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The share market has a shot at a third day of gains for the first time in a month after US traders bought stocks tied to the economy amid growing hopes the impact of the omicron Covid variant will be mild.

Cyclical stocks lifted Wall Street‘s main indices to gains of between 0.9 and 1.9 per cent. The Dow’s rally was the strongest since March. Oil, iron ore and copper also rose.

ASX futures rallied 29 points or 0.4 per cent ahead of the last Reserve Bank policy announcement of the year. The central bank will update the market this afternoon.

The S&P/ASX 200 has edged higher for the last two sessions as omicron worries subsided. The Australian benchmark crept up four points yesterday and 16 points on Friday.

Wall Street

Investors piled back into beaten-up “reopening” stocks after the US’s top medical expert said initial data on omicron was “encouraging”. Travel and tourism stocks led the rally.

The S&P 500 climbed 53 points or 1.17 per cent. The Dow Jones Industrial Average gained 647 points or 1.87 per cent. The Nasdaq Composite added 140 points or 0.93 per cent.

The White House’s chief medical advisor, Dr Anthony Fauci told CNN initial analysis of data on omicron suggested the threat may not be severe. His comments came after hospitalisation rates in South Africa showed no significant increase since the variant was identified.

“Clearly, in South Africa, omicron has a transmission advantage,” Fauci said. “Although it’s too early to make any definitive statements about it, thus far it does not look like there’s a great degree of severity to it.”

The S&P 500 airlines index jumped 5.45 per cent. United Airlines put on 8.32 per cent, Delta Air 6.02 per cent and Wynn Resorts 6 per cent. The S&P 1500 hotels, resorts and cruise lines index gained 5.32 per cent.

Analysts warned investors not to read too much into the rally, following a week of wild swings in both directions. The Nasdaq Composite slumped 1.92 per cent on Friday as traders sold stocks with high valuations relative to earnings.

“We’ve seen this repeatedly since the initial news broke a little over a week ago,” Craig Erlam, senior market analyst at Oanda, said. “Markets have been very headline-driven and this is just the latest rally on the back of some positive reports.”

Growth stocks trailled overnight as US rates jumped. The yield on ten-year US treasuries bounced eight basis points from a two-month low to 1.437 per cent.

Australian outlook

Market ructions have yet to settle in the US, but there should be enough in the overnight action for the S&P/ASX 200 to log a third straight gain for the first time since early November.

Commodities rallied overnight after China gave its sluggish economy a prod. The People’s Bank of China reduced the amount of money that lenders have to hold in reserve. That helped lift US materials 1.48 per cent.

The best of the sector gains in the US were a mix of cyclicals and defensives. Industrials put on 1.64 per cent, consumer staples 1.6 per cent and utilities 1.53 per cent. The energy sector rose 1.53 per cent as crude jumped (more below).

All 11 US sectors advanced. Health and tech were weakest with gains of less than 1 per cent. Financials put on 1.41 per cent.

Risk appetite at the speculative end of the market has deteriorated sharply in the last few weeks. The S&P/ASX 200 Emerging Companies Index fell 3.4 per cent yesterday to join Wall Street’s Russell 2000 index of small caps in a technical correction.

The decline followed a 22 per cent dive in the value of Bitcoin over the weekend. The digital currency plunged from US$53,890 to US$41,967 before regaining some of its loss. Coins were this morning trading at US$48,980.

Evergrande has also re-emerged as a cause for concern. Shares in China’s second largest developer hit an all-time low yesterday after the company warned there was “no guarantee” it can meet debt repayments this week. The company has survived several near-death experiences in recent months, but may finally face default.

The Reserve Bank meets today and will release a revised monetary policy statement at 2.30 pm AEDT. While no changes to policy settings are expected, the central bank may use the opportunity to refine its outlook.

The Federal Reserve last week dropped any reference to inflationary pressures being “transitory”. Wall Street interpreted the change of language as a sign US interest rates are likely to rise next year. Since the RBA had previously cleaved closely to the Fed’s stance on inflation, it may now adjust.

Also due today: the AIG Services Index at 8.30 am, ABS House Price Index at 11.30 am and monthly Chinese trade figures. Bank of Queensland holds its annual general meeting.

IPOs: RocketBoots lists at 11 am AEDT. The company offers software for reducing business losses in the retail, banking and workplace sectors. American West Metals lists at 12.30 pm. The miner aims to develop a zinc-copper-indium deposit in Utah.

The dollar firmed 0.42 per cent to 70.47 US cents.

Commodities

Iron ore and copper rallied following Chinese stimulus efforts. Analysts said a reduction in bank reserve requirements will release liquidity into the market at a time when growth has slowed.

“It’s been expected, but it will certainly stabilise sentiment for growth prospects and help provide support for base metal prices,” Xiao Fu, head of commodity market strategy at Bank of China International, told Reuters.

“China still has a lot of ammunition to stimulate the economy further, but they will do it in a very measured manner.”

The spot price for iron ore landed in China climbed US$1.90 or 1.9 per cent to US$100.40 a tonne. Copper rallied 1.7 per cent in the US to US$4.338 a pound.

BHP‘s US-listed stock put on 2.44 per cent after its UK-listed stock added 0.83 per cent. Rio Tinto gained 1.22 per cent in the US and 0.31 per cent in the UK.

Oil jumped as traders started to discount a severe economic hit from omicron. Brent crude settled US$3.20 or 4.6 per cent higher at US$73.80 a barrel.

“The market is getting the sense that the worst could be over with the virus and there’s more optimism that the sell off was way overdone,” Phil Flynn, senior market analyst at The Price Futures Group, told MarketWatch.

Gold was kept in check by rises in the dollar and treasury yields. Gold for February delivery settled US$4.40 or 0.3 per cent lower at US$1,779.50 an ounce. The NYSE Arca Gold Bugs Index put on 1.47 per cent.

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