Australia

Australian shares are set to edge lower following a dip on Wall Street. US stock indexes and government-bond prices dropped Tuesday, dragged down by a disappointing forecast from Home Depot and growing concerns that the Federal Reserve will keep interest rates higher for longer.

ASX futures were down 41 points or 0.6% at 7218 as of 8:00am on Wednesday, pointing to a slip at the open.

After rallying sharply to kick off 2023, stocks have stumbled in recent weeks as hot economic data has made investors anxious about the trajectory of US monetary policy.

Although inflation has fallen from its recent peak, it remains high. The unemployment rate has fallen to a 53-year low, and retail sales are growing at a healthy clip. That combination has led investors to expect the Fed to continue raising interest rates and then keep them elevated for longer.

The S&P 500 and the Dow Jones Industrial Average declined 1.9% Tuesday. The technology-focused Nasdaq Composite dropped 2.3%. US markets were closed Monday for Presidents Day. All 11 sectors of the S&P 500 traded lower, as did 28 of the 30 stocks in the Dow.

In commodity markets, Brent crude oil slipped 1.3% to $US82.98 a barrel, gold edged down 0.3% to US$1,834.97.

In local bond markets, the yield on Australian 2 Year government bonds rose to 3.55% while the 10 Year rose to 3.81%. Overseas, the yield on 2 Year US Treasury notes rose to 4.73% and the yield on the 10 Year US Treasury notes was down at 3.95%.

The Australian dollar hit 68.55 US cents down from the previous close of 69.08. The Wall Street Journal Dollar Index, which tracks the US dollar against 16 other currencies edged up to 97.18.

Asia 

Chinese shares ended mixed after Monday's rally as buying slows, after investors aggressively added to their positions at the beginning of the year after the country's reopening. Shares of Chinese telecoms led the gainers and continued Monday's rally amid news reported last week that China Telecom Corp. is developing an AI-powered chatbot. China Telecom Corp finished 2.5% higher and China Mobile was up 3.4%. Property stocks were higher after Beijing announced late Monday it would launch a pilot program for real estate private equity investment funds, in a bid to boost the embattled sector. Seazen Holdings Co. was 2.3% higher and China Vanke was up 0.5%. Among losers were consumption companies and software stocks. Beijing Kingsoft Office software dropped 1.5%. The benchmark Shanghai Composite Index rose 0.5% to 3306.52 and the Shenzhen Composite Index was up 0.2% while the ChiNext Price Index edged down 0.4%.

Hong Kong's benchmark Hang Seng Index slipped 1.7% to 20529.49, weighed by the tech sector. The Hang Seng Tech Index shed 3.6% as competition intensifies among Chinese tech giants, amid reports that JD.com is planning to offer subsidies for stores operating on its platform, which could pressure margins. JD.com dropped 8.5%, Meituan was 4.1% lower and Tencent lost 4.0%. Meanwhile, property developers rose after Beijing said late Monday it would launch a pilot program for real-estate private equity investment funds in a bid to boost the embattled sector. The Hang Sang Mainland Properties Index rose 0.8%. Country Garden Holdings added 0.75% and Seazen Group advanced 1.7%.

Japanese stocks ended lower, dragged by falls in electronics and financial stocks as uncertainty persists over the duration of policy tightening by central banks and its impact on the economy. Yaskawa Electric dropped 2.5% and Dai-ichi Life Holdings shed 1.8%. The Nikkei Stock Average fell 0.2% to 27473.10. Investors are focusing on economic data and their policy implications.

Europe

European stocks fell after mixed Asia trading. The pan-European Stoxx Europe 600 dropped 0.1% and the German DAX, British FTSE 100 and French CAC 40 backtracked about 0.3%. Aerospace and defense stocks are among the biggest pan-European risers while miners fell.

"The market feels like it's in a holding pattern right now as investors await the US Federal Reserve's next meeting in a month's time," AJ Bell investment director Russ Mould wrote. "Hints a 50 basis-point rate hike could be in the offing have helped sour sentiment a little, but confirmation could really undermine investor confidence."

North America

US stock indexes and government-bond prices dropped Tuesday, dragged down by a disappointing forecast from Home Depot and growing concerns that the Federal Reserve will keep interest rates higher for longer.

After rallying sharply to kick off 2023, stocks have stumbled in recent weeks as hot economic data has made investors anxious about the trajectory of US monetary policy.
Although inflation has fallen from its recent peak, it remains high. The unemployment rate has fallen to a 53-year low, and retail sales are growing at a healthy clip. That combination has led investors to expect the Fed to continue raising interest rates and then keep them elevated for longer.

Those shifting expectations have started to take the steam out of the stock market's rebound, with the S&P 500 down 2.4% from its closing peak this year, based on Friday's close.

The S&P 500 declined 1.9% Tuesday, while the Dow Jones Industrial Average fell 1.9%, or about 640 points. The technology-focused Nasdaq Composite dropped 2.3%. Markets were closed Monday for Presidents Day. All 11 sectors of the S&P 500 traded lower, as did 28 of the 30 stocks in the Dow.

Home Depot's disappointing report sent ripples through the market. The home-improvement retailer warned its profits will fall this year as it invests an additional $1 billion in wage increases for its hourly employees. Shares fell 6%, while rival Lowe's dropped 5%.
Home Depot's fall shaved more than 125 points off the Dow and weighed on the consumer-discretionary segment of the S&P 500, which dropped more than 3% as the index's weakest link.

In a Monday note, a team of strategists at JPMorgan led by Mislav Matejka warned that the first quarter could mark this year's high point for stocks. It is premature to believe that a recession won't happen, as monetary tightening can have an impact that lags behind by as much as one to two years, they said.

"The fallout is likely still ahead of us," the strategists wrote.

Earnings reports remain in focus with investors parsing results from Walmart for clues about how inflation is altering consumer habits.

Shoppers are gravitating to the big-box retailer for food and other essentials, lifting its sales and earnings for the most recent quarter. The company gave a muted outlook for the year, however. Its stock rose 1% and was one of the bright spots in the Dow.

Companies including Coinbase Global, Diamondback Energy and home builder Toll Brothers will report after the market closes.

With earnings season entering its endgame, results have largely been in line with expectations, said Karyn Cavanaugh, chief investment officer of Carolinas Wealth Management. The market anticipated negative earnings growth, and got it. And positive revisions to companies' outlooks have been few and far between. "There's just not anything to give the market any sort of mojo," she said.