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Aussie shares were poised to start the week higher despite a flat end to a strong week on Wall Street and a mixed session on commodity markets.

ASX futures climbed 20 points or 0.3 per cent. The S&P/ASX 200 last week logged its best week since March as commodity prices rebounded.

On Friday, oil and gold advanced. Iron ore and copper retreated amid lingering worries about Covid outbreaks in China. The dollar was this morning buying 68.51 US cents.

Wall Street

Wall Street’s main indices finished mixed but little changed as investors bet strong jobs data would keep the Federal Reserve on track to raise rates by 75 basis points this month. Treasury yields jumped, capping gains for rate-sensitive pockets of the market.

The S&P 500 trimmed a deeper opening loss to three points or 0.08 per cent. The Dow Jones Industrial Average shed 46 points or 0.15 per cent. The Nasdaq Composite edged up 14 points or 0.12 per cent.

The June employment report soothed concerns about the health of the economy while doing little to alter the likely trajectory of interest rates. The S&P 500 and Nasdaq Composite have fallen into bear markets this year amid fears higher rates will tip the economy into recession.

Non-farm payrolls increased by 372,000 last month, well ahead of the 250,000 anticipated by economists polled by Dow Jones. The unemployment rate was steady at 3.6 per cent.

“There has been a lot of doom and gloom recently, so a strong labor market read may assuage some fear of a recession and shows the resilient nature of our economy with a robust labor market in the face of hot inflation. The Fed is committed to raising rates aggressively to cool it, which will likely result in continued volatility,” Mike Loewengart, managing director of investment strategy at E*Trade, said.

Stocks rebounded last week as a retreat in commodity prices reduced inflationary pressures. The Nasdaq Composite’s gain was the fifth in a row, its longest winning run of the year. For the week, the tech index gained around 4.6 per cent. The S&P 500 added 1.9 per cent and the Dow around 0.8 per cent.

“Some of what were very acute recession fears have probably backed off a little bit,” Yung-Yu Ma, chief investment strategist at BMO Wealth Management, told CNBC. “I think the market started to accept that a little more as a possibility this week.”

Treasury yields rose on the prospect of higher official rates. The yield on ten-year US treasuries jumped back above 3 per cent for the first time in a week. The two-year yield remained higher than the ten-year, an inversion that is often viewed as a recession indicator.

The Nasdaq was lifted by a 2.54 per cent rise in Tesla after the electric automaker announced record sales in China. Twitter sank 5.1 per cent on reports Elon Musk was preparing to walk away from a takeover proposal. The share price dropped another 4.8 per cent in extended weekend trade upon confirmation the deal collapsed.

Australian outlook

Positive momentum from last week looks likely to continue into the new week. The S&P/ASX 200 bounced 2.1 per cent last week amid signs investors were growing more sanguine about the likely effect of higher rates on corporate profits. A late-week recovery in commodity prices helped resource stocks.  

End-of-week data suggests a real sea change in sector interest with the end of the tax-loss selling season. Beaten-up growth was back in vogue. The index’s best performers were formerly among this year’s worst.

Mobile app-market Life360 rebounded 46.1 per cent across the week. Network-as-a-service provider Megaport jumped 24.8 per cent. Retailer City Chic Collective gained 20.3 per cent.

Looking to the session ahead, US sector moves on Friday were modest. Health and technology were the only advancers with skinny gains of 0.27 and 0.07 per cent, respectively.

Materials was Friday’s worst performer, falling 1 per cent. Industrials dropped 0.46 per cent. Financials eased 0.2 per cent. Energy was little changed as crude prices extended their recovery.

Investors will this week get a taste of the early effect of recent rate hikes. Tuesday’s business and consumer confidence surveys should show some of the impact.

However, economists think the all-important labour market will power ahead. The consensus for Thursday’s June employment data is for an increase of 30,000 in total jobs and for the unemployment rate to drop to 3.8 per cent from 3.9 per cent.

The second-quarter earnings season gets underway in the US, offering investors an insight into the impact of rising rates and inflationary pressures on profits. PepsiCo starts the season tomorrow night. Delta Air follows on Wednesday. The big guns start to fire on Thursday, with updates from Morgan Stanley and JPMorgan. Wells Fargo and Citigroup follow on Friday.

This week’s most significant economic signal for Wall Street is Wednesday’s consumer price index. Traders are desperate to see a peak in inflation. The sooner that happens, the earlier the current rate-hike cycle ends.

Wholesale US inflation data follows on Thursday. Retail sales figures on Friday could also sway market sentiment. 

Back home, quarterly reports will continue to dribble in this week. Rio Tinto is the first of the heavyweights to release an update, on Friday.

IPOs: another dire week ahead for deal-hungry underwriters. Just one company is pencilled in to debut this week: Botala Energy on Thursday. The rest of the month looks pretty thin at this stage.

Commodities

Oil added to Thursday’s rebound after the US benchmark dipped briefly into a bear market last week. West Texas Intermediate rallied US$2.06 or 2 per cent to US$104.79 a barrel. The international benchmark, Brent crude, settled US$2.37 or 2.3 per cent ahead at US$107.02.

Both benchmarks finished lower for the week, thanks to heavy falls through the first half. WTI shed 3.4 per cent. Brent lost 4.1 per cent. Prices plunged and rebounded as traders weighed tight supply against demand worries if the global economy rolls over.

“The physical market is pricing in scarcity while the financial market is pricing in recession,” Michael Tran, analyst at RBC Capital Markets, said.

Gold trimmed a fourth-straight losing week. The yellow metal has been under pressure all month as the US dollar index trades near a two-decade high.

Gold for August delivery settled US$2.60 or 0.2 per cent ahead at US$1,742.30 an ounce. The advance cut the metal’s loss to 3.3 per cent for the week. The NYSE Arca Gold Bugs Index eased 0.6 per cent.   

Iron ore turned lower as Chinese steel makers reported crisis conditions in the industry as a property downturn and Covid lockdowns crushed demand. Data provider Mysteel said almost 90 per cent of steelmakers reported losses.

The spot price for ore landed in northern China fell 0.5 per cent to US$113.68 a tonne.

BHP‘s US-traded depositary receipts declined 2.12 per cent. The miner’s UK listing retreated 1.91 per cent. Rio Tinto shed 0.64 per cent in the US and 0.51 per cent in the UK.

Copper fell for a fifth straight week as the threat of renewed Covid restrictions in China restricted buying interest. US-traded copper dropped five cents or 1.4 per cent to US$3.522 a pound. The metal lost 2.3 per cent on Comex last week, touching a 19-month low mid-week.

Benchmark copper on the London Metal Exchange fell 0.22 per cent to US$7,805.50 a tonne. Aluminium lost 0.25 per cent, lead 2.71 per cent, zinc 0.35 per cent and tin 2.39 per cent. Nickel added 0.21 per cent.

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