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Aussie shares looked set to open little changed ahead of today’s Reserve Bank interest rate announcement as soft US equity futures offset gains in European stocks during last night’s July 4 US holiday.

ASX futures edged up a point or 0.02 per cent. The S&P/ASX 200 jumped 73 points or 1.11 per cent yesterday to its first gain in four sessions.

Energy stocks led in Europe as oil and gas rallied. Iron ore extended recent falls. Copper sagged to a fresh 17-month low. The dollar climbed towards 69 US cents.

Europe

Strong gains in oil and gas producers helped European stocks rebound from a losing week despite news of a collapse in investor morale. Trading volumes were constrained by the US market holiday.

The pan-European Stoxx 600 index climbed 0.54 per cent, led by a 4.1 per cent boost from the energy sector. Britain’s FTSE 100 index put on 0.89 per cent. France’s CAC 40 index gained 0.4 per cent. Germany’s DAX index shed 0.31 per cent.

Oil and gas producers rose after the OPEC+ oil cartel missed a production target and Norwegian gas workers threatened strike action. BP advanced 4.41 per cent. Shell tacked on 3.87 per cent. France’s TotalEnergies added 4.55 per cent.

Healthcare providers and miners also rose. The tech sector eased around 1 per cent as European bond yields climbed. Real estate and carmakers declined.  

A survey showed investor sentiment collapsed to recession levels this month. Sentix’s euro zone index slumped to -26.4 from -15.8 in June. The reading was the weakest since May 2020, the early days of the pandemic.

“Situation scores like the current one justify the expectation that a recession is inevitable,” Sentix Managing Director Manfred Huebner said.

The Stoxx 600 has fallen around 16 per cent this year as investors fret about the threat to growth from higher rates. The European Central Bank is expected to raise rates this month.

US equity futures remained underwater this morning. S&P 500 futures were down 15 points or 0.39 per cent. Dow futures dropped 95 points or 0.31 per cent. Nasdaq futures sagged 54 points or 0.47 per cent.

US stocks rallied into the long weekend. The S&P 500 advanced 1.06 per cent on Friday, trimming its loss for the week to 2.2 per cent.

Australian outlook

A muddy outlook for the day ahead, with weak US equity futures and doubts about this afternoon’s cash rate announcement likely to cap buying interest. The S&P/ASX 200 enjoyed a welcome bump yesterday and may need more than mixed leads from Europe and commodity markets to extend its gains.

Weakness in iron ore and a recovery in bond yields loom as potential headwinds. The energy sector should provide momentum.

The Reserve Bank meets this morning and is expected to raise the cash rate target by 50 basis points to 1.35 per cent when the new rate is announced at 2.30 pm AEST.

A smaller increase of 25 basis points is possible, but unlikely in the wake of strong economic data since last month’s increase. The central bank will likely need to see evidence of slowing growth before taking its foot off the pedal. A handful of economists have suggested increases of 65 or 75 basis points would be more appropriate to help bring down inflation.

Also on the economic calendar today: weekly consumer confidence data, AIG’s construction index and monthly retail sales.

The dollar climbed 0.75 per cent to 68.63 US cents.

Commodities

Oil and gas prices rallied as unrest in Libya and Ecuador, an OPEC production miss and a potential strike in Norway underlined supply issues.

Libyan authorities declared force majeure. Ecuador’s state-run oil company said civil unrest had cost the country around two million barrels of production. Norway, western Europe’s largest oil producer, faces possible strike action this week. Meanwhile, a Reuters survey showed OPEC producers missed their June output target.

“This backdrop of mounting supply outages is colliding with a possible shortage in spare production capacity among Middle Eastern oil producers,” Stephen Brennock of oil broker PVM, told Reuters. “And without new oil production hitting markets soon, prices will be forced higher.”

Brent crude settled US$1.87 or 1.7 per cent ahead at US$113.50 a barrel. Gas futures trading in the Netherlands gained more than 10 per cent at one point. UK gas surged 20 per cent.

Iron ore continued to tumble in China amid reports of loss-making steel mills slashing production. Mills have curbed output as steel stocks piled up, reflecting weak demand as global recession fears weigh.

“We expect iron ore futures will trade lower this week given these overwhelming price negative factors,” Atilla Widnell, managing director at Navigate Commodities in Singapore, said.

“Given that Chinese blast furnaces will likely continue exercising better production discipline, we anticipate that iron ore port stocks should extend inventory builds this week,” Widnell added.

The spot price for ore landed at Tianjin sank US$5.29 or 4.6 per cent to US$109.94 a tonne. The most-traded ore contract on the Dalian Commodity Exchange sagged 5.8 per cent to US$107.49.

BHP‘s UK-traded stock bounced 0.9 per cent. Rio Tinto inched up 0.01 per cent.

Copper swooned to a fresh 17-month low, closing below the psychologically-important US$8,000 a tonne level. On the London Metal Exchange, benchmark copper dropped 0.5 per cent to US$7,998.50 a tonne.

Aluminium advanced 1 per cent, nickel 3.1 per cent, lead 1.2 per cent and zinc 3.2 per cent. Tin dipped 0.2 per cent.

Gold pared some of yesterday’s gains. The yellow metal was this morning ahead US$6.80 or 0.38 per cent at US$1,808.30 an ounce in electronic trade in the US. The price was US$1,812.50 when the ASX closed last night.

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