14 new cases on Sunday, bringing its 14-day rolling average down to 36.2, while NSW recorded just two new cases.

“In terms of major themes it’s still very much focused on the technology sector in the US, and there’s also a bit of merger and acquisition activity happening in Europe … keeping things reasonably interesting there,” he added.

US sharemarkets ended in negative territory last week, with volatile trade on Friday pushing the Dow Jones index down 0.9 per cent to 27,657.42, the S&P 500 1.1 per cent lower at 3319.47 and the Nasdaq down 1.1 per cent to 10,793.28.

The big US technology names drove the declines, with Apple down 3.2 per cent, Alphabet (Google) giving up 2.4 per cent, Amazon losing 1.8 per cent and Microsoft falling 1.2 per cent.

AMP Capital chief economist Shane Oliver said weakness in the technology sector was being compounded by tensions surrounding WeChat and TikTok, as he cautioned that local tech stocks were also likely to come under some selling pressure in sympathy with their US peers.

The US government on Friday announced it would ban downloads of Chinese-owned video sharing app TikTok and the use of Chinese messaging app WeChat, citing national security concerns.

European markets, meanwhile, also ended last week in the red as a second wave of COVID-19 pushed hard-hit countries including Spain, France and Greece into fresh lockdowns.

The UK is also contemplating new lockdowns as the number of coronavirus cases soars.

Back at home, Tribeca lead portfolio manager Jun Bei Liu is eyeing the prospect of strong returns from cyclicals in the coming months if COVID case numbers can be kept under control.

“The cyclicals that have been impacted by the virus; the shopping centres, the airports. They are going to have a strong rebound because their earnings are looking very strong if we move past this lockdown period,” she said.

In a data-light week, analysts will look to business activity data due on Wednesday to gauge the outlook for the economy. Similar data is also due out for Europe, the US and Japan.