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Stocks look set for a breather following a breakneck rally that lifted the S&P/ASX 200 more than 300 points in three sessions.
ASX futures dropped 18 points or 0.27 per cent despite a third night of gains on Wall Street. The ASX 200 hit an 11-month high yesterday, closing just short of a 2021 closing peak.
Iron ore and silver rebounded overnight. Oil hit a fresh 11-month high. Gold steadied. The dollar pushed back above 76 US cents.
Wall Street
US stocks rose for a third session, boosted by improving economic data and a knockout earnings report from Google parent company Alphabet. The S&P 500 trimmed its gain in the final hour to four points or 0.1 per cent. The Dow Jones Industrial Average added 36 points or 0.12 per cent. The Nasdaq Composite turned negative at the close, easing two points or 0.02 per cent.
Alphabet shares surged 7.3 per cent after smashing analysts’ predictions. Revenue was 22 per cent stronger than the same quarter last year after the tech giant scooped up even more online advertising. YouTube was particularly strong as people stuck at home watched more videos.
Amazon reported record revenues, but saw its share price fall 2 per cent after Jeff Bezos announced he was standing down as CEO. Dow component company Amgen sank 1.4 per cent as the pandemic dragged on sales.
Reddit chatroom favourites GameStop and AMC steadied after two days of savage falls. GameStop bounced 3.1 per cent after losing more than 70 per cent of its value this week as a short squeeze lost momentum. AMC Entertainment gained 13.9 per cent. Silver, the most recent target of a retail trade short squeeze, bounced 1.8 per cent (more below)
The night’s gains pushed this week’s recovery in the S&P 500 beyond 3 per cent. The major US indices lost between 3.3 and 3.5 per cent last week as retail attacks on heavily-shorted stocks triggered a panic.
“Short squeeze fears abate and contagion contained for now,” Maneesh Deshpande, Barclays head of equity derivatives strategy, wrote. “Despite the relatively strong blowout in these names, on an aggregate level the subset of short squeeze stocks impacted continues to be a negligible fraction of the US equity market.”
Expectations for tomorrow night’s US January jobs report were raised by strong private payrolls data. The private sector added 174,000 positions last month, well above estimates of 50 – 70,000. A separate survey of activity in the services industry hit its highest level in almost two years.
Australian outlook
A whirlwind rally looks likely to lose strength this session after reversing all of last week’s “Reddit-panic” losses. The market has come a long way in a short time and may need a session or two to consolidate. The S&P/ASX 200 closed last night just a tenth of a point shy of an 11-month closing high at 6824.6. Volatility indicators in the US and here continued to decline.
“Looking forward, the size and the nature of the bounce indicates that the GameStop induced wobble is probably behind us,” ThinkMarkets analyst Carl Capolingua said. “It’s probably more of a blip than the start of something more sinister. Still, given how unpredictable the WallStBets-led new world order is, you never know.
“I’d like to see us take a breather here. It would good if we can make a base around 6800 from which we can launch to the 7197 high from last February.”
The energy sector looks the best bet for gains today: the US sector jumped 4.3 per cent. The communication service sector, which includes Alphabet, gained 2.1 per cent. Also ahead were financials +0.5 per cent and materials +0.2 per cent. Strength in US bond yields weighed on proxies such as REITs, health and utilities.
On the earnings front, retailer Nick Scali reports its half-year result today. Trade data and quarterly business confidence figures are due at 11.30 am AEDT.
The dollar edged up 0.19 per cent to 76.21 US cents.
Commodities
Oil scaled fresh 11-month highs after US authorities reported US stockpiles fell to their lowest level since March. Brent crude settled $1 higher at US$58.46 a barrel. The US benchmark rose 93 cents to U$55.69.
Silver rebounded from Tuesday night’s 10.3 per cent plunge. Metal for March delivery settled 49 cents or 1.8 per cent ahead at U$26.889 an ounce.
Gold for April delivery edged up $1.70 or 0.1 per cent to US$1,835.10 an ounce. The NYSE Arca Gold Bugs Index added almost 0.3 per cent.
“Gold is range trading and at the moment testing out support at $1,830,” Ross Norman, chief executive officer of Metals Daily, told MarketWatch.
Rio Tinto outperformed BHP in overseas trade. Rio gained 0.68 per cent in the US and 0.34 per cent in the UK. BHP’s US-listed stock dipped 0.1 per cent after its UK-listed stock inched up 0.15 per cent. The spot price for iron ore landed in China tacked on $1.95 or 1.3 per cent to US$152.05 a tonne.
