ASX poised to drop sharply amid renewed Wall St sell-off

Australian shares are poised to drop more than 1 per cent at the open, taking their direction from renewed selling on Wall Street. ASX futures were down 61 points or 1.1 per cent at 5.30am AEDT. The Australian dollar slid 0.3 per cent.

Shares fell broadly on Wall Street, though the tech sector was particularly hard hit and the Nasdaq sank more than 2 per cent, extending the retreat from its August record high.

The S&P 500 Index extended its October rout to 7.4 per cent, reducing this year's gain for the benchmark index to less than 1 per cent, according to Bloomberg.

Disappointing earnings from AT&T and Texas Instruments drove declines in the communications and semiconductor groups, offsetting a promising outlook from Boeing.

"There's just right now a heightened sensitivity to what can go wrong," Kate Warne, investment strategist at Edward D. Jones & Co, said in an interview at Bloomberg's New York headquarters. "So we will have more of these days where stocks move a lot within the day as everyone's trying to sort through what do today's reports mean."

Today's Agenda

Local data: NZ trade September

Overseas data: European Central Bank policy meeting, German GfK consumer confidence November, German IFO business climate October; US durable goods orders September, Pending home sales September, Kansas City Fed manufacturing October

Market Highlights

SPI futures down 61 points or 1.1% to 5733 at 5.30am AEDT

AUD -0.3% to 70.65 US cents

On Wall St at 2.26pm: Dow -0.9% S&P 500 -1.7% Nasdaq -2.5%

In New York, BHP -3.8% Rio -2.8% Atlassian -5.8%

In Europe: Stoxx 50 -0.3% FTSE +0.1% CAC -0.3% DAX -0.7%

Spot gold +0.1% to $US1230.88 an ounce at 2.24pm New York time

Brent crude +0.1% to $US76.49 a barrel

US oil +1% to $US67.07 a barrel

Iron ore +0.6% to $US74.73 a tonne

Dalian iron ore +1.4% to 535 yuan

LME aluminium -0.2% to $US1998 a tonne

LME copper -0.3% to $US6179 a tonne

2-year yield: US 2.85% Australia 2.00%

5-year yield: US 2.96% Australia 2.20%

10-year yield: US 3.12% Australia 2.66% Germany 0.39% Italy 3.60%

US-Australia 10-year yield gap at 5.16am AEDT: 46 basis points

From Today's Financial Review

US targets little-known Aussie hedge fund: The powerful US Securities and Exchange Commission is suing Goldsky, a hedge fund from the sleepy coastal town of Kingscliff, for lying about its assets and returns.

Super funds can 'liberate' corporate Australia: Money manager IFM Investors has approved $2.2 billion in loans to Australian companies and plans to lift its exposure to private corporate debt by about 25 per cent over the next year.

MFF manager Chris Mackay warns of elevated market risks: Fund manager Chris Mackay has found exactly "zero" opportunities in the market that he would call "compelling", and is not ready to sell his juiciest winners.

United States

'Explosive' devices sent to Obama, Clinton: The US Secret Service says two potential explosive devices were sent to Hillary Clinton and Barack Obama, just a day after a similar device was sent to billionaire George Soros.

US stocks slid on Wednesday, continuing a brutal month, as weak forecasts from chipmakers fanned concerns over the impact of tariffs and China's slowdown on corporate profit, even though Boeing hiked its outlook.

The benchmark S&P 500 is on a six-day losing streak and has fallen in 14 of the 18 trading days this month, pounded by worries ranging from rising borrowing costs and bond yields to Italy's budget and upcoming US mid-term elections.

"There is a lot of market angst at present. One thing that has been critical in sustaining a bull market has been earnings ... and they're not as robust as the first half of the year," said Bryan Reilly, a managing director at CIBC Private Wealth Management.

"Tariffs are certainly getting a lot of attention and companies are bracing for further tariff hikes, and should that persist there is only one way for corporate optimism to go given that we are at an all-time high."

