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Declines in commodities and strength in the dollar looked set to place Australian stocks under mild pressure after a US rally mostly petered out following disappointing jobs data.  

ASX futures eased 17 points or 0.23 per cent as US stocks closed mixed but little changed. The Nasdaq and S&P 500 eked out slender advances. The Dow declined.

Iron ore and copper fell sharply after factory activity in Asia contracted. Gold also retreated. Oil was broadly steady after the OPEC+ cartel stuck to its plan to increase production. The dollar  firmed roughly half a cent.

Wall Street

The S&P 500 and Nasdaq Composite pushed deeper into record territory before erasing most of their gains as declines in cyclical sectors offset gains in defensive sectors.

The Nasdaq Composite was the pick of the major indices with an advance of 50 points or 0.33 per cent. The S&P 500 closed near flat, ahead one point or 0.03 per cent. The Dow Jones Industrial Average faded to a loss of 48 points or 0.14 per cent.

The market hits its peak mid-session as traders mulled the implications of unexpectedly weak private-sector jobs growth. Private payrolls increased by just 374,000 last month, according to payroll services provider ADP – well short of the Dow Jones estimate of 600,000.

The soft reading encouraged speculation tomorrow night’s official government jobs report will fall short of expectations. The report is keenly awaited after Federal Reserve Chair Jerome Powell used a speech on Friday to underline the importance of employment to the bank’s position on rates. Powell said the bank would need to see “substantial further progress” towards full employment before considering a rise. Therefore a soft result might be welcomed because it would delay any increase in borrowing costs and may affect the Fed’s intention to reduce its bond-buying program.

“What is telling is that with this jobs report, even bad news is good, because it could mean further support in the form of more stimulus and aid,” Sahak Manuelian, head of equity trading at Wedbush Securities, told MarketWatch.

The energy sector was the biggest drag, falling 1.5 per cent after the Organization of the Petroleum Exporting Countries and allies reaffirmed their intention to raise production each month, in line with a plan announced in July. Exxon Mobil shed 1.38 per cent and Chevron 1.1 per cent.

Australian outlook

A soft start coming up after further evidence of a slowdown in China weighed on key exports. A measure of Chinese factory activity turned negative yesterday for the first time since April 2020 as our biggest trading partner pursued its zero-Covid strategy.

Iron ore skidded almost 6 per cent. Copper slumped more than 2 per cent. Those declines will likely drive our miners lower this session. BHP’s US-listed dropped 1.3 stock per cent overnight. The Big Australian’s UK-listed stock shed 1.17 per cent. Rio Tinto eased 0.21 per cent in the US and 0.93 per cent in the UK.

The banks loom as another potential headwind after the US financial sector fell 0.62 per cent. Industrials and energy were also weak as soft payrolls data pointed to a potential slowdown in the US’s recovery.

That said, any weakness here will likely be welcomed as buying opportunity. Yesterday’s action confirmed “buy the dip” remains the investor’s mantra. The S&P/ASX 200 tumbled 73 points or around 1 per cent in early action, but finished just eight points or 0.1 per cent in the red as traders went bargain-hunting.

Defensive assets outperformed in the US as a rally in bond yields faded. Real estate gained 1.69 per cent, utilities 1.3 per cent and consumer staples 0.5 per cent.

The dollar continued its recovery overnight, rising 0.67 per cent to 73.67 US cents. The Aussie has now regained all it lost (roughly two and a half cents) during the ‘global growth’ scare of two weeks ago.

The Australian Bureau of Statistics releases July trade figures at 11.30 am AEST.

IPOs: two companies are slated to debut this session. TEK-Ocean Group, which lists at 11 am, provides engineering and maritime services to energy providers, both on and offshore. Rubicon Water, which lists at 11.30 am, manufactures and installs irrigation automation systems.

Commodities

Iron ore and copper declined as manufacturing data signalled slowing demand for raw materials. The spot price for ore landed in China dived US$9.05 or 5.9 per cent to US$143.55 a tonne.

Benchmark copper on the London Metal Exchange dropped 2.1 per cent to US$9,332.25 a tonne. Aluminium gave up 1.6 per cent, nickel 1 per cent, zinc 0.8 per cent and tin 1.2 per cent. Lead improved 0.5 per cent.

Oil finished mixed but little changed after OPEC+ reaffirmed its intention to increase production by 400,000 barrels a day each month. Brent crude settled four US cents or less than 0.1 per cent lower at US$71.59 a barrel. The US benchmark edged up nine cents or 0.1 per cent to US$68.59.

Gold marked time ahead of tomorrow night’s US jobs data. Gold for December delivery settled US$2.10 or 0.1 per cent lower at US$1,816 an ounce. The NYSE Arca Gold Bugs Index declined 1.08 per cent.

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