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Australian index futures point to a strong start to the week despite a mixed close on Wall Street ahead of a US three-day weekend.

The ASX SPI200 jumped 65 points or 1.2 per cent after US stocks largely  shrugged off tensions with China that caused heavy falls in Asia on Friday and helped drag the S&P/ASX 200 to a loss of 1 per cent.  

The S&P 500 nudged up seven points or 0.24 per cent to extend its gain for the week beyond 3 per cent. By contrast, the S&P/ASX 2100 put on 1.7 per cent over the week, leaving room for gains as Australian shares play catch-up.

The Nasdaq added 40 points or 0.43 per cent on Friday, also gaining more than 3 per cent for the week. The Dow eased nine points or 0.04 per cent but still notched its best weekly tally since early April with a rise of 3.3 per cent. The global money-go-round is likely to slow today as US markets remain closed for tonight’s Memorial Day public holiday.

Deteriorating relations with China failed to derail a week-long rally as the lifting of lockdown restrictions sharpened hopes of economic revival. Hong Kong’s main share index tumbled 5.56 per cent on Friday after China announced plans for new security laws to clamp down on dissent. The Shanghai Composite fell 1.89 per cent after the government abandoned a GDP target for the first time.

“We still think COVID-19 concerns are in the driver’s seat, but we could see US-China relations move back into the front seat,” Eric Freedman, chief investment officer at US Bank Wealth Management, told Reuters.

One hundred and twenty protestors were arrested in Hong Kong yesterday as thousands marched to protest the proposed laws. Riot police fired tear gas and water cannon. White House National Security Advisor Robert O’Brien said the US was likely to impose sanctions on China if it proceeds with the new law.

The strength of risk appetite in the US last week was underlined by a 7.8 per cent five-day rally in the Russell 2000. The index of small caps is seen as a bellwether for the American economy because its components tend to be domestically focussed, rather than the multi-nationals of the Dow and S&P 500. Domestic retailers such as Gap and TJX also outperformed amid rising optimism as states lift stay-at-home restrictions.

Chinese ecommerce colossus Alibaba sank 5.9 per cent despite beating analyst expectations for its quarterly profit. The US Senate passed legislation on Thursday clamping down on Chinese companies listing in the US.

Friday’s trade had a defensive bias heading into the long weekend. Real estate, utilities and communication services were the best-performing sectors, while energy, financials and materials declined. Fund managers are overweight health stocks as investors bet on treatments for the coronavirus,

Most commodities declined under the threat of a revived US-China trade war. Brent crude oil eased 93 cents or 2.6 per cent to US$35.13 a barrel, breaking a six-session winning run. Despite the setback, Brent crude gained 8.1 per cent during a fourth straight winning week.

Interest in Australia’s big miners was muted. BHP’s US-listed stock drifted 0.09 per cent lower after its UK-listed stock edged up 0.36 per cent. Rio Tinto fared better, rising 0.58 per cent in the US and 1.22 per cent in the UK. The spot price for iron ore landed in China declined $1.10 or 1.1 per cent to US$96.85 a dry ton.

Most industrial metals retreated as China’s failure to set an economic growth target dampened buying interest. Benchmark copper on the London Metal Exchange slid 1.9 per cent to US$5,259.80 a tonne. Aluminium dropped 0.9 per cent, nickel 4.1 per cent, lead 0.6 per cent and tin 0.8 per cent. Zinc gained 0.1 per cent.

Tensions with China kept a floor under gold. Gold for June delivery settled $13.60 or 0.8 per cent higher at US$1,735.50 an ounce, reversing almost half of Thursday’s drop.

The dollar opened 0.1 per cent weaker this morning at 65.3 US cents.

The trading week is likely to get off to a slow start with Wall Street closed tonight for Memorial Day. The last week of the month is light on major economic data, with Thursday’s quarterly private capital expenditure figures a possible domestic highlight. Wall Street’s data mix is also weighted towards the end of the week, with preliminary GDP data on Thursday along with durable goods orders and jobless claims, followed by a slew of data on Friday night.   

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