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Aussie shares looked set to open near a three-week high after the easing of Chinese Covid restrictions helped European stocks and US futures rise.
Europe’s benchmark index touched its highest level in nearly a month during last night’s US market holiday. US equity futures rallied.
Oil touched a two-month high. Iron ore, industrial metals and gold also rose. The Australian dollar rose above 72 US cents for the first time in three weeks.
The S&P/ASX 200 surged 1.4 per cent yesterday to its strongest close since the first week of May. ASX futures eased 12 points or 0.16 per cent this morning.
Europe
European stocks reached levels last seen at the start of the month as China lifted Covid restrictions in Shanghai and Beijing and announced fresh measures to boost the economy.
The pan-European Stoxx 600 index rallied for a fourth night, adding 0.59 per cent. Germany’s DAX put on 0.79 per cent. France’s CAC 40 index gained 0.72 per cent and the UK’s FTSE 100 index 0.19 per cent.
Beijing reopened parts of its public transport system, as well as public parks, gyms, cinemas and some shopping malls. Shanghai said businesses could start to reopen from tomorrow without applying for permission. The city also announced tax breaks and subsidies to help businesses get back on their feet after two months of lockdown.
The announcements came as infection rates dropped. The number of new cases in mainland China fell to 20 on Sunday from 54 the day before.
Progress towards reopening lifted Asian markets yesterday. Hong Kong’s Hang Seng index jumped 2.06 per cent. The Shanghai Composite gained 0.6 per cent. The Asia Dow put on 2.1 per cent. In Japan, the Nikkei 225 index gained 2.19 per cent.
“There’s a big sigh of relief… that more stringent restrictions will be eased, particularly in Shanghai and Beijing, because (investors have) been really worried about the ongoing zero COVID strategy and the impact for China’s economy,” Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, told Reuters..
China-facing luxury brands outperformed in European trade. LVMH Moet Hennessy gained 2.8 per cent, Hermes 3.94 per cent and Burberry 2.07 per cent. Jewellery company Pandora jumped 9.93 per cent.
US futures trimmed their advance after Federal Reserve board member Christopher Waller said he backed raising the central bank’s target rate past “neutral” to bring down inflation.
“I am not taking 50 basis-point hikes off the table until I see inflation coming down closer to our 2 percent target,” Waller said. “And, by the end of this year, I support having the policy rate at a level above neutral so that it is reducing demand for products and labor, bringing it more in line with supply and thus helping rein in inflation.”
Previous Fed guidance suggests the neutral rate is around 2.5 per cent. The Fed funds rate is currently 0.75 – 1 per cent.
S&P 500 futures were lately up 23 points or 0.55 per cent, indicating a positive start when US trade resumes tonight.
Australian outlook
Futures action suggests a consolidation session after two big leaps forward across the previous two sessions. The ASX 200 has put on 181 points or 2.5 per cent since Friday.
The market pre-empted a positive overnight session in Europe and may need a session or two to digest those gains. As always, changes in US equity futures will have some sway over how the session unfolds.
Importantly, the ASX 200 broke through the 7200 resistance level. That area should now offer support. The index has plenty of wiggle room after closing at 7287 yesterday.
Miners and other China-dependent businesses should continue to prosper this session after commodity prices rose in anticipation of increased Chinese demand. Energy producers were likely to be another pocket of strength after Brent crude cracked US$121 a barrel (more below).
The dollar traded above 72 US cents overnight for the first time in more than three weeks. The Aussie was lately up 0.55 per cent at 71.97 US cents after rising as high as 72.01 cents.
A busy morning for domestic economic data includes quarterly company operating profits and monthly reports on building approvals, private sector credit and the national current account. The reports drop at 11.30 am AEST, along with monthly updates on Chinese manufacturing and services sector activity.
Commodities
Oil scaled a two-month high amid reports the Organization of the Petroleum Exporting Countries and allies will stick to limited production increases when they meet this week.
The oil cartel has been criticised for restricting output as prices surged. Sources within the group told Reuters they would lift their output target by 432,000 barrels of oil per day, as previously planned.
Brent crude for July delivery settled US$2.24 or 1.9 per cent higher at US$121.67 a barrel. The US benchmark was lately up US$2.16 or 1.9 per cent at US$117.23.
Iron ore reached its highest level in a week. The most traded September contract on the Dalian Commodity Exchange rose 2.8 per cent to 878 yuan. The spot price for ore landed in China edged up 19 US cents or 0.1 per cent to US$133.60 a tonne.
“The moment the iron ore market has been waiting for has finally arrived, with falling national caseloads and a telegraphed reopening of Beijing and Shanghai,” Atilla Widnell, managing director at Navigate Commodities, said.
BHP firmed 1.52 in UK trade. Rio Tinto added 0.58 per cent.
Copper also scaled a one-week high, boosted by a dip in the greenback and optimism about Chinese demand. Benchmark copper on the London Metal Exchange firmed 0.9 per cent to US$9,537.50 a tonne. Aluminium advanced 0.5 per cent, nickel 3.5 per cent, lead 0.5 per cent, zinc 1.4 per cent and tin 1.5 per cent.
Gold trimmed yesterday’s advance. Metal for June delivery was lately trading US$6 or 0.3 per cent ahead at US$1,857.30 an ounce after rising as high as US$1,862.10.
