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Australian shares looked set to open tentatively higher despite declines in the US as investors grappled with surging Covid cases and the loss of an anticipated boost from the White House’s Build Back Better spending package.

ASX futures edged up six points or 0.08 per cent. The S&P/ASX 200 fell 12 points yesterday to its softest close in nine sessions.

Overnight, the Dow, S&P 500 and Nasdaq Composite all shed at least 1.1 per cent in a glum start to Christmas week. Oil, gold and copper declined. Iron ore rallied.

Wall Street

US stocks hobbled into a new week, hamstrung by the economic implications of omicron’s rapid spread and worries about fast-receding stimulus after the Federal Reserve flagged plans to end its asset-buying program early and President Joe Biden’s signature spending bill hit a roadblock.

The S&P 500 slumped 53 points or 1.14 per cent to a third straight loss. The index closed below its closely-watched 50-day moving average.

The Dow Jones Industrial Average slid 433 points or 1.23 per cent. The Nasdaq Composite shed 189 points or 1.24 per cent.

The retreat mirrored similar declines in Europe as investors reacted to a weekend of negative Covid headlines. The Netherlands announced a hard lockdown. The UK was reported to be considering tighter restrictions over Christmas. The US’s top contagious diseases expert warned Americans to expect record case numbers. The World Health Organization warned case numbers were doubling in three days in areas with community transmission.

The pan-European Stoxx 600 dropped 1.38 per cent. Germany’s DAX index gave up 1.88 per cent. Britain’s FTSE 100 lost 0.99 per cent.

US investors were also factoring in the loss of additional economic stimulus next year after Biden’s US$1.75 trillion spending package suffered a potentially fatal blow. Senator Joe Manchin declared he would not support the bill. Manchin’s vote was crucial to passing the package.

While the bill would have led to higher taxes on corporations, it was expected to provide a valuable boost to the economy next year as the Fed wound down its bond-buying program. Goldman Sachs reacted by cutting its GDP forecast for the first quarter of the year from 3 per cent to 2 per cent.  

“It was kind of a triple whammy on the economy over the weekend – Omicron, the Fed, and taking the fiscal initiative off the table,” Jack Ablin, chief investment officer at Cresset Capital Management, said. “The market is taking a hit. I think it’s an economic reset that investors are kind of gauging.”

Stocks most exposed to the global economy came under pressure. The S&P 500 air freight and logistics index fell 1.91 per cent. Heavy-machinery manufacturer Caterpillar lost 2.98 per cent. On the Dow, aircraft-maker Boeing shed 2.15 per cent. The Dow Jones Transportation Average fell 1.54 per cent.

Australian outlook

First hints of a Santa rally? Futures trading suggests investors have had enough doom and gloom at a time when markets normally benefit from lower volumes and reduced newsflow.

While Wall Street is in a funk, declines on the S&P/ASX 200 have been modest over the last few sessions. The index has shown signs of stabilising around current levels. This morning’s positive futures response to overnight weakness suggests limited appetite for lower levels. The index tested a two-week low yesterday, but finished within a few points of Thursday’s close.

Trade in the US was predictably defensive. The only sectors to advance were consumer staples +0.04 per cent and utilities +0.05 per cent.

US financials skidded 1.9 per cent, materials 1.82 per cent and industrials 1.65 per cent. The energy sector dropped 1.17 per cent as US crude closed below US$70 a barrel (more below).

The Reserve Bank releases the minutes from this month’s policy meeting at 11.30 am AEDT. Governor Philip Lowe foreshadowed the content last week. Lowe indicated the bank still saw inflationary pressures in Australia as mild enough to leave official rates on hold through next year. Lowe also outlined three options for the bank’s asset-buying program.

IPOs: Rubix Resources lists at 12.30 pm AEDT. Rubix is a metals explorer with projects in Queensland and WA.

The dollar continued to hover just above 71 US cents. The Aussie was lately off 0.07 per cent at 71.11 US cents.

Commodities

Iron ore climbed to its highest level in two months as buyers continued to bet on a recovery in steel output after mills met government-imposed targets to reduce production. The spot price for ore landed in China climbed US$4.95 or 4.2 per cent to US$123.20 a tonne.

“Analysts expect a rebound in steel output as Beijing’s yearly targets have been met, prompting mills to resume production,” UK resources sector advisor SP Angel told clients.

Mining giants BHP and Rio Tinto remained under pressure in overseas trade. BHP‘s US-listed stock dipped 0.1 per cent. Its UK-listed stock fell 1.54 per cent. Rio Tinto gave up 0.86 per cent in the US and 2.39 per cent in the UK.

Oil wilted under the threat of weakened demand as governments impose mobility restrictions to contain omicron. Brent crude settled US$2 or 2.7 per cent lower at US$71.52 a barrel.

The US benchmark, West Texas Intermediate, traded as low as US$66.12 before settling 3 per cent in the red at US$68.61.

“Oil prices are getting pummeled again as sentiment turns south and countries ponder deepening restrictions and lockdowns,” Craig Erlam, senior market analyst at Oanda, said.

Gold fell back below US$1,800 an ounce in thin trade. Metal for February delivery settled US$10.30 or 0.6 per cent lower at US$1,796.40. The NYSE Arca Gold Bugs Index lost 1.25 per cent.

“A lot of today’s risk off moves are being driven by a lack of liquidity, more than any undue pessimism about future economic prospects,” Michael Hewson, chief market analyst at CMC Markets UK, said.

Copper was little changed in US trade. March copper dipped less than a cent or 0.03 per cent on Comex to US$4.2935 a pound.

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