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Record highs for the Dow Jones Industrial Average and Bitcoin point to further gains for Australian stocks as confidence returns to global markets.  

ASX futures rallied 12 points or 0.16 per cent, signalling a positive start following yesterday’s four-week high on the S&P/ASX 200. The local market has risen for four of the last five sessions.

Overnight, oil gained for a fifth session and Bitcoin hit a new record. Iron ore and copper shrugged off turmoil on Chinese commodity markets after the state planner threatened to intervene in coal markets. Gold rose for a second session.

Wall Street

The Dow became the first of the major indices to break new ground as the third-quarter corporate earnings season continued to surprise. The S&P 500 also traded close to record levels.

The Dow passed its mid-August high of 35,631 before trimming its gain to 152 points or 0.43 per cent at 35,609. The S&P 500 put on 17 points or 0.37 per cent. The Nasdaq Composite declined seven points or 0.05 per cent as investors favoured defensive sectors over tech.

Verizon provided much of the Dow’s momentum, rising 2.41 per cent after beating earnings expectations and raising its full-year forecast. Healthcare giants Merck and UnitedHealth continued to advance following well-received updates earlier in the season.

The current reporting season has settled fears valuations might have become over-extended in the face of rising energy costs and supply chain issues. Of the more than 70 S&P 500 companies that have reported, 86 per cent have exceeded the market consensus on earnings, according to data from The Earnings Scout.

“We believe that the stock market has more to climb in this bull market and that some of the Covid headwinds are receding even as inflation increasingly becomes a headwind, because many companies continue to have pricing power, which should preserve corporate profits,” Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, said.

Bitcoin hit an all-time high following the launch of the first exchange-traded futures fund in the US. The digital token climbed as high as US$66,460.87, passing the April high of US$64,899.

Buying interest was sharpened by remarks from billionaire investor Paul Tudor Jones, who told CNBC he favoured crypto over gold as a hedge against inflation. Bitcoin was last up 3.52 per cent. The ProShares Bitcoin Strategy ETF climbed 3.39 per cent.   

Fundstrat’s head of research Tom Lee told investors Bitcoin’s rally was an indicator of improving risk appetite after the September stock market dip. Lee predicted the S&P 500 could gain as much as 6 per cent by year-end.

“We believe a strong risk-on environment is underway,” Lee said in a note. “The improvement in market technicals, such as clearing the 50-day moving average, is actually suggesting that underlying trends are getting stronger,” he added.

Australian outlook

The clouds continue to clear on financial markets, setting up the latest in a string of positive starts for the S&P/ASX 200. The domestic benchmark climbed 39 points or 0.53 per cent yesterday to its strongest finish in more than a month.

The index finished within 3 per cent of its mid-August peak and has plenty of catching up to do as Wall Street breaks new ground. The local market’s relative under-performance owes much to the effect of lockdowns, a headwind that is now clearing.

The market is suddenly in the kind of risk-on mood when the negatives that set the market direction last month no longer seem to have an effect. Bond yields hit an eight-month high yesterday, the dollar climbed back above 75 US cents and Chinese commodities tumbled. At another time, any of these might have triggered a retrace.

The two sectors that matter most on the ASX, materials and financials, both logged solid gains of 0.8 per cent in the US. While Bitcoin’s overnight record implied improving risk appetite, it is worth noting a mild defensive bias in US trade overnight. The night’s three best-performing sectors were all traditional defensives: utilities +1.56 per cent, real estate +1.55 per cent and healthcare +1.45 per cent. Investors favoured these bond surrogates as treasury yields faded.

The energy sector climbed 0.83 per cent as US crude rose for a fifth night. Tech stocks slipped 0.29 per cent.  

Earnings season has fuelled the latest US up-leg. Another big day of annual general meetings here includes Wesfarmers, Transurban, Crown Resorts, Endeavour Group, Healius, APA Group, Charter Hall Long WALE, Magellan, Perpetual and Orora.

Quarterlies are due today from Woodside Petroleum, Santos and OZ Minerals, according to Morningstar.

NAB’s quarterly business confidence survey is scheduled for release at 11.30 am AEDT.

IPOs: two battery metal explorers are set to list today. iTech Minerals at 11 am AEDT has projects in South Australia. Lykos Metals at 2 pm is targeting three projects in Bosnia-Herzegovina.

The dollar climbed 0.6 per cent overnight to 75.2 US cents, its highest since early July.

Commodities

State intervention in commodity markets triggered a wild sell-off on Chinese markets yesterday. The state planner, the National Development and Reform Commission, announced it would act to contain coal prices following a rash of power outages.

Chinese thermal coal futures hit an 8 per cent limit down. Coking coal and coke fell 9 per cent, also the maximum allowed under market rules. Chinese zinc and aluminium dropped at least 6 per cent. Petrochemicals also saw sharp declines.

The turmoil appeared to be contained to select markets and had minimal impact overseas. The spot price for iron ore landed in China rose 95 US cents or 0.8 per cent to US$124.45 a tonne.

The London Metal Exchange largely ignored the Chinese selling. Benchmark copper on the LME eased just 0.1 per cent to US$10,481.25 a tonne. Zinc climbed 2.3 per cent, nickel 4.5 per cent, lead 2.2 per cent and tin 1.6 per cent. Aluminium dropped 1.2 per cent. US-traded copper firmed 0.7 per cent.

BHP‘s US-listed stock dipped 0.12 per cent and its UK-listed stock lost 0.27 per cent. Rio Tinto shed 3.89 per cent in the US and 3.26 per cent in the UK.

Oil finished at a seven-year high in the US following a fifth straight gain. West Texas Intermediate settled 91 US cents or 1.1 per cent ahead at US$83.87 a barrel. The global benchmark, Brent crude, settled 98 US cents or 1.2 per cent higher at US$85.82 a barrel, a three-year high.

Gold scored a second straight win as treasury yields pared gains. Gold for December delivery settled US$14.40 or 0.8 per cent ahead at US$1,784.90 an ounce. The NYSE Arca Gold Bugs Index put on 0.93 per cent.

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