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Australian shares were expected to open little changed following a lull in the volatility that has characterised trading this month.

ASX futures inched up two points or 0.03 per cent after US stocks closed mixed but broadly higher.

Iron ore rose for a third session. Brent crude cracked US$78 a barrel for the first time in almost three years. Gold steadied.

The S&P/ASX 200 enters the last week of September on a three-week losing run. Volatility is expected to revive later this week as institutional investors rebalance portfolios for the end of the quarter.

Wall Street

The S&P 500 and Dow squeezed out skinny gains on Friday to secure modest weekly gains. Gains in cyclical stocks helped offset pressure on consumer stocks after Nike warned of supply-chain issues, and on tech stocks after China banned cryptocurrencies.

The S&P 500 climbed seven points or 0.15 per cent to a third straight gain.  The Dow Jones Industrial Average added 33 points or 0.1 per cent. The Nasdaq Composite eased five points or 0.03 per cent.

For the week, the S&P 500 put on roughly 0.5 per cent, the Dow 0.6 per cent and the Nasdaq less than 0.1 per cent. A week that began with two straight declines ended on the upswing as surging treasury yields indicated bond markets expect inflationary pressures to continue and the economy to pick up after a mid-year lull. The yield on ten-year US bonds broke above 1.45 per cent for the first time since early July.

“The reflation trade is reflating, as 10-year yields break through some initial resistance,” Mark Luschini, chief Investment strategist at Janney Montgomery Scott, said. “Small-caps, value stocks, and banks/financials… continue to be powered by a strong correlation to trends on the Treasuries.”

Energy stocks, financials and “reopening” stocks outperformed. The S&P 1500 airlines index firmed 1.91 per cent. Cruise lines gained up to 3 per cent.

Cryptocurrencies tumbled after China declared all digital currency-related activities illegal. Bitcoin fell 10 per cent before partially rebounding. Other tokens also recorded double-digit declines. On the Nasdaq, Riot Blockchain shed 4.97 per cent and Coinbase 2.39 per cent. Robinhood, which facilitates a lot of crypto trading, fell 2.24 per cent.

“Virtual currency-related business activities are illegal financial activities,” the People’s Bank of China said.

Global supply-chain issues were highlighted by a downbeat sales forecast from Nike and a warning about Christmas delays. Shares in the sportswear giant skidded 6.26 per cent. Retailer Foot Locker fell 7.16 per cent.  

“It’s been a very volatile week to say the least, so I think going into the last week of September the volatility is likely to continue especially with the end-of-the-quarter window dressing,” Peter Cardillo, chief market economist at Spartan Capital Securities, told Reuters.

Australian outlook

Key issues for investors this week include surging bond yields, Evergrande, end-of-quarter rebalancing and congressional testimony from Federal Reserve Chair Jerome Powell.

Bond yields ripped higher in the US and Australia on Friday, indicating greater optimism about economic growth, but also causing significant sector rotation on equity markets. Troubled Chinese property developer Evergrande reportedly did not make all of its debt repayments on Thursday and has 30 days to avoid a technical default.

The looming end of the quarter will likely see increased trading volumes as institutional investors re-jig portfolios. The S&P/ASX 200 has slipped into a gentle downtrend since topping out in the middle of last month, making a series of ‘lower highs’ and ‘lower lows’. September brought a 16-week low last Tuesday and three straight losing weeks.

Friday’s best US sectors were energy +0.84 per cent, communication services (Facebook, etc) +0.69 per cent and financials +0.55 per cent. Bank stocks should perform well here as lending rates improve. In the US, bond proxies such as real estate, health and utilities declined. The materials sector dipped 0.15 per cent.

The domestic economic calendar is light for the last week of the quarter. Highlights include monthly retail sales, weekly consumer sentiment (Tuesday); building approvals, private-sector credit (Thursday); and a manufacturing index (Friday).

In the US, Fed Chair Powell and Treasury Secretary Janet Yellen will testify on Tuesday and Thursday before Congress on the pandemic and the bank’s response. Several other Fed policymakers are also scheduled to speak this week.

AGMs: Stock exchange operator ASX Limited, Pilbara Minerals and New Talisman Gold Mines hold their annual meetings on Wednesday.

IPOs: a busy week gets under with the listing of Kiwi cancer diagnostics company Pacific Edge today at 11 am AEST. Pacific specialises in bladder cancer and is already listed on the New Zealand Stock Exchange. The company has offices in Dunedin and the US.

The rest of the week’s IPOs currently looks like this: Dalaroo Metals, Koonenberry Gold, Li-S Energy (Tuesday); Touch Ventures (Wednesday); Activeport Group, Mitre Mining (Thursday); and C29 Metals and West Cobar Metals (Friday). Note that listings are frequently subject to late delays or cancellations.

Dividends: companies trading ex-dividend this week include Gold Road Resources, Imdex (Monday); Perpetual (Tuesday); Centuria Office REIT, Centuria Industrial, Cedar Woods Properties, ALE Property Group, Waypoint, Charter Hall Long Wale, Coventry Group, Rural Funds (Wednesday); and Nick Scali (Friday).

The dollar edged up 0.09 per cent this morning to 72.56 US cents.

Commodities

Oil firmed for a fourth session, lifting Brent crude to its highest close since October 2018. The global benchmark settled 84 US cents or 1.1 per cent higher at US$78.09 a barrel. Buying support has increased as US producers take longer than expected to return to full production in the wake of Hurricane Ida.

“The market is pricing in a prolonged impact of supply disruptions, and the likely storage draws that will be needed to fulfill refinery demand,” Louise Dickson, senior oil market analyst at Rystad Energy, said.

Iron ore sealed a weekly win with a third straight gain. The spot price for ore landed in China improved US$1.25 or 1.1 per cent to US$110.15 a tonne. For the week, the spot ore price bounced US$9.35 or 9.3 per cent.

BHP‘s US-listed stock shed 0.94 per cent and its UK-listed stock 1.27 per cent. Rio Tinto fell 0.42 per cent in the US and 0.57 per cent in the UK.

Uranium stocks tumbled in the US as the radioactive metal drifted from the previous week’s peak. Yellowcake prices eased roughly 5 per cent from their highs. Denison Mines sank 8.28 per cent, Energy Fuels 10.11 per cent and Cameco 5.73 per cent.

Gold steadied following its heaviest fall in a week as China’s crackdown on crypto boosted demand for havens. Metal for December delivery settled US$1.90 or 0.1 per cent higher at US$1,751.70 an ounce. The NYSE Arca Gold Bugs Index dropped 0.74 per cent.

Tin hit a record in Shanghai trade, supported by falling warehouse volumes. October tin futures rallied 4.8 per cent on the Shanghai Futures Exchange. Copper rose in US trade. December copper firmed 1.3 per cent to US$4.286 a pound for a  weekly gain of 0.9 per cent.

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