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Australian shares looked set to open below yesterday’s four-month high following a mixed finish on Wall Street.
ASX futures eased 21 points or 0.28 per cent after surging rates weighed on US tech stocks. The Dow and S&P 500 set intraday records. The Nasdaq fell more than 1 per cent.
Oil, iron ore, gold and copper rallied. The dollar firmed more than half a percentage point.
Wall Street
US stocks closed mixed but mostly higher as the market split into winners and losers from an increase in rates. The Dow and S&P 500 opened in record territory, but the latter struggled to sustain its gains as Big Tech fell.
The Dow Jones Industrial Average was the pick of the main indices with a rise of 215 points or 0.59 per cent. The S&P 500 faded to a loss of three points or 0.06 per cent. The Nasdaq Composite slipped 210 points or 1.33 per cent.
The yield on ten-year US treasuries has risen more than 15 basis points in two sessions. Overnight, rates traded near a level that marked tops several times last year. Traders pared their exposure to growth stocks in case a breakout triggered further dislocations.
Lenders, including banks and credit card companies, rallied. Stocks that depend heavily on borrowing to fund future growth declined.
Bond traders have been selling government debt amid increasing optimism that the Omicron Covid variant will be less of a drag on economic growth than first appeared. The World Health Organization said overnight the new variant appeared to cause milder symptoms than previous strains. The news helped quell concerns after the daily infection rate in the US passed a million.
Travel and tourism stocks and other companies most exposed to global growth rallied. Cruise companies, airlines, hotels and resorts advanced. On the Dow, Caterpillar jumped 5.35 per cent and Boeing 2.78 per cent.
“We believe there is further upside for stocks, despite a strong run so far,” JPMorgan strategists told clients. “The new variant is proving to be milder than the prior ones.”
The Dow’s other best performers were financial companies that benefit from opportunities to expand margins under higher rates. JPMorgan Chase gained 3.79 per cent, AmEx 3.21 per cent and Goldman Sachs 3.07 per cent.
Growth stocks with high valuations declined. Tesla declined 4.18 per cent, Nvidia 2.76 per cent and Amazon 1.69 per cent.
Australian outlook
Futures action suggests a consolidation session following a stunning Santa rally that has lifted the S&P/ASX 200 almost 300 points in eight sessions. If this breakneck rally did not look over-extended at the end of last year, it certainly looks that way this morning.
The Australian benchmark surged 145 points or 1.95 per cent yesterday, its biggest points gain in more than a year. The index finished within 39 points of its August all-time high. While the rally bodes well for the year ahead, a breather is likely.
Overnight, Wall Street divided into winners and losers from higher rates. The financial sector jumped 2.6 per cent. The night’s worst performers were health -1.38 per cent, technology -1.14 per cent and consumer discretionary (Tesla, Amazon) -0.67 per cent.
The US energy sector rose 3.46 per cent after the Organization of the Petroleum Exporting Countries and allies (OPEC+) stuck to a plan to increase production modestly next month. Industrials gained 2.03 per cent and materials 1.31 per cent.
ANZ releases its December job advertising survey at 11.30 am AEDT. The report is expected to continue a run of strong results since the end of last year’s pandemic lockdowns.
The ASX has no new IPOs scheduled until Friday.
The dollar continued its new year recovery, rising 0.66 per cent overnight to 72.43 US cents.
Commodities
Oil climbed above US$80 a barrel for the first time in almost six weeks after OPEC+ agreed to increase output by 400,000 barrels a day next month. Prices dropped roughly 10 per cent when the Omicron variant emerged, but have since recovered. Brent crude settled US$1.02 or 1.3 per cent ahead at US$80 a barrel.
“This is arguably vindication for not changing course despite the arrival of omicron,” Stewart Glickman, energy equity analyst at CFRA Research, told MarketWatch.
Gold recouped roughly half of Monday’s fall as surging US Covid cases and weaker-than-expected US manufacturing data offered support for havens. Metal for February delivery settled US$14.50 or 0.8 per cent higher at US$1,814.60 an ounce. The NYSE Arca Gold Bugs Index firmed 0.41 per cent.
BHP and Rio Tinto rose in overseas trade as iron ore edged higher in China. 62% FE fines at Qingdao firmed 86 US cents to US$123.12 a tonne.
BHP‘s US-listed stock added 1.62 per cent. The miner’s UK-listed stock gained 0.98 per cent. Rio Tinto put on 1.18 per cent in the US and 0.95 per cent in the UK.
A positive session on the London Metal Exchange saw gains for most industrial metals as the US dollar declined. Benchmark copper climbed 0.77 per cent to US$9,795 a tonne.
Aluminium and zinc were boosted by declining inventories and supply concerns as soaring energy prices impact production. European gas prices reportedly surged more than 30 per cent on Tuesday.
Aluminium rose 1.08 per cent, zinc 1.13 per cent, nickel 1.62 per cent and tin 0.87 per cent. Lead eased 0.26 per cent.
