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A rotation into cyclical stocks lifted Wall Street overnight, setting up the ASX for a positive open ahead of a Reserve Bank policy statement.
ASX futures climbed 14 points or 0.2 per cent after the Dow and S&P 500 rallied. The Nasdaq Composite declined as traders favoured stocks leveraged to economic revival.
Wall Street
The S&P 500 rose 11 points or 0.27 per cent. The energy and materials sectors led the advance. The Dow Jones Industrial Average put on 238 points or 0.7 per cent. The Nasdaq Composite dropped 68 points or 0.48 per cent as high-flying growth stocks retreated.
Retailers shone after New York announced most Covid restrictions will end on May 19. Limits on the number of people in retail outlets, restaurants, hairdressers and gyms will be lifted for the first time in 13 months. Gap and Macy’s surged 7.16 and 8.02 per cent, respectively. Dillard’s gained 9.69 per cent, Urban Outfitters 6.1 per cent and Kohl’s 5.39 per cent.
The energy sector rose 2.91 per cent and materials gained 1.53 per cent despite mixed messages on factory activity overnight. The Manufacturing Business Activity PMI Index climbed to a record 60.5 last month, in line with expectations. But a rival measure, the ISM Manufacturing purchasing managers’ index, dropped from 64.7 in March to 60.7. The April jobs report is due on Friday night.
Big Tech continued to retreat despite beating elevated earnings expectations last week. Facebook, Amazon, Alphabet, Netflix and Microsoft all declined. Apple gained 0.82 per cent.
Most stocks began the month higher despite speculation about seasonal weakness. Historical data suggests the market is more vulnerable to setbacks in the May-October period – hence the Wall Street adage, “Sell in May and go away”. The S&P 500 has risen 28 per cent since November.
“May-October has lackluster average and median returns after a November-April rally of at least 20%,” Stephen Suttmeier, technical research strategist at Bank of America, wrote.
Other analysts cautioned the market looked ripe for a correction following a phenomenal run to record levels since last year’s pandemic sell-off.
“[W]e would note that for the most part, equities remain overbought/extended on a short-term basis… this to us implies we are still vulnerable to a correction ahead,” analysts at Janney Montgomery Scott wrote. “The S&P 500 could correct by 10-to-15%, though will maintain its long-term uptrend,” they added.
Australian outlook
Broadly positive leads for the day: US cyclicals up, oil up, gold up, copper at a decade high. Less supportive: US growth stocks down, the dollar up. Markets in China and Japan remain closed for public holidays today, which will impact trading volumes across the wider region.
The S&P/ASX 200 eked out an unconvincing gain of three points or less than 0.1 per cent yesterday after being up as much as 42 points. Financials kept the index above water as most sectors declined. US financials climbed 0.53 per cent overnight, signalling the potential for more gains today.
Energy and materials were the standouts in the US, another plus for our resources-heavy market. Real estate and tech were weak.
The reaction to this afternoon’s Reserve Bank policy statement at 2.30 pm AEST will determine how the market closes. No major policy shifts are expected, but any change in tone can have big ramifications for a market addicted to easy money and record-low rates.
Trade figures are also due today. Mining services company MLG Oz is due to list.
The dollar rose almost half a cent overnight, lately up 0.52 per cent at 77.6 US cents.
Commodities
Copper claimed a new ten-year high in the US. July futures rallied almost 1.4 per cent to US$4.53 a pound, the highest settlement since February 2011. The London Metal Exchange was closed for the UK Labour Day public holiday.
Oil shrugged off a record single-day Covid death rate in India, the world’s third-largest energy consumer. Brent crude settled 80 cents or 1.2 per cent ahead at US$67.56 a barrel.
“The market continues to show signs of strength, and confidence that global demand can continue to press higher,” Robbie Fraser, global research and analytics manager at Schneider Electric, wrote.
A dip in the US dollar helped gold to its first rise in five sessions. Metal for June delivery settled $24.10 or 1.4 per cent higher at US$1,791.80 an ounce. The NYSE Arca Gold Bugs Index surged 4.76 per cent.
BHP and Rio Tinto rose in US trade. BHP’s US-listed stock put on 1.86 per cent. Rio Tinto climbed 2.22 per cent. UK markets were closed for a holiday. Chinese trade in iron ore was suspended for the Golden Week holiday. The spot price for ore landed in China last traded at US$186.45 a tonne on Friday, down from Wednesday’s record of US$193.85.
