The Australian sharemarket can a expect a rough start to the week due to fairly hefty falls at the close of business on Wall Street.
Despite a strong close to the Australian stock market on Friday, factors from the US Federal Reserve including higher bond yields and higher interest rates affected markets over the weekend.
The Dow Jones closed on Friday at 665.8 points – a 2.5 per cent decline, the S&P 500 was down 2.1 per cent and Nasdaq closed 2 per cent down.
European shares also fell 1.5 per cent on Friday.
‘This will be reflected in our market on Monday,’ said AMP Capital’s chief economist Shane Oliver.
‘It looks like a fairly rough start,’ he said ahead of the opening of Monday’s Australian sharemarket.
The S&P/ASX200 futures index fell 65 points. or 1.1 per cent, pointing to a 60-70 point decline at the opening of Monday’s market.
‘This will more than reverse (Friday’s) rise,’ said Dr Oliver.
Commodity and resources prices were all down on Friday, with pressure to continue on parts of the sharemarket sensitive to higher interest rates including real estate, property trusts and utilities.
The main focus this week lies on Tuesday with the Reserve Bank of Australia (RBA) predicted to leave interest rates on hold.
RBA governor Phil Lowe will also make a speech on Thursday ahead of the bank’s quarterly statement that is released on Friday.
Dr Oliver said there was conflict in the Australian market with good jobs growth and high confidence levels but this was against low inflation, record low wages growth and uncertainty on the strength of the Australian consumer concerning levels of household debt.
‘All this suggests it’s way too early for the RBA to raise interest rates,’ he said.
The Australian dollar fell on Friday to around 79.1 US cents as strong figures came out of the US.
More falls are predicted, as next month US interest rates will rise above Australian interest rates for the first time since the late 1990s.
Also on Tuesday, December trade balance figures would be released and were set to show a $200 million surplus after showing a deficit for November.
On Friday, figures would be released on housing finance set to show a decline.