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The share market looked set to open little changed as traders weigh fresh highs on Wall Street against overnight declines in miners and a snap lockdown in Victoria.
ASX futures inched up three points or 0.04 per cent, signalling a subdued start. The S&P/ASX 200 rallied eight points or 0.11 per cent yesterday to a second straight record close.
Overnight, BHP and Rio Tinto fell in overseas trade after iron ore tumbled more than 7 per cent. Oil trimmed three days of losses. Copper edged higher. Gold retreated. The dollar edged back above 74 US cents.
Wall Street
Upbeat economic data helped settle market jitters heading into tonight’s closely-watched monthly US jobs update. Cyclical stocks rebounded as weekly jobless claims declined and the trade deficit hit a record.
The S&P 500 rallied 26 points or 0.6 per cent to a new all-time closing high. The Dow Jones Industrial Average bounced 272 points or 0.78 per cent, reversing almost all of the previous session’s loss. The Nasdaq Composite put on 115 points or 0.78 per cent.
The number of Americans filing for unemployment benefits for the first time fell by 14,000 to 385,000. The decline was in line with expectations, breaking a recent run of unexpectedly soft reports. Continuing claims fell below three million for the first time since March 2020.
The report gave investors greater confidence about tonight’s July nonfarm payrolls following Wednesday night’s private payrolls shock. Optimism about the recovery was dulled on Wednesday by news private companies hired roughly half as many new workers last month as economists expected.
“Yesterday’s record high reading on the Services PMI and today’s unemployment claims data have reinvigorated confidence on the economic growth front,” Dave Donabedian, chief investment officer at CIBC Private Wealth US, told Reuters.
A separate report showed the trade deficit blew out 6.7 per cent to a record $75.7 billion. A $1.2 billion increase in exports was outweighed by a $6 billion increase in imports, suggesting both domestic output and consumption were improving.
Travel and tourism companies rebounded as part of a rotation back into stocks most closely tied to the economy. The S&P 1500 airlines index jumped 4.4 per cent. Strong quarterlies lifted Wynn Resorts and MGM Resorts 8.33 and 6.44 per cent, respectively. The S&P 500 casinos and gaming index gained 6.83 per cent.
Australian outlook
A flat outlook for the last session of the week, with the heavyweight miners looming as a major drag. A retreat in the nation’s most valuable export accelerated yesterday. The spot price for ore landed at Tianjin slumped US$13.10 or 7.2 per cent to US$170.05 a tonne.
Iron ore prices that traded near US$220 a tonne for almost three months have crumbled more than 20 per cent over the last week. Chinese authorities have cracked down on steel production to meet environmental objectives, but will not be disappointed to see ore prices cool. The spread of the delta variant in China has also slowed demand.
“Domestic consumption is weakening significantly,” analysts at Huatai Futures wrote. “Due to different perception of crude steel output cuts, iron ore prices have been fluctuated recently,” they added.
BHP‘s US-listed stock slid 2.53 per cent and its UK-listed stock shed 3.8 per cent. Rio Tinto lost 4.28 per cent in the US and 4.21 per cent in the UK.
The implications for the ASX 200 are obvious: the materials sector accounts for more than a fifth of the index. The financial sector has provided support over the last few sessions and will likely have to take up the slack again today. Overnight US financials rallied 1.24 per cent.
Other US sectors to shine included energy +1.28 per cent, utilities +1.13 per cent and communication services +0.91 per cent. Health and materials declined.
Another factor today: Victoria and the NSW Hunter region joined Greater Sydney and South-east Queensland in lockdown overnight. While the market has become more comfortable with lockdowns, there is an implicit assumption that outbreaks will be suppressed quickly or limited to parts of the country.
The Reserve Bank will be in the spotlight this session. Governor Philip Lowe is due to testify before the House of Representatives Standing Committee on Economics from 9 am AEST. The central bank is also due to release its quarterly statement on monetary policy at 11.30 am.
The steady drip of deteriorating economic data is likely to continue with the 8.30 am release of the Australian Industry Group’s survey of activity in the services sector.
Online property ad firm REA Group reports full-year earnings. Lithium miner Galaxy Resources holds its AGM.
IPOs: Gold explorer Gold 50 debuts at noon AEST. The company has a portfolio of projects in Arizona and Nevada.
The dollar climbed 0.27 per cent to 74.02 US cents.
Commodities
Oil broke a three-session losing streak as strong US data helped offset worries about the demand hit from the delta Covid variant. Brent crude settled 91 US cents or 1.3 per cent ahead at US$71.29 a barrel.
Gold continued to fall back towards US$1,800 an ounce as treasury yields edged off multi-month lows. Gold for December delivery settled US$5.60 or 0.3 per cent lower at US$1,808.90. The NYSE Arca Gold Bugs Index dropped 1.87 per cent.
Copper firmed in London with the general recovery in risk appetite. Benchmark copper on the London Metal Exchange rose 0.3 per cent to US$9,471.50 a tonne. Aluminium improved 0.9 per cent, nickel 1.2 per cent and zinc 1.9 per cent. Lead dropped 1.6 per cent and tin 0.1 per cent.
