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A pause in Wall Street’s record run points to a subdued start to Australian trade following three days of gains.

ASX futures edged up three points or less than 0.1 per cent as the S&P 500 declined for the first time in four sessions.

Gains in key commodities helped cushion Australian futures from significant down-pressure. Iron ore climbed back above US$170 a tonne. Gold rallied to a five-week high. Oil rebounded.

Wall Street

US stocks retreated from record levels as investors took a little profit off the table ahead of a new quarterly earnings season. The S&P 500 dropped four points or 0.1 per cent.

The Dow Jones Industrial Average shed 97 points or 0.29 per cent. The Nasdaq Composite gave up seven points or 0.05 per cent.

“Watch the S&P 500 over the next few days for potential consolidation – that benchmark is now very overbought/extended on the short-term trading charts and is likely to see some profit taking ahead in our opinion,” financial advisory Janney Montgomery Scott told clients.

The S&P 500 and Dow both recorded back-to-back record closes across the Easter break as unexpectedly strong economic data gave investors confidence the economy was accelerating out of the pandemic slowdown. The services sector expanded at the fastest pace on record. The economy added almost 50 per cent as many jobs last month as economists expected.

Overnight, US job openings rose to a two-year peak. California announced it will lift most pandemic restrictions by June 15. The International Monetary Fund raised its global growth forecast for the year to 6 per cent from 5.5 per cent.

“Markets today are also still digesting a ‘trifecta’ of strong start-of-the-month reports,” Chris Hussey, managing director at Goldman Sachs, wrote. “But even on the back of all of this good news, with the S&P 500 already up 8.5% [year to date], today is a time for markets to ‘consolidate’ as they await the next batch of news — 1Q21 earnings season.”

The first-quarter earnings season starts next week with reports from the likes of Goldman Sachs and JPMorgan Chase. Predictions that earnings will be 24.2 per cent stronger than the same period last year have raised concerns equity valuations may have outpaced fundamentals.

“These security prices are reflecting an anticipation that the economy is going to get back to normal sooner rather than later and it is not exactly clear where we are in that process,” Stephen Massocca, Senior Vice President at Wedbush Securities, told Reuters.

Australian outlook

The S&P/ASX 200 broke free from a sideways trading pattern yesterday, climbing to its highest close in seven weeks. The index finished just 31 points shy of its February pandemic-era closing peak.

Wall Street took a breather overnight, but the retreat was too modest to trigger alarms. The major indices were due to consolidate three days of strong gains. Similarly, we may see some mild down-pressure on the ASX 200 this session following a three-session win streak, but previous resistance around the 6860 level should now act as support.  

Inflation concerns continued to abate with falling bond yields. The ten-year US yield fell seven basis points overnight to 1.65 per cent.  

Technology and healthcare were the biggest drags in the US, both easing almost 0.4 per cent. Industrials, energy and financials also declined. The materials sector gained 0.2 per cent and utilities 0.5 per cent. Consumer stocks were lifted by continuing optimism over the pace of the recovery.

Australian construction figures for March were due at 8.30 am AEST. The Performance of Construction Index has improved for the last four months.

The dollar rose 0.09 per cent to 76.64 US cents.

Commodities

Iron ore regained the US$170 a tonne level after Chinese steel prices hit record highs. The spot price for ore landed in China climbed $3.85 or 2.3 per cent yesterday to US$170.85 a tonne. Sinosteel Futures analysts said pollution restrictions in Tangshan had cut into steel stocks at warehouses, pushing rebar prices on the Shanghai Futures Exchange to their highest on record.

BHP’s US-listed stock retreated 1.79 per cent after its UK-listed stock gained 2.42 per cent. Rio Tinto shed 1.36 per cent in the US and added 2.68 per cent in the UK.

A fourth day of gains lifted gold to its highest close in five weeks. Gold for June delivery settled $14.20 or 0.8 per cent ahead at US$1,743 an ounce. The NYSE Arca Gold Bugs Index climbed 1.4 per cent.

Oil recouped some of Monday’s 4.2 per cent loss as expectations for US-Iran nuclear talks moderated. Brent crude settled 59 cents or almost 1 per cent higher at US$62.74 a barrel. Prices skidded on Monday amid concerns the US might lift sanctions on Iranian oil if negotiations over Iran’s nuclear ambitions made progress.

“As the possibility of a breakthrough in the talks fade, the likelihood of a pick-up in exports from Iran fades too, removing one risk from the oil market,” Marshall Gittler, head of investment research at BDSwiss, wrote.

Copper flew higher in London trade after leading producer Chile closed its borders to limit a surge in Covid-19 across South America. Benchmark copper on the London Metal Exchange climbed 2.9 per cent to US$9,053.75 a tonne. Aluminium gained 2.1 per cent, nickel 3.2 per cent, lead 0.2 per cent, zinc 1.8 per cent and tin 4.1 per cent.

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