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Shares have positive leads for the final session of a volatile week after stimulus and employment progress helped lift the Dow and S&P 500 to records.

Futures trading suggests the S&P/ASX 200 should open 37 points or 0.55 per cent higher this morning.

Nervous traders will wait to see if the local market builds on that start or continues a run of mid-session reversals. While the Dow has made new highs each session this week, the ASX 200 has suffered a series of false starts and retraces. The Australian benchmark ended yesterday’s session three points above where it started the week.

Wall Street

A drop in borrowing costs, upbeat jobs data and the signing of a new stimulus bill built a platform for another strong in night in the US. Growth stocks led after the ten-year bond yield dipped below 1.5 per cent.

The Dow Jones Industrial Average climbed 189 points or 0.58 per cent to a fourth straight all-time high. The S&P 500 rose 40 points or 1.04 per cent to join the Dow in record territory for the first time in almost a month.

The Nasdaq Composite surged 330 points or 2.52 per cent to move further out of correction territory. This morning’s finish left the tech-heavy index 5 per cent off its old peak just three sessions after it entered a technical correction.

President Joe Biden signed into law a US$1.9 trillion package that includes direct stimulus payments of up to US$1,400 for most Americans. Payments were expected to start arriving as soon as this weekend. The package also included US$20 billion for vaccination programs.

Optimism over the economic recovery was boosted by better-than-expected benefits data. First-time claims for unemployment benefits were 712,000 last week, below the Dow Jones consensus of 725,000. Continuing claims declined by 193,000 to a pandemic-era low of 4.1 million.

“This once again represents the lowest print of the pandemic as workers are slowly brought back online,” Ian Lyngen, rates strategist at BMO Capital Markets, wrote. “On net, a solid read on the labor market that keeps the recovery trend in place as vaccines are administered, and covid restrictions continue to be rolled back.”

Wall Street’s “fear gauge”, the VIX, fell to a two-week low after the ten-year yield dipped below 1.49 per cent before recovering to around 1.53 per cent. Over the last month, a spike in bond yields triggered a sharp retreat from growth stocks whose future earnings depend heavily on borrowing costs.

Overnight, the FAANG group of tech giants rallied en masse. Analysts at Wedbush said the recent sell-off was “a golden opportunity for investors to own the secular tech winners for the next 3-5 years”. Facebook climbed 3.4 per cent, Amazon 1.8 per cent, Apple 1.7 per cent, Netflix 3.7 per cent and Google parent company Alphabet 3.2 per cent.

Australian outlook

Any other week, the local market would seem well set for a strong finish. Wall Street up, iron ore up, gold up, copper up, oil up, dollar up. However, the ASX has been anything but predictable this week, suffering a succession of sell-offs that have restricted or stamped out any rallies.

Part of the problem may be a growing pushback against the idea of a commodities “supercycle”. Several analysts have this week thrown cold water on the idea the world is at the start of a new cycle of the kind that lifted prices from 1996 to 2008. Reports of Chinese plans to wind back stimulus support have added to the idea Australia’s mining-heavy share market is vulnerable to negative external factors. The domestic materials sector hit its lowest level in a month yesterday.

The tech sector rebounded yesterday and may have more in it today following a tech-led rally in the US. The US I.T. sector climbed 2.1 per cent.

Financials look vulnerable again today after a rates-related 0.3 per cent decline in the US. Also weak there were two traditional bond surrogates: utilities and consumer staples eased 0.2 – 0.3 per cent.

The dollar surged 0.8 per cent to 77.92 US cents.

Commodities

Iron ore rebounded sharply overnight. The spot price for ore landed in China jumped $6.35 or 3.9 per cent to US$171.05 a tonne. BHP’s US-listed stock rose 1.55 per cent and its UK-listed stock 1.87 per cent. Rio Tinto added 2.83 per cent in the US and 2.34 per cent in the UK.

Oil scored its best finish since May 2019 after US data showed a sharp drawdown in petrol supplies. Brent crude settled $1.73 or 2.6 per cent higher at US$69.63 a barrel.

Retreats in the greenback and US bond yields helped gold squeeze out a third straight advance. Gold for April delivery settled 80 cents or less than 0.1 per cent ahead at US$1,722.60 an ounce, well off its session peak at $1,738. The NYSE Arca Gold Bugs Index put on 1.1 per cent.

Copper rallied 10.65 cents or 2.6 per cent to US$4.139 a pound.

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