Australian shares are expected to bounce back on Wednesday from a sell-off despite lower share prices on Wall Street overnight, as investors adjust to the reduced chances of a near-term interest rate cut by the Reserve Bank of Australia (RBA).
The S&P/ASX 200 index should start 0.2% above the closing level of Tuesday, according to Australian Securities Exchange (ASX) futures trading, with the share price index December contract last trading 18 points over the previous settlement at 8,830 points.
United States stocks closed sharply lower on Tuesday after the CEOs of Morgan Stanley and Goldman Sachs warned of a potential market bubble that signalled a looming stock market drop.
Chief CommSec Economist Ryan Felsman said ASX futures may be indicating a higher start because the market dropped almost 1% on Tuesday.
“There might be a little bit of a relief rally today. It’s looking like very modest gains,” he said.
However, he said it was difficult to know where the share price gains might come from, given lower commodity prices and technology share prices overnight.
The Dow Jones Industrial Average lost 0.5%, the S&P 500 fell 1.2% and the tech-heavy Nasdaq Composite dived 2.6%.
"Investors seem a little more worried about valuation than they have in a while, at least today," Horizon Investment Services chief executive officer Chuck Carlson was quoted in a Reuters story as saying.
"A lot of these companies' valuations were pretty stretched and their earnings were good, but not great. And that's a recipe for profit-taking."
The S&P/ASX 200 fell 0.9% to 8,813.7 on Tuesday after the Reserve Bank of Australia (RBA) left official interest rates steady and flagger fewer rate cuts in this monetary policy easing cycle than previously expected.
In fixed interest markets, yields fell across the curve with two-year rates down 0.03% to 3.588% and 10-year rates off by 0.09% to 4.326%.
