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Australian shares look set to open modestly lower ahead of the unveiling of US President-elect Joe Biden’s trillion-dollar coronavirus relief plan this morning.
ASX SPI200 index futures eased five points or 0.1 per cent as US stocks faded from all-time highs. The Dow and Nasdaq hit records in early action, but failed to sustain their gains.
Iron ore, copper and crude oil rallied. Gold declined. The dollar climbed back towards 78 US cents.
Wall Street
US stocks sold off late in the session ahead of Biden’s much-anticipated stimulus announcement. The Dow Jones Industrial Average finished more than 200 points below its session high with a loss of 69 points or 0.22 per cent. The Nasdaq Composite faded 16 points or 0.12 per cent. The S&P 500 ended 14 points or 0.38 per cent in the red.
The incoming president will outline his proposals to rekindle the flagging US economy in a speech starting at 11.15 am AEDT. The reaction in the US – signalled via futures trading – will have a major impact on how the ASX finishes a lacklustre week.
The relief plan is expected to cost around US$1.9 trillion and include direct payments of up to US$2,000 to Americans, funding to roll out vaccines, extended unemployment insurance, and relief measures for state and local government. The Democrats’ razor-thin majority in the Senate means there is no guarantee any legislation will pass. Relief legislation may also have to wait while the Senate deals with the impeachment trial of Donald Trump. The departing president’s first trial took three weeks.
The impact of the virus on the US economy was underlined by an unexpected surge in claims for unemployment benefits. First-time claims soared to 965,000 last week from 784,000 the previous week. Economists polled by Dow Jones had predicted a much smaller increase to around 800,000.
“We’re really focused on the stimulus measures so we largely ignored the fact that we also had a really big spike in jobless claims,” Max Gokhman, head of asset allocation at Pacific Life Fund Advisors, told Reuters. “Perhaps it’s back to bad news is good news situation where market expects that deteriorating economic data will motivate lawmakers to issue even more stimulus.”
Tonight brings the start of a new US quarterly earnings season that promises to be a litmus test with stock valuations at their highest since 2000. Financial giants JP Morgan Chase, Wells Fargo and Citigroup are the first of the big guns to report.
Australian outlook
Today looks like a wait-and-see session until Biden’s speech mid-morning. Even then, most of the likely measures appear to have been signalled well in advance, so there is no guarantee the speech will generate a significant response on financial markets. Given the push to record levels in the US, the great unveiling may prove a ‘sell-the-news’ event.
It has been a forgettable week for local investors. The S&P/ASX 200 slumped from last week’s ten-month closing high on Monday and has gone pretty much nowhere over the last three sessions. The November rally has flattened out over the Silly Season, leaving the market stuck in a sideways trading pattern.
The market is currently dancing to fluctuations in US bond yields, which have an important impact on the cost of borrowing and buying interest in bond alternatives such as utilities and health stocks. Yields rallied overnight after Federal Reserve Chair Jerome Powell said it was too soon to “taper” the central bank’s bond buying program.
Cyclical sectors outperformed in the US in anticipation of a stimulatory cash splash. The energy sector surged 3 per cent as oil reached a new 11-month high. Industrials gained 0.3 per cent. The financial sector rallied 0.5 per cent ahead of earnings tonight from three of the big guns.
REITs resisted pressure on bond proxies, rising 0.6 per cent. Utilities, health and consumer staples all declined. BHP and Rio Tinto look likely to lead today following solid gains in overseas trade (more below).
The dollar caught an uplift from indications from Powell that the Fed has no plans to slow its spending or raise rates any time soon. The Aussie climbed 0.56 per cent to 77.89 US cents.
Commodities
Stimulus hopes lifted iron ore and copper, providing a tailwind for mining giants BHP and Rio Tinto. BHP’s US-listed stock put on 3.97 per cent and its UK-listed stock 3.76 per cent. Rio Tinto advanced 3.78 per cent in the US and 2.3 per cent in the UK.
The spot price for iron ore landed in China climbed $2.45 or 1.4 per cent to US$171.45 a tonne. Copper climbed 0.7 per cent on the London Metal Exchange.
Oil rallied to its highest level since February. Brent crude settled 36 cents or 0.6 per cent ahead at US$56.42 a barrel.
Gold ticked lower as investors favoured assets more exposed to the economic uplift from Biden’s relief plan. Gold for February delivery settled $3.50 or 0.2 per cent lower at US$1,851.40 an ounce. The NYSE Arca Gold Bugs Index edged up 0.3 per cent.
