A holiday-shortened week looks set for a positive start despite a soft end to Wall Street's trading week as the spread of Covid-19 weighed on risk appetite.
ASX futures rallied 17 points or 0.25 per cent, signalling a partial reversal of Friday's 23-point retreat on the S&P/ASX 200.
US stocks finished mixed. Iron ore, oil, gold and copper declined. The dollar climbed back above 77 US cents.
Disappointing earnings and risk-off selling on fears of a double-dip recession in Europe helped pull most US stocks lower on Friday. The S&P 500 dropped 12 points or 0.3 per cent. The Dow Jones Industrial Average shed 179 points or 0.3 per cent.
Tech stocks and small caps outperformed. The Nasdaq Composite edged up 12 points or 0.09 per cent to a record close as tech giants Apple, Microsoft and Facebook rallied ahead of updates this week. The Russell 2000 index of small caps climbed 1.28 per cent to an all-time high.
IBM was the biggest drag on the Dow, diving 9.9 per cent after reporting a fourth straight decline in revenue. Intel was close behind, tumbling 9.3 per cent as traders appeared to reassess Thursday's quarterly result.
Market sentiment was dented by negative Covid news. China reported its highest infection rate since March. Hong Kong ordered thousands of residents to stay home, the city's first lockdown. The UK warned current restrictions may last into the northern summer. US diseases expert Dr Anthony Fauci said existing vaccines may not be as effective in containing recently emerged variants of the coronavirus.
European stocks fell after soft data indicated the economy may be heading back into recession as lockdowns crimp activity. A composite measure of manufacturing and services industry activity contracted for a third straight month. The pan-European Stoxx 600 slid 0.57 per cent.
“The Covid pendulum, which normally emphasizes vaccine optimism over the harsh near-term reality, is swinging back towards the latter (for now) as epicenter stocks get hit hard in Europe,” Adam Crisafulli, founder of Vital Knowledge, wrote.
US stocks recovered from a weak start after unexpectedly robust data suggested the economy accelerated into the new year. Manufacturing expanded at a record pace. A measure of services industry activity rose to a two-month high.
Today looms as a litmus test for market sentiment. With two US trading sessions between tonight's close and Wednesday's open, will traders leave positions open over the Australia Day market holiday, or has sentiment shifted far enough towards caution for some to cash out?
Covid-19 has re-emerged as a trading factor overseas after being given a free pass for months as investors bet on a brighter vaccine-fuelled future. Vaccine rollouts have been slower than the market anticipated. The long-awaited economic rebound, particularly in Europe, looks further away now than it did a few weeks back. There was a notable shift in the US last week from value stocks - effectively bets on the future - back to growth stocks that are performing better right now.
Of course, the domestic Covid outlook is much brighter. Restrictions have eased in recent days amid signs the recent outbreak on the east coast has been contained. The Therapeutic Goods Administration is scheduled to approve the use of the Pfizer-BioNTech vaccine before the end of the month, meaning news could/should come this week.
The S&P/ASX 200 hit fresh 11-month highs last week and has its old record within sight. Next month's half-year earnings season may determine whether the rally continues.
The quarterly reporting season wraps up this week, ahead of next-month's half-yearly season. Highlights this week include: Beach Energy, Evolution Mining, Iluka, InvoCare, Northern Star and Sandfire (Wednesday); Fortescue Metals, IGO, Newcrest and ResMed (Thursday); and Origin Energy and