Results from S&P 500 companies so far have been strong, pushing up third-quarter profit growth estimates to 22.4 per cent from 21.6 per cent in the last 10 days, but dour forecasts have pulled down fourth-quarter growth estimates to 19.5 per cent from 20 per cent, according to Refinitiv data.

The sharp surge in Tesla's share price on Tuesday slammed short sellers of the stock with $US1.11 billion in losses for the day on paper, pushing their performance for the year into the red, according to financial analytics firm S3 Partners.

The Federal Reserve will consider a proposal that would ease rules for all but the nation's largest banks at an October 31 board meeting, the central bank announced on Wednesday.

The proposal, which has yet to be unveiled, would implement several major provisions of a bank deregulation bill Congress passed in May. Most notably, the law directs the Fed to ease oversight of banks with $US100 billion to $US250 billion in assets.

Europe

Britain not ready for hard Brexit: NAO: Britain has run out of time to fully prepare for a no-deal Brexit and will have to cut corners to keep trade flowing, a government watchdog said.

Merkel fights for future as voter mood turns ugly: The German Chancellor's party is facing regional election losses that could sap her authority.

European shares failed to rebound on Wednesday as weak results from chipmaker STMicro and Deutsche Bank, and falling US stocks, kept the mood bearish despite strong results from Gucci owner Kering that boosted the luxury sector.

The pan-European STOXX 600 fell 0.2 per cent to a new 22-month low, suffering its sixth straight day of losses as tech, banking and autos stocks tumbled.

One trader cited the effect of interest rate increases by the Federal Reserve as a reason for the gloomy outlook before US mid-term elections next month, a test of President Donald Trump's popularity.

"Very ugly out there," said the trader. "Markets just don't appear to be handling the impact of rate hikes... all starting to go wrong for (Trump) just ahead of the midterms!"

"People are still nervy that the dip isn't getting bought properly," said another dealer.

Weighing on risk appetite on Wednesday was the euro zone's manufacturing and services PMI reading showing business growth lost far more momentum than expected, dragged down by waning orders.

But European stocks managed relatively strong gains, seemingly set to break their losing streak until Wall Street's lower open dragged indexes down.

Germany's DAX ended the day down 0.7 per cent while Italy's FTSE MIB fell 1.7 per cent with Italian banks down 3.3 per cent as bonds sold off further.

The banking sector overall, the worst-performing in Europe so far this year, lost 1.4 per cent with Deutsche Bank shares down 4.8 per cent after a steep decline in third-quarter profit.

Asia

Hong Kong shares reversed early gains to end lower on Wednesday as energy firms dropped on lower oil prices and as concerns linger over economic risks posed by $US620 billion worth of shares pledged for loans in mainland markets.

At the close of trade, the Hang Seng index was down 0.4 per cent at 25,249.78 points, while the China Enterprises Index lost 0.1 per cent to 10,226.41 points.

The Shanghai Composite index gave up ground after gaining 1.5 per cent at midday to end 0.33 percent higher at 2603.30 points. The index slipped 2.3 percent on Tuesday and dropped 7.7 per cent for the month. The blue-chip CSI300 index ended 0.2 per cent higher.

Around the region, MSCI's Asia ex-Japan stock index dipped 0.1 per cent, while Japan's Nikkei index closed 0.4 per cent higher.

Currencies

Bank of Canada sees need for neutral: The Bank of Canada acknowledged for the first time in more than a decade that it expects to completely remove monetary stimulus from the economy.

Euro, German bond yields drop: The euro fell and the euro zone's government bond yields dropped after data showed business growth in the single currency area lost more momentum than expected.

BlackRock on where to buy on the yield curve: "Is it time to buy long-term US government debt–after the recent selloff weighed on prices and pushed up yields? Not yet, we think. Interest rate expectations and rising Treasury issuance could keep upward pressure on long-term bond yields, while an asymmetric risk and reward dynamic makes the short-term bonds relatively more attractive. Our preference to short-term government bonds also extends beyond the US."

The Federal Reserve should continue raising interest rates at least two but probably three more times before assessing whether further rate hikes to restrain growth are warranted, Dallas Federal Reserve Bank president Robert Kaplan said.

"My base case for 2019 is to gradually and patiently raise the federal funds rate into a range of 2.5 to 2.75 per cent or, more likely, into a range of 2.75 to 3 per cent," Kaplan said in an essay outlining policy views.

The Fed last month raised its target range for short-term interest rates to 2 pct to 2.25 per cent, a move Kaplan said he supported. Three more rate hikes would lift rates to 2.75 per cent to 3 per cent; any higher would move monetary policy from a "neutral" stance to a "restrictive" one, he said, slowing economic growth, pushing up on unemployment, and pushing down on inflation.

"I intend to avoid prejudging what, if any, further actions we should take once we get into the range of our best estimate of a neutral stance," Kaplan said, noting that his estimate of "neutral" is modestly below the 3 per cent estimate of most of his peers. "I intend to make that judgment sometime in the spring or summer of 2019 based on the economic outlook at that time."

Commodities

Industrial metals prices fell on Wednesday, pushed lower by a stronger dollar and losses on global stock markets that reflected a lack of appetite for risky assets, though zinc touched a three-week high in earlier trading.

"The technical picture (for zinc) is brightening after the price appears to have successfully exceeded the 100-day moving average, encouraging further buyers to jump on the bandwagon," Commerzbank analysts said.

The global zinc market had a deficit of 292,000 tonnes in the first eight months of the year, the International Lead and Zinc Study Group (ILZSG) said. In August the deficit was 76,200 tonnes.

The CEO of Norway's Norsk Hydro said he expects a deficit in the aluminium market next year and is uncertain when an alumina plant in Brazil would resume full production.

LME copper ended down 0.3 per cent at $US6179 a tonne, aluminium finished 0.2 per cent lower at $US1998, lead lost 0.6 per cent to $US2005, nickel slipped 1.2 per cent to $US12,225 and tin closed 0.1 per cent down at $US19,275.

RBC on iron ore: "Strong demand for seaborne iron ore from steel makers helped pull prices up ahead of broader expected production cuts this winter from environmental restrictions. Supply also continues to be tight with Platts reporting difficulty for some buyers getting a hold of Pilbara Blend fines. On Friday a pollution alert was issued in 10 cities, including top steel producer Tangshan for three days."

Capital Economics on the latest steel stats: "Growth in global steel production accelerated in September to 4.4% y/y, with mills ramping up in China and the US buoyed by healthy margins in both countries. We expect winter production cuts in China will not prevent strong y/y growth in world output in the coming months."

Capital Economics on a resurgence in the US steel sector: "US production growth continued to accelerate rapidly, rising by 9% y/y in September, incentivised by high domestic prices. The American Iron and Steel Institute (AISI) estimates that y/y growth stood at 10% in the third week in October. What's more, the AISI reported that capacity utilisation reached 80% in the same week, up from 73.2% a year earlier. The original Section 232 report that sparked tariffs on steel set 80% capacity utilisation in the steel industry as its goal."

Australian Sharemarket

The Australian sharemarket fell further on Wednesday weighed by falling oil prices and a number of negative trading updates.

The S&P/ASX 200 Index closed the session 14.1 points, or 0.2 per cent, lower at 5829, declining for a fourth consecutive session.

The energy sector suffered another weak day as crude oil prices fell by 4 per cent prior to the open. It follows on from Tuesday's trading session which saw energy stocks fall after the government announced plans to regulate pricing within the sector.

BHP Billiton led the market losses on Wednesday, falling 2.2 per cent to $32.07, Origin Energy closed 3.4 per cent lower at $7.30, Woodside Petroleum slipped 1.3 per cent to $34.30, Santos fell 2.5 per cent to $6.76 and Oil Search closed trading at $7.98, down 2 per cent.