The ASX rode a blue wave of Wall Street stimulus optimism to its biggest gain in two months as investors looked beyond turmoil in Washington.
The S&P/ASX 200 surged 105 points or 1.6 per cent to 6712, the index’s first finish above 6700 this year. The rally lifted the index to within 50 points of its mid-December pandemic recovery peak.
The market finished near its high as US futures hinted at more to come tonight. S&P 500 futures were last up 19 points or 0.5 per cent as politicians moved closer to ratifying Joe Biden as the next president of the United States.
What moved the market
The domestic picture was overshadowed by an extraordinary 24 hours in the US. The Democratic Party won control of the Senate, belatedly fulfilling hopes of a “Blue Sweep” of the congressional seats of power. Americans then watched the ratification of President-elect Joe Biden delayed by rioters.
In unprecedented scenes, supporters of President Donald Trump stormed the Capitol Complex, forcing a temporary evacuation and the suspension of the counting of Electoral College votes. US futures surged when continuing resumed around lunchtime AEDT.
Wall Street rallied overnight even as the drama began to unfold. Investors bought stocks in expectation of more stimulus measures under a Biden presidency with the ability to push legislation through a friendly Senate and House of Representatives. Infrastructure, green energy and medicinal cannabis were seen as potential winners. Tech stocks sank under fears of tighter regulation and tax changes.
“At global level, trend changes are expected on the cards for Equity Markets given the difference in perspective when it comes to Democrats taking charge,” Kalkine Media CEO Kunal Sawhney said. “Closer attention to global green space, miners and infrastructure might make a deal while Technology and Cryptocurrency would always be key spaces to watch out from short to long-term perspective,” he added.
The Dow Jones Industrial Average put on 438 points or 1.44 per cent. The S&P 500 added 0.57 per cent. The Nasdaq slumped 0.61 per cent.
Back home, sentiment was boosted by news of zero locally-acquired Covid cases in NSW and Victoria over the last 24 hours, and by Scott Morrison’s announcement the governments aims to vaccinate four million people by the end of March. The Prime Minister said vaccinations will start next month with an initial target of 80,000 people per week.
The nation’s iron ore producers soared to record levels on expectations bigger stimulus measures in the US will depress the US dollar and boost commodity prices. Rio Tinto led the drive into record levels, soaring 8.5 per cent. BHP climbed 6.1 per cent. Fortescue Metals gained 3.5 per cent.
The banks were close behind, breaking out of their recent sideways drift after the US financial sector surged 4.4 per cent overnight. ANZ rallied 3.8 per cent, Westpac 3.2 per cent, NAB 2.8 per cent and CBA 2 per cent.
“The US 10-year bond has moved over 1% over the last couple of sessions. It looks like it can go even higher, perhaps to 1.3-1.4% in the near term. This could have major ramifications for the stock market,” ThinkMarkets Market Analyst Carl Capolingua said. “On one hand, it’s good for financial stocks. Higher rates give them more flexibility with their pricing, and this helps their margins.
“Inflation also typically leads to higher commodity prices… You can see that in the big moves in metals prices over the last few days. So, we’ve seen our financial and resources sectors make major moves to the upside today.”
Additional heavyweight support came from Woolworths +1.4 per cent, Coles +1.6 per cent and Wesfarmers +0.9 per cent.
Woodside Petroleum rose 5.1 per cent after crude oil settled above US$50 a barrel in the US for the first time since March. Oil Search gained 6.9 per cent and Santos 7.4 per cent.
Rare earths miner Lynas gained 7.2 per cent, explosives and fertiliser specialist Incitec Pivot 7 per cent and nickel/copper miner IGO 7.4 per cent.
The technology sector fell to a three-week low following a decline on the Nasdaq. Xero shed 5.1 per cent, Afterpay 4.2 per cent and Altium 4.1 per cent.
“Tech is a major casualty today,” Capolingua said. “Tech stocks typically have high PE ratios and low dividend yields. So, higher yields on risk-free assets like bonds can really undermine the demand for shares of these companies.”
An on-going slump in the US dollar pressured health stocks with significant US earnings. CSL fell 1.2 per cent and Cochlear 1.3 per cent.
Gold stocks sank after the yellow metal fell 2.3 per cent overnight. Silver Lake Resources shed 4.3 per cent, Westgold 2.9 per cent and Newcrest 0.3 per cent. Losses were tempered by a post-settlement rebound as rioters stormed Capitol Hill. Gold for February delivery was last up $11 or 0.6 per cent to $US1,919.60 an ounce, reversing around a third of last night’s loss.
Asian markets were mixed. China’s Shanghai Composite added 0.5 per cent. Hong Kong’s Hang Seng faded 0.3 per cent. Japan’s Nikkei put on 1.5 per cent.
Oil extended overnight gains. Brent crude rose 36 cents or 0.7 per cent to $US54.66 a barrel.
The dollar trimmed an overnight rally that lifted it to its highest level since April 2018. The Aussie was last down 0.33 per cent at 77.9 US cents.
Cannabis stocks surged on optimism the Democrats’ Senate victory increases the chances marijuana will be decriminalised in the US. “Pot stocks” saw double-digit gains in the US. Here, Creso Pharma (ASX:CPH) soared 47.2 per cent. ECS Botanics (ASX:ECS) gained 27.5 per cent. Cann Global (ASX:CGB) climbed 28.6 per cent.