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Australian shares looked set to open little changed after pre-empting a strong end to the US trading week.
ASX futures eased 16 points or 0.23 per cent. The S&P/ASX 200 surged 150 points or 2.19 per cent on Friday to its biggest rise since March 2020.
Iron ore prices soared ahead of this week’s Lunar New Year holidays in Asia. Oil logged a fresh seven-year high. Gold slid to a six-week low. Industrial metals declined. The dollar traded at its weakest since July 2020.
Wall Street
US stocks erased declines for the week and ended multiweek losing runs after Apple’s best-ever quarter soothed concerns about tech valuations.
The Nasdaq Composite bounced 418 points or 3.13 per cent. The S&P 500 gained 105 points or 2.43 per cent. The Dow Jones Industrial Average added 565 points or 1.65 per cent after earlier falling more than 350 points.
Much of the gains came in the final hour of a roller coaster week that saw heavy intraday falls. The S&P 500 slipped into correction territory on Friday before the recovery averted a close more than 10 per cent below its January 3 closing peak. The Russell 2000 index of small caps bounced 1.93 per cent after entering a bear market on Thursday.
The rebounds ended three-week losing streaks for the Dow and S&P 500 and a four-week run of losses for the Nasdaq. The Dow gained 0.8 per cent for the week. The S&P 500 added 1.3 per cent and the Nasdaq a skinny 0.01 per cent.
Index heavyweight Apple led Friday’s advance, rising 6.98 per cent after smashing analyst expectations for the last quarter of 2021. Sales grew 11 per cent. CEO Tim Cook said supply constraints were expected to ease this quarter.
“Apple’s blowout results are just what the tech sector needed to get out of its recent funk. The iPhone giant’s big beat could be the next catalyst to spark a rally in the tech space,” Jesse Cohen, senior analyst at Investing.com, said.
Microsoft, Meta Platforms (Facebook), Amazon and Alphabet (Google) all rose. A typically mixed batch of quarterly updates saw wins for Visa and Apple, losses for Caterpillar, Chevron and Western Digital.
Volatility remained elevated. The S&P 500 traded through an intraday range of at least 2.25 per cent every session last week, according to Bespoke Investment Group. The VIX or volatility index subsided 9.29 per cent on Friday after hitting a 14-month high earlier in the week.
Australian outlook
Futures trading suggests a wary start to another potentially explosive trading week. Investors have a long list of worries, including extreme volatility on global markets, a sinking dollar, further signs of a Chinese economic slowdown, an RBA meeting, surging iron ore prices and Asian Lunar New Year holidays.
The S&P/ASX 200 finished last week on an upswing, flying up almost 2.2 per cent to its first win of the week. The rebound – on the biggest trading volume in more than a year – lifted the index out of its technical correction. Further gains today would give investors confidence last week marked a bottom to this month-long slump in equities.
The dollar re-emerged last week as increasing factor for equity investors. The Aussie sank to a 19-month low on Friday, closing at its lowest since July 2020. A weaker dollar benefits exporters, such as miners, and companies that generate much of their income in US dollars. The decline came after the US Federal Reserve laid the groundwork for several rate rises this year.
Also depressing the Aussie was signs of weakening Chinese growth. A report released yesterday showed Chinese factory activity contracted this month at the sharpest rate since the early days of the pandemic. The Aussie traded as low as 69.67 US cents before trimming its fall to 69.89 cents.
The Reserve Bank gathers tomorrow for one of the most closely-watched meetings in recent history. The bank is under enormous pressure to amend its inflation and rates outlook to reflect the strength of the economy. Inflation and employment are both running ahead of the bank’s projections.
Economists expect the RBA to declare an end to its stimulatory bond-buying program and prepare the market for tightening later in the year. The August board meeting has been pencilled by many in as the likeliest date for a first increase in the cash rate.
Governor Philip Lowe will have an opportunity to expand on the bank’s position in an address to the National Press Club on Wednesday.
A busy week on the domestic economic calendar brings private-sector credit data (today); retail sales, manufacturing (Tuesday); building approvals, business confidence, trade balance, construction figures (Thursday); and a quarterly monetary policy statement from the RBA (Friday).
This week’s likeliest market-moving events overseas are the US Q4 reporting season, central bank meetings in Europe and the UK, January US employment data and an OPEC+ meeting.
Lunar New Year holidays in Asia will cast a long shadow. A week-long Chinese market holiday will have a knock-on effect on regional equity investment flows and demand for raw materials.
The domestic quarterly reporting season wraps up today, giving way to the interim season. While most of the action happens in the second half of the month, this week brings half-year reports from IGO (today); Credit Corp (Tuesday); Amcor (Wednesday); and REA Group (Friday).
Sydney Airport holds a meeting online on Thursday for a shareholder vote on a takeover offer from a consortium of investors.
IPOs: the pipeline of new listings has slowed to a trickle as companies delay plans to go public until share market volatility settles. My Rewards International lists today at 1.30 pm AEDT. The company provides corporate loyalty schemes for customers and employees. The only other scheduled listings this week are SE Advanced Materials and WA1 Resources (Tuesday).
Commodities
A last-session bidding war before this week’s Lunar New Year holidays drove iron ore prices sharply higher. The spot price for ore landed in China jumped US$9.15 or 6.6 per cent on Friday to US$147.90 a tonne. The rally sealed a weekly advance of US$10.50 or 7.6 per cent.
Prices climbed to their highest since September as buyers locked down supply before this week’s holiday. Demand has picked up amid expectations of a rebound in steel production once next month’s Winter Olympics have passed.
BHP‘s UK and US-listed stock both sagged 2.48 per cent. The declines came during the miner’s last day of trade with a dual listing in London. Rio Tinto gave up 2.61 per cent in the US and 3.29 per cent in the UK.
Oil wrapped up a sixth straight winning week with a fresh seven-year high. Brent crude settled 69 US cents or 0.8 per cent ahead at US$90.03 a barrel.
Energy prices have been bolstered by the threat of a Russian attack of Ukraine and by OPEC caps on production. The oil cartel meets later this week.
“There are no new reasons to explain the renewed surge in the crude oil price: it is still concerns about supply disruptions if the Ukraine crisis escalates. The risk premium on the oil price is now likely to be almost $10,” Carsten Fritsch, analyst at Commerzbank, said.
A surging greenback helped drag gold to its weakest close in six weeks. Metal for April delivery settled US$8.40 or 0.5 per cent lower at US$1,786.60 an ounce. The NYSE Arca Gold Bugs Index shed 0.69 per cent.
Aluminium reached a three-month high before fading as a strengthening greenback raised metal prices for holders of other currencies. Benchmark aluminium on the London Metal Exchange touched US$3,134 before easing 0.2 per cent to US$3,107.50 a tonne.
Copper sank 2.8 per cent, nickel 0.1 per cent, lead 2.1 per cent, zinc 0.5 per cent and tin 0.6 per cent.
