5 key trends impacting the ASX 200 as trading starts for 2024
The Australian stock market faces challenging conditions as 2024 trading begins, reflecting global and local market trends.
As we kick off 2024, the ASX 200 isn't exactly popping the champagne.
Instead, the S&P/ASX 200 Index (ASX: XJO) has taken a bit of a stumble, dropping 1.4% to 7,523.2 points on Wednesday. It hasn't quite found its footing yet, hovering around 7,494 on Thursday.
But hey, that's the stock market for you – always full of surprises!
So, will the market end the week on a high this Friday? Before delving into that, here are 5 things to watch out for:
Economic outlook: Global equities in 2024
As we navigate the uncertainties of the equity markets in 2024, insights from industry experts such as Peter Garnry, the head of equity strategy at Saxo, become increasingly valuable.
"As 2023 comes to an end, investors will be wondering whether 2024 can once again surprise everyone," he said.
"The consensus is increasingly betting on a mild recession in the US economy somewhere around mid-year. Under the assumption that consensus is always wrong, this leads to two paths in 2024: 1) a 'hard landing' scenario as high interest rates finally bite, or 2) a reacceleration of growth in the global economy."
He further added: "Growth remains ugly in Europe, albeit stabilising in a mild recession dynamic, while the US economy remains resilient."
Global financial market trends
The Australian stock market is feeling the effects of Wall Street's movements.
On Wall Street, the latest trading session saw the Dow Jones drop by 0.4%, with the S&P 500 also declining 0.4%, and the Nasdaq registering a decrease of 0.75%.
The ASX 200 followed the negative lead of Wall Street, which is reacting to the Federal Reserve's indications that interest rates could remain restrictive for longer.
This global sentiment is a significant factor in the ASX's current performance.
Sector-specific performances
Different sectors within the ASX 200 are experiencing varied outcomes.
The energy sector, for example, showed resilience with a 1.4% increase, boosted by rising crude prices.
As of Bloomberg's latest update, Brent crude oil is priced at US$79.01 per barrel, reflecting a notable (~3%) increase. This uptick in oil prices is likely contributing to the positive performance of energy companies on the ASX.
Woodside (ASX:WDS), Santos (ASX:STO), and Whitehaven Coal (ASX:WHC) are some of the companies that are responding to these global oil price trends.
Conversely, consumer staples and mining sectors witnessed declines, with mining down by 0.8%.
Major players such as BHP Group (ASX:BHP) and Rio Tinto (ASX:RIO) saw slight drops, while Fortescue Metals Group (ASX:FMG) experienced a modest rise.
Commodity prices and their impact
Commodity prices, particularly in sectors like mining, have a substantial impact on the ASX.
The price of iron ore, for example, has seen a 5.6% increase, closing in on US$145 per tonne in the past 24 hours.
China leading the race
The iron ore market itself has been influenced significantly by China's efforts to revive its property sector, defying global economic headwinds.
Iron ore prices have continued their upward trend in early 2024, with China, as the world's largest buyer of iron ore, countering the expected trend of declining prices due to the global economic slowdown.
This development is particularly interesting as major broking houses had predicted a fall in iron ore prices.
However, the measures taken by the People's Bank of China to stimulate the housing market have had a bullish effect on iron ore prices, which reached US$145 per tonne in late Thursday trade.
Yet this has not translated into universal gains for mining stocks, as evident in the above section.
On the other hand, spot gold prices rose by 0.05% as well, reaching US$2,050.3 an ounce.
Anticipations for the US labour market
The US labour market data, including the ADP payroll data and weekly jobless claims, are closely watched by investors.
Note: The ADP National Employment Report is a monthly report that provides data on private sector employment in the United States. It was developed by the ADP Research Institute in collaboration with Moody's Analytics. The report is based on payroll data from over half a million private businesses in the US, making it a significant indicator of the labour market.
These indicators can influence market expectations regarding future rate cuts by the Federal Reserve, impacting international markets, including the ASX.
When the US jobs market sneezes, the ASX catches a bit of a cold
The expectations for the US labour market play a crucial role in influencing both the ASX and Australian investors, due to the interconnectedness of global financial markets.
- US job data's ripple effect. If the US is adding a large number of jobs then it's a good sign for their economy, and that can pump up confidence all over, including down under in the ASX. But if the job numbers are a bit grim, investors might get nervous, which can also impact Aussie markets.
- Fed's interest rate moves. The US Federal Reserve watches these job numbers like a hawk. Good job stats might lead to interest rate hikes, shaking things up globally, including for Aussie dollars and stocks.
- ASX sectors reacting. Some ASX sectors are more sensitive to these US vibes. For example, resources and tech companies might shift with global price changes that follow US job reports.
- The Aussie dollar dance. The US job scene can mess around with the AUD/USD exchange rate. A strong US economy beefs up the US dollar, which has a whole domino effect on Australian companies dealing internationally and on Aussie investors' choices.
- What Aussie investors feel. Basically, if the US job market is looking good, it can get Aussie investors all excited to take some risks. But if it's not so hot, they might play it safe.
What happens in the US job market doesn't just stay in the US, it ripples to the ASX and affects how Aussie investors play the game.
What does this mean for Australian investors?
The current scenario presents a mix of challenges and opportunities for Australian investors.
While the initial downturn in the ASX 200 indicates caution, the insights from expert(s) offer a broader perspective on potential market directions in 2024.
So will the market end the week on a high? That's one question that can be answered by considering all the reasons mentioned above.
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