need2know: ASX to drop after overseas falls

Local shares are poised to drop at the open after sharp falls overseas on Friday as oil has plunged lower.
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What you need to know

SPI futures down 73pts to 4948 on Monday morning

AUD at US72.09¢

On Wall St, S&P 500 -1.9%, Dow -1.8%, Nasdaq -2.2%

In Europe, Stoxx 50 -2%, FTSE 100 -2.2%, CAC 40 -1.8%, DAX -2.4%

In London, BHP Billiton -5.3%, Rio Tinto -4.3%

Spot gold rose $US3.19 or 0.3% to $US1074.77/oz in New York on Friday

Brent crude shed $US2.12 or 5.3% to $US37.61/bbl at 4.42pm on Friday in New York

Iron ore dipped US22¢ to $US38.30 a dry metric ton on Friday

What’s on today

Australia credit and debit card lending

Stocks in focus

Hartleys initiates on Gascoyne Resources with a “speculative buy” and a target price of 32¢.

Bell Potter initiates on Beston Global Food with a “hold” and a target price of $0.425 a share.

Currencies

Australia’s dollar extended its biggest weekly slide since September, while Brazil’s real, Norway’s krone and Mexico’s peso also fell.

“You’ve clearly got the energy-based commodity currencies weakening,” said Peter Frank, global head of Group of 10 and Asia FX strategy at Banco Bilbao Vizcaya Argentaria, by phone from London.

“The slump to post-crisis lows in crude oil prices today is adding to the pain seen from the failure of OPEC to constrain supply, and so this is a classic terms of trade hit.”

Anticipation of a US Federal Reserve interest rate increase next week was also adding to risk aversion in the commodity-currency markets, Frank said.

“It’s going to be very difficult for these commodity currencies in the high-beta currency to recover until the Fed has done its hike and mapped out its year ahead timing profile next week,” he said.

The South African rand weakened to a record 16.0543 per US dollar before paring losses to trade 1.9 per cent down at 15.7648 by 7.04pm in Johannesburg on Friday after President Jacob Zuma sought to ease concerns that the nation’s financial focus would change after he unexpectedly replaced the finance minister with a backbencher.

Commodities

Iron ore extended declines for a ninth week – the longest losing streak in seven years – with Chinese steel production data on Saturday expected to signal a further weakening in demand.

Ore with 62 per cent content delivered to Qingdao dropped 4.3 per cent this week, falling to $US38.30 a dry metric ton on Friday, a record low in daily prices compiled by Metal Bulletin back to May 2009.

The commodity has capped its worst stretch of decreases since October 2008 as low-cost supplies expand, Metal Bulletin’s weekly data shows.

Bonds of Anglo American fell to record lows after Moody’s Investors Service downgraded the miner and put it on review for a cut to sub-investment grade. Fitch Ratings on Friday also downgraded the miner and put it on negative watch, a sign more downgrades were ahead.

Credit Suisse projects that Brent crude oil will trade above $US60 per barrel in the second half of 2016.

“It is clear to us that, technically speaking, we may not be that far away from a true bottom,” Jan Stuart, the bank’s global energy economist, said.

United States

The S&P 500 had its worst week since August, as plunging crude oil prices on Friday compounded investor nervousness on expectations for the first US interest rate hike in nearly a decade.

The S&P 500 fell 3.8 per cent in its worst week since August 21. The Dow fell 3.3 per cent and Nasdaq dropped 4.1 per cent for the week.

Retail sales excluding automobiles, gasoline, building materials and food services increased 0.6 per cent after gaining 0.2 per cent in October, the Commerce Department said on Friday.

These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product.

However, overall, retail sales gained only 0.2 per cent as automobile sales fell and cheaper gasoline weighed on receipts at service stations. Retail sales rose 0.1 per cent in October.

In a separate report, the University of Michigan’s consumer sentiment index rose to 91.8 this month from 91.3 in November.

Chemical titans DuPont and Dow Chemical Co agreed to combine in an all-stock merger valued at $US130 billion in a first step towards breaking into three separate businesses.

Europe

European shares fell on Friday on concerns that weakness in the Chinese yuan could weigh on the global economy, while the slump in oil prices added to the gloomy mood before a widely expected rise in US interest rates. Shares in French car maker Renault, watch maker Swatch and fashion house Hugo Boss fell.

British drug maker AstraZeneca is in advanced talks to buy privately held cancer drug developer Acerta Pharma for more than $US5 billion, the Wall Street Journal reports, citing people familiar with the matter.

“Markets continue to discount disappointment over the ECB. You add oil prices making new lows, worries over US high yield, China deflation and a mini credit crisis in Italy, then you have the cocktail that is weighing on markets,” Giuseppe Sersale, a fund manager at Anthilia in Milan, said.

What happened on Friday

The benchmark ASX 200 Index fell 0.1 per cent on Friday and 2.4 per cent for the week to 5029.5, posting its third successive weekly drop, while the broader All Ordinaries fell 0.1 per cent on Friday and 2.3 per cent for the week to 5078.6.

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