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The ASX looked set to open near 14-month highs after Wall Street bounced back from a tax scare as investors positioned for this week’s US earnings torrent.

ASX futures inched up four points or 0.06 per cent to within touching distance of last Monday’s pandemic-era peak.

Wall Street

US stocks reversed Thursday’s losses as investors made a more sober assessment of the White House’s tax plans and readied for the most important week of the US earnings season. Strong economic data helped underscore the pace of the recovery.

The S&P 500 rebounded 45 points or 1.09 per cent to within five points of an all-time high. The Dow Jones Industrial Average rallied 228 points or 0.67 per cent. The Nasdaq Composite put on 198 points or 1.44 per cent.

Thursday’s market panic over a potential doubling of capital gains tax for wealthy Americans subsided as analysts talked down the threat. UBS noted that the majority of US shares were held in accounts not subject to capital gains, such as superannuation or foreign investors. Goldman said Congress was unlikely to approve an increase on the scale initially proposed: from 20 per cent to 39.6 per cent.

“We expect Congress will settle on a more modest increase, potentially around 28%,” Goldman analysts wrote.

Tech behemoths attracted buying ahead of this week’s quarterly earnings reports. Wall Street’s six largest companies all release quarterlies this week (more below). Reports so far have mostly met elevated expectations for earnings growth of around 33.9 per cent from the same Covid-affected period last year.

“There is a lot of anticipation of what’s to come,” Tim Ghriskey, chief investment strategist at Inverness Counsel, told Reuters. “We’ve seen actual reports beating these very high expectations. Yields have come back down, which is very positive for tech.”

Buying interest was bolstered by strong factory and housing reports. This month’s IHS Markit flash US manufacturing PMI was the strongest since the survey started in 2007. Home sales jumped 20.7 per cent last month, outpacing expectations.

Australian outlook

Thursday’s US tax panic proved fleeting, setting up the S&P/ASX 200 for another test of 14-month highs. The index should start the session near last Monday’s closing  peak following a wild ride to nowhere last week. (The index swung through 189 points, only to finish just three points below where it started.)

The two sectors that matter most on the ASX – financials and materials – were Wall Street’s best performers on Friday. The financial sector gained 1.85 per cent and materials 1.68 per cent. Tech stocks added 1.44 per cent. Defensive consumer staples and utilities were the only losers, easing less than 0.2 per cent.

The ASX will operate as normal today, but trading volumes may be affected by Anzac Day public holidays in Queensland, South Australia, WA, the ACT and Northern Territory.

The domestic quarterly season enters its last week. This week’s highlights include reports from: South32, Northern Star and St Barbara (Tuesday); Coles (Wednesday); and Fortescue Metals, Newcrest, Woolworths and ResMed (Thursday).

The economic calendar dries up towards the end of the month, but has one potential market-mover in Wednesday’s quarterly consumer price index. The outlook for inflation is a key component of the RBA’s decision whether or not to raise the cash rate each month. Analysts polled by Bloomberg expect headline inflation of around 0.9 per cent, well below the RBA’s target range of 2 -3 per cent.  

This week’s scheduled IPOs are: PWA Holdings (Tuesday); Australasian Gold, Black Canyon (Wednesday); and Albion Resources and Metal Tiger (Friday).

The US earnings season peaks this week as the heavyweights of the tech world report. Wall Street’s six largest companies all release quarterlies this week. Tesla reports tonight, Alphabet and Microsoft tomorrow, Apple and Facebook on Wednesday, and Amazon on Thursday. Around four-tenths of the S&P 500 report this week, including Boeing, Caterpillar, Ford, McDonald’s, Visa, GE, BP, Spotify, eBay, Twitter, Chevron and ExxonMobil. 

President Joe Biden is expected to unveil his American Families Plan on Wednesday night, including details of potential tax increases that spooked the market last Thursday. The Federal Reserve holds a policy meeting this week and is scheduled to outline its latest thinking on Wednesday night. Also this week: durable goods (tonight); consumer confidence, housing reports (Tuesday); and GDP and initial jobless claims (Thursday).

Elsewhere, the OPEC+ oil cartel is due to meet via video link on Wednesday to discuss whether to maintain current production curbs.

Weakness in the greenback helped lift the Australian dollar 1.02 per cent this morning to 77.4 US cents.

Commodities

Copper logged its highest close in almost a decade in the US. The “metal with the degree in economics” climbed 1.5 per cent to US$4.34 a pound, a level last seen in August 2011. Benchmark copper on the London Metal Exchange rose 1.7 per cent to US$9,581.50 a tonne. Nickel gained 2.1 per cent, lead 0.4 per cent and zinc 1.2 per cent. Aluminium dipped 0.2 per cent and tin lost 0.4 per cent.

The spot price for iron ore landed in China sealed a weekly advance of US$7.25 or 4.1 per cent with a rise of $1.50 or 0.8 per cent on Friday to US$185.10 a tonne. BHP’s US-listed stock rallied 2.89 per cent and its UK-listed stock added 1.19 per cent. Rio Tinto gained 2.89 per cent in the US after adding 1.9 per cent in the UK.

Oil trimmed a losing week defined by concerns about demand as Covid spread through India and Japan. Brent crude settled 71 cents or 1.1 per cent ahead at US$66.11 a barrel. For the week, Brent lost around 1 per cent.

Strong housing data lifted US bond yields, dulling demand for gold and other alternative investments. Gold for June delivery settled $4.20 or 0.2 per cent lower at US$1,777.80 an ounce. The NYSE Arca Gold Bugs Index retreated 0.69 per cent.

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