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Australian shares looked set to open little changed following a mixed finish on Wall Street as the S&P 500 hit a new high and an earnings miss from IBM weighed on the Dow.

ASX futures inched up two points or 0.03 per cent, suggesting caution after five rises in six sessions. The S&P/ASX 200 gained less than two points yesterday.

Heavy falls in commodity prices loom as a headwind. Iron ore slid more than 5 per cent. Industrial metals slumped. Oil retreated for the first time in six sessions. Natural gas and gold also declined.

Wall Street

The S&P 500 edged to its first new high in almost two months, erasing the last of a downturn fuelled by worries over inflation and the end of central bank asset purchases. The broadest of the three major indices climbed 14 points or 0.3 per cent to a  seventh straight gain.

The Nasdaq Composite rallied 94 points or 0.62 per cent, thanks in large part to a well-received quarterly update from Tesla. The Dow Jones Industrial Average eased six points or 0.02 per cent after IBM missed revenue expectations.

Tesla surged 3.26 per cent after reporting $1.62 billion in net income for the third quarter and an increased gross margin of 30.5 per cent. The electric car-maker expects to increase vehicle deliveries by 50 per cent despite the impact of supply shortages and shipping delays.

American Airlines and HP also released well-received results. IBM tanked 9.52 per cent after revenue grew less than the market anticipated, and margins tightened.

This earnings season continues to deliver more positive surprises than negative ones. Refinitiv data showed 84 per cent of the 101 S&P 500 companies that have reported have surpassed earnings estimates.

“There are no signs of widespread erosions of margins at the moment. Perhaps there is so much money sloshing about that for now prices are broadly being passed on,” Jim Reid, head of thematic research at Deutsche Bank, said.

Claims for unemployment benefits continued to trend lower. First-time claims dropped by 6,000 to 290,000 last week, a new pandemic-era low.

Australian outlook

A week-long rally showed signs of exhaustion yesterday and looks likely to take a breather this session. The S&P/ASX 200 has been on a tear, but struggled to squeeze out a gain of less than two points or 0.02 per cent yesterday.

Wall Street also looks short-term over-extended. The S&P 500 has risen for seven straight sessions. At the very least, a pause looks increasingly likely.

BHP and Rio Tinto loom as major headwinds following sharp declines in their overseas listings as iron ore and industrial metals turned lower (more below). The US materials sector eased 0.23 per cent.

Financials – the other sector that matters most on the ASX – slipped 0.35 per cent. Energy stocks slumped 1.81 per cent. Defensive sectors fared best in the US, alongside tech and consumer discretionary.

A big week for AGMs continues with updates from IAG, McMillan Shakespeare, Cleanaway Waste, Steadfast, Sunrise Energy and Equity Trustees.

Quarterly reports are due from Beach Energy, Gold Road Resources, Mineral Resources, Regis Resources and a host of junior miners, according to Morningstar.  

Reserve Bank Governor Philip Lowe took part in an online panel discussion first thing this morning on central bank independence, mandates and policies.

Preliminary October readings on manufacturing and services sector activity were due at 9 am AEDT.  

The dollar – viewed by overseas traders as a “commodity currency” – retreated from a three-month high, easing 0.66 per cent to 74.65 US cents.

Commodities

Iron ore fell sharply amid signs power rationing was weighing on Chinese steel consumption. Stainless steel futures in Shanghai dropped 1.1 per cent. The spot price for ore landed in China sank US$6.95 or 5.6 per cent to US$117.50 a tonne.

Chinese coal miners agreed yesterday to price limits for thermal coal after the state planner intervened in the wake of power shortages. Three state-owned and one privately-owned producer agreed to “give up some profit for the common good”, according to Chinese state media.

Industrial metals fell heavily. Benchmark copper on the London Metal Exchange slid 3.8 per cent to US$10,078.50 a tonne. Aluminium sank 5.2 per cent, nickel 4.9 per cent, lead 1 per cent, zinc 3.4 per cent and tin 2.1 per cent.

BHP‘s US-listed stock dived 3.59 per cent and its UK-listed stock shed 3.72 per cent. Rio Tinto gave up 3.8 per cent in the US and 4.84 per cent in the UK.

Oil fell for the first time in six sessions in the US, easing from a seven-year high. West Texas Intermediate declined 92 US cents or 1.1 per cent to US$82.50 a barrel. The international benchmark, Brent crude, settled US$1.21 or 1.4 per cent lower at US$84.61 a barrel.

“While some projections are as bullish as $100, current price levels already start feeling high for traders, who always have an itch to reap profits from the rising prices,” Louise Dickson, senior oil markets analyst at Rystad Energy, said.

Natural gas declined 1.1 per cent to US$5.115 per million British thermal units after the US Energy Information Administration reported a larger-than-expected increase in US supplies last week.  

Gold pared two days of gains as the US dollar rallied. Metal for December delivery settled US$3 or 0.2 per cent lower at US$1,781.90 an ounce. The NYSE Arca Gold Bugs Index edged up 0.08 per cent.

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