ASX set to drop as Wall Street falls sharply on war fears; $A tumbles

Brent crude, the international standard, rose 0.8 per cent to settle at $US90.45 per barrel. It briefly topped $US92 during the day and is roughly back to where it was in October.

At the same time, Treasury yields in the bond market sank and the price of gold rose, which is typical when investors are herding into investments seen as safer.

The yield on the 10-year Treasury fell to 4.51 per cent from 4.58 per cent late Thursday. Gold, which has been setting records, got close to touching $US2450 per ounce for the first time before paring its gain.

Adding to the nervousness was a preliminary report suggesting sentiment among US consumers is sinking. It’s an important update because spending by US consumers is the main engine of the economy.

Perhaps more worrisome was that US consumers may be getting more pessimistic about inflation. Their forecasts for inflation in the coming 12 months hit the highest level since December. Such expectations could ignite a self-fulfilling prophecy, where purchases meant to get ahead of higher prices only inflame inflation.

That’s why so much scrutiny is on corporate profits. While the downside of a remarkably resilient US economy is a diminished chance of rate cuts, the upside is that it should help prop up sales and earnings for businesses.

That’s helped growth in profits to broaden out to more kinds of companies, rather than just the Big Tech behemoths that dominated the market last year, according to David Lefkowitz, head of US equities at UBS Global Wealth Management.

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Because of that, he’s forecasting the S&P 500 could end the year around the 5,200 level, which is roughly where it closed Thursday. He says the index could maybe even rise to 5,500 if inflation pressures ease more quickly or corporate profit growth is stronger than expected.

On Wall Street, Wells Fargo slipped 0.4 per cent after swinging between gains and losses through the day. It beat analysts’ forecasts for overall earnings for the latest quarter. But its net interest income, a key component of bank profits, came up shy of forecasts.

Citigroup fell 1.7 per cent despite also reporting stronger-than-expected results, while State Street rose 2.5 per cent.

All told, the S&P 500 fell 75.65 points to 5,123.41. The Dow Jones Industrial Average dropped 475.84 to 37,983.24, and the Nasdaq composite sank 267.10 to 16,175.09.

Banks are leading off a reporting season where analysts are forecasting companies in the S&P 500 will deliver a third straight quarter of growth, according to FactSet. This upcoming week will feature reports from such big names as Bank of America, Johnson & Johnson and UnitedHealth Group.

Federal Reserve Chair Jerome Powell will be speaking at a closely watched Q&A event on Tuesday with a governor from the Bank of Canada. Other Fed officials will also be giving remarks through the week that could sway traders’ expectations for upcoming moves on interest rates and trigger Wall Street’s next swings.

AP