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Australian shares were poised to open higher after China reopening hopes triggered huge gains on commodity markets and helped Wall Street shrug off mixed jobs data.
ASX futures rallied 91 points or 1.32 per cent on Saturday morning, suggesting a strong start. However, the market may struggle to hit those heights after Chinese health authorities doused rumours of a change to the nation’s zero-Covid policy.
US stocks finished higher in volatile trade on Friday. Australian mining heavyweights BHP and Rio Tinto soared amid speculation about China loosening Covid restrictions.
Iron ore jumped almost 5 per cent. Copper surged more than 7 per cent to a six-week high. Oil, gas and precious metals also booked substantial gains. The Australian dollar climbed back above 64 US cents.
A busy week ahead includes full-year earnings from Westpac and NAB, as well as AGMs for BHP, Newcrest and Coles.
Wall Street
US stocks broke a four-session losing run as investors weighed a mixed jobs report and a fierce China-inspired rally on commodity markets.
The S&P 500 bounced 51 points or 1.36 per cent. The Dow Jones Industrial Average put on 402 points or 1.26 per cent. The Nasdaq Composite gained 132 points or 1.28 per cent.
The expiry of various index and stock options triggered wild swings as the market absorbed mixed signals on employment, a key indicator of the health of the economy. The US economy created an unexpectedly strong 261,000 new jobs last month, well above the 205,000 positions anticipated by economists polled by The Wall Street Journal.
However, the jobless rate rose to 3.7 per cent from 3.5 per cent amid job losses and a contraction in participation. The rate of wage growth dropped below 5 per cent for the first time in almost a year, hinting at a slowdown in a strong labour market.
“The report to us looks like payroll jobs growth will falter in coming months as companies batten down the hatches as the Federal Reserve continues to take away the economy’s punch,” Chris Rupkey, chief economist at FWDBonds, said.
Stocks retreated for most of last week after Federal Reserve Chair Jerome Powell warned interest rates would likely have to go higher than the bank had previously projected to bring inflation under control. On Friday, stocks gained momentum in afternoon trade when Fed official Charles Evans said the central bank should shift to smaller increases.
Also helping sentiment were sharp rebounds in Chinese stocks and commodity markets as rumours of a rotation away from zero-Covid gained credence. Reuters reported a former Chinese senior disease control official told a conference major changes to the nation’s Covid policy would take place in the next six months.
Hong Kong’s Hang Seng had its best week since 2011. The benchmark popped 5.36 per cent on Friday to extend its tally for the week to 8.7 per cent. The Shanghai Composite gained 2.43 per cent for the day and 5.3 per cent for the week.
US-listed Chinese stocks logged strong gains. Alibaba put on 7.05 per cent. Bilibili surged 22.88 per cent.
“There’s some rumour that the potential exists for a pivot away from their zero-COVID policy, which is why China rallied so strongly,” Tom Mantione, managing director at UBS Private Wealth Management, told MarketWatch.
Friday’s gains helped trim losing weeks for the US’s major benchmarks. The S&P 500 lost 3.3 per cent. The Dow gave up 1.4 per cent. The Nasdaq Composite slumped 5.6 per cent, its biggest percentage loss since January.
Australian outlook
The S&P/ASX 200 looked primed for a spectacular start to the week until Chinese health authorities intervened. On Saturday, health officials held a news conference to dismiss rumours on social media of a looming pivot away from zero-Covid. The national health commission insisted it would stick “unswervingly” to current policy.
“We should adhere to the principle of putting people and lives first, and the broader strategy of preventing imports from outside and internal rebounds,” disease control official Hu Xiang told reporters.
That news clouds the prospects for today. Saturday’s ASX futures figure appears optimistic. Commodity markets seem likely to give back some of last week’s spectacular gains.
The dollar may provide clues to today’s action. The Aussie surged 2.9 per cent on Friday, its strongest rally in 11 years. This morning, the local unit eased 0.81 per cent to 64.1 US cents.
Commodities soared on Friday as traders bet a relaxation of zero-Covid would oil the struggling Chinese economy and ease global supply-chain issues that have been one of the causes of this year’s explosion in inflation.
BHP and Rio Tinto saw extraordinary gains in overseas trade. BHP‘s US-traded depositary receipts flew up 9.75 per cent. The miner’s UK listing popped 7.71 per cent. Rio Tinto gained 10.03 per cent in the US and 7.59 per cent in the UK.
The US materials sector charged up 3.41 per cent. Precious metals miners enjoyed a session to remember: the NYSE Arca Gold Bugs Index soared 10.31 per cent.
Also strong in the US were financials +1.87 per cent, tech +1.67 per cent and industrials +1.59 per cent.
Back home, AGM season continues this week with meetings for shareholders in: Inghams, Bendigo and Adelaide Bank, The Lottery Corporation, Sims and Symbio Holdings (tomorrow); Coles, Newcrest, Liberty Financial Group, Domain Holdings and NRW (Wednesday); BHP, Myer, Nine Entertainment, Breville, Ansell, Seven West Media, REA, Jumbo Interactive, Insignia and PSC Insurance (Thursday); and Accent Group (Friday). (Source: ASA.)
Westpac releases its final results today. James Hardie and News Corp releases quarterly results tomorrow. OFX Group releases its interim result.
NAB and Orica release full-year results on Wednesday. Xero announces its interim result on Thursday.
ANZ, Macquarie Group and Champion Iron trade ex-dividend today. Reckon goes ex tomorrow, ResMed and KMD Brands on Wednesday.
The week ahead on Wall Street looks likely to be dominated by two events: midterm elections on Tuesday and the October inflation report on Thursday.
Recent polling suggests the Democrats could lose control of the House of Representatives and possibly the Senate on Tuesday, making it harder for the White House to pass legislation. Investors may welcome a split government as a brake on any inflationary spending proposals.
Thursday’s Consumer Price Index will help shape the outlook for next month’s Federal Reserve rates decision. Investors are desperate for evidence inflationary pressures have peaked.
Potential highlights on the domestic economic calendar include October job ads today, and business confidence and consumer sentiment tomorrow.
IPOs: the trickle of new listings over the last few weeks has dried up again. The ASX has not a single new listing pencilled in for this week.
Commodities
Speculation about a Chinese pivot away from a strict zero-Covid policy inspired massive gains on commodity markets. Social media posts seemed to fuel speculative mania in the face of official silence on the issue.
“Our China economist is very sceptical about these rumours. He reckons that, with the low level of vaccination, the government is not going to move any time soon,” Caroline Bain, chief commodities economist at Capital Economics, told Reuters.
Iron ore jumped 4.9 per cent on the Dalian Commodity Exchange to 662.50 yuan (US$91.35) a tonne. Copper soared 7.1 per cent on the London Metal Exchange to US$8.136 a tonne.
Other gains on the LME included aluminium +4.2 per cent, nickel +4.5 per cent, zinc +5.7 per cent and tin +6.1 per cent. Lead was unchanged.
Oil climbed to its highest in a month. Brent crude settled US$3.90 or 4.1 per cent ahead at US$98.57 a barrel.
Gold gained almost 3 per cent as the US dollar retreated. Gold for December delivery settled US$45.70 or 2.8 per cent ahead at US$1,676.60 an ounce.
