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Australian shares looked set to shrug off further falls on Wall Street after iron ore and metals surged on expectations of a Chinese rate cut.

ASX futures firmed 10 points or 0.14 per cent, signalling early relief after the market slumped yesterday to its lowest close of the year.

US stocks fluctuated overnight before adding to this week’s losses. Iron ore broke above US$130 a tonne for the first time since September. Oil logged a fresh seven-year high. Copper and gold also advanced.

Wall Street

US stocks struggled for traction as investors weighed a decline in treasury yields and upbeat corporate earnings. The main indices opened in positive territory but quickly gave up their gains, finishing near session lows.

The S&P 500 faded to a loss of 44 points or 0.97 per cent. The Dow Jones Industrial Average shed 340 points or 0.96 per cent. The Nasdaq Composite lost 167 points or 1.15 per cent.

A retreat in bond yields failed to reassure investors the worst of this year’s spike in borrowing costs is over. The yield on ten-year US treasuries reversed more than three basis points after trading above 1.9 per cent. The rate hit a two-year high overnight after starting the year below 1.5 per cent.

“Investors worry that higher rates and tighter financial conditions will lead to valuation compression, in effect undoing much of the Fed’s decade-long largesse,” Cresset Capital founding partner and CIO Jack Ablin told clients.

The Federal Reserve meets next week under pressure to clarify the outlook for official rates this year. Yields jumped this week as bond traders factored in the possibility of a monster 50 basis-point hike as soon as March. Wells Fargo told clients it expects the federal funds rate to reach 1 – 1.25 per cent by year-end.

The Q4 reporting season took a turn for the better with well-received results from Bank of America, Morgan Stanley, Procter & Gamble and UnitedHealth. BoA rallied 0.41 per cent, MS 1.85 per cent, P&G 3.36 per cent and UnitedHealth 0.36 per cent.

The results helped settle nerves after a rocky start to the season. Misses from Goldman Sachs, JPMorgan Chase and Citigroup earlier in the season added to recent down-pressure on equities from surging yields.

“JPMorgan, Goldman Sachs set the bar very low for Morgan Stanley and Bank of America. Even though the reports were not fantastic, they were better than what those lower expectations were,” Dennis Dick, a proprietary trader at Bright Trading, told Reuters.

Australian outlook

The ASX looked set to ignore soft US leads amid indications China could cut lending rates as soon as today. BHP and Rio Tinto jumped more than 3 per cent in overseas trade as commodity markets responded to the demand implications of a pick-up in Chinese growth.

The People’s Bank of China cut a key rate on Monday and could lower its one-year benchmark loan prime rate (LPR) as soon as today. Reuters reported 100 per cent agreement among 43 participants in a snap poll that the central bank will trim the one-year LPR by up to 10 basis points.

The move is expected as Chinese leaders deal with a property slump and a major slowdown in economic growth. The Vice Governor of the PBOC said the bank should “hurry up” and “respond to the general concerns of the market in a timely manner”.

Chinese bond yields fell and commodities rallied ahead of today’s decision. This morning’s positive ASX futures figure reflects Australia’s position as a major trading partner tied to Chinese growth. The dollar rose 0.42 per cent overnight to 72.17 US cents.

The domestic outlook may also get a look in today as global bond market tremors subside. The quarterly reporting season is in full swing. Reports are due today from South32, Woodside, Santos and Syrah Resources, according to Morningstar.

The December employment report at 11.30 am AEDT also has the power to affect the market mood for better or worse if the result deviates far enough from expectations. The market consensus is for the jobless rate to tick down to 4.5 per cent from 4.6 per cent after the economy added around 60,000 jobs.

US payments giant Block commences trade on the ASX at 11 am after acquiring Afterpay.

BHP holds an online meeting today to vote on scrapping its dual listing and consolidating its corporate structure in Australia. Australian Pharmaceutical Industries holds its AGM.

IPOs: two initial public offerings originally scheduled for today have been postponed. Felix Gold has been rescheduled for next week. A new date for Virdis Mining and Minerals has yet to be announced.

The S&P/ASX 200 slumped 76 points or 1.03 per cent yesterday to its lowest close since December 20.

Commodities

Iron ore topped US$130 a tonne for the first time in four months as buyers anticipated a recovery in demand as China stokes its economy. The spot price for ore landed in China climbed US$2.90 or 2.3 per cent to US$130.20 a tonne.

“Expectations of easing from the People’s Bank of China while bracing for tighter US monetary policy will spur traders to punt on rates-sensitive assets such as commodities and bonds,” Hong Hao, head of research at BOCOM International, wrote.

Copper jumped 2 per cent in US trade to US$4.47 a pound. Aluminium, nickel and other metals firmed on the London Metal Exchange.

Mining giants BHP and Rio Tinto rose despite a sinking tide in overseas trade. BHP‘s US-listed stock jumped 3.07 per cent after its UK-listed stock gained 2.42 per cent. Rio Tinto added 2.89 per cent in the US and 3.88 per cent in the UK.

Oil closed at a fresh seven-year high after an explosion at a pipeline disrupted supply from Iraq to Turkey. Brent crude settled 93 US cents or 1.1 per cent ahead at US$88.44 a barrel.

US gold miners soared after the yellow metal booked its highest finish in two months as the US dollar weakened and treasury yields declined. Gold for February delivery settled US$30.80 or 1.7 per cent higher at US$1,843.20 an ounce. The NYSE Arca Gold Bugs Index flew up 7.83 per cent.

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