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Australian stocks look set to open near an 11-month high, fuelled by quantitative easing and strong leads from the US as a speculative retail mania faded.

ASX futures surged 57 points or 0.85 per cent to 6745, indicating further gains following a fierce rebound that propelled the S&P/ASX 200 up 245 points from Monday’s low to yesterday’s close.

Wall Street’s major indices all gained at least 1.3 per cent. Silver crashed more than 10 per cent. Gold also fell heavily. Iron ore sagged nearly 4 per cent. Oil rose to an 11-month high. The dollar slumped below 76 US cents.

Wall Street

US stocks recorded back-to-back gains for the first time in almost two weeks as fears about wild speculative trading abated. So-called “meme stocks” favoured by Reddit chatroom traders suffered heavy losses. Volatility indicators continued to drop.

The S&P 500 rose 52 points or 1.39 per cent, adding to Monday’s 1.61 per cent rally, its biggest gain since November. The Dow Jones Industrial Average added 476 points or 1.58 per cent. The Nasdaq Composite rallied 209 points or 1.56 per cent.

Professional investors returned to the market amid signs the Reddit retail army was in retreat. GameStop plunged 59.9 per cent. AMC Entertainment shed 41 per cent. Silver – the latest target for a chatroom-organised short squeeze – tumbled 10.3 per cent.

“Inevitably, and as with any technically-driven short squeeze, the Reddit rocket ship ran out of fuel and is now crashing back down to earth,” Max Gokhman, head of asset allocation at Pacific Life Fund Advisors, told CNBC. “Upon seeing that gravity still works and fundamentals do matter, other market participants are once again comfortable going back into the market and that’s likely been driving this week’s comeback rally.”

Attention has swung back to the outlook for the economy, stimulus expectations and corporate earnings. Amazon and Google parent company Alphabet were due to report earnings shortly after the closing bell. Amazon rose 1.1 per cent in advance. Alphabet gained 1.4 per cent.

The slow but steady rollout of vaccines in the US appears to be having an impact. New cases declined last week for a third week.

“Investors are going back to the script of strong earnings growth… and expectations of an economic reopening, as the vaccine get more widely distributed and all of those point to the continuation of the market’s upward trend,” Julian Emanuel, chief equity and derivatives strategist at BTIG, told Reuters.

Stimulus negotiations continued. President Joe Biden met with a group of Republican senators to discuss a trimmed-down alternative to his U$1.9 trillion plan.  Meanwhile, Democrats pushed ahead with an attempt to push through Biden’s original plan without Republican support.

Australian outlook

What a difference a day (or two) makes. The S&P/ASX 200 hit a two-month low on Monday; today it has an 11-month high within reach.

Confidence has flooded back into the market after the Wall Street establishment realised the Reddit retail army was not going to pauperise them all. There have been expensive lessons learned on both sides, but ultimately market fundamentals appear to be winning out. The bubbles in meme stocks are deflating.

The domestic market got a welcome shot in the arm yesterday afternoon from news the Reserve Bank will pump another $100 billion into the economy by buying state and federal government bonds. (Clearly, inflation is not a current concern.) Weekly injections of $5 billion will keep government borrowing costs down and depress the dollar. The Aussie skidded 0.46 per cent overnight to 75.98 US cents.

The financial sector led the US rally, rising almost 2.5 per cent as US bond yields climbed. Industrials and tech – yesterday’s best performers here – were also strong, rising 2.2 and 1.3 per cent, respectively. The materials sector gained 1.3 per cent. Bond proxies may come under pressure here from an increase in US yields.

Half-year earnings updates are due today from Amcor and BWP Trust. RBA Governor Philip Lowe is due to address the National Press Club in Canberra. December building approvals are due, along with a measure of Chinese services industry activity.  

Commodities

Silver tumbled after the CME Group raised margin requirements for trades. The metal dropped $3.02 or 10.3 per cent to US$26.402 an ounce, erasing Monday’s 9.3 per cent surge.

“It appears the attempted short-squeeze in the silver market has failed, at least at this point,” Jim Wyckoff, senior analyst at Kitco.com, said.

The turmoil infected the market for gold. Metal for April delivery settled $30.50 or 1.6 per cent lower at US$1,833.40 an ounce as a rising greenback and rising bond yields depressed buying interest. The NYSE Arca Gold Bugs Index eased 3.1 per cent.

Oil recorded its highest finish since February 21 last year, boosted by Saudi production cuts and hopes for demand recovery as vaccines become available. Brent crude settled $1.11 or 2 per cent ahead at US$57.46 a barrel.

Mining giants BHP and Rio Tinto followed the price of iron ore lower in overseas trade. BHP’s US-listed stock dropped 1.79 per cent and its UK-listed stock 0.61 per cent. Rio Tinto shed 1.82 per cent in the US and 0.95 per cent in the UK. The spot price for iron ore landed in China fell $5.95 or 3.8 per cent to US$150.10 a tonne.

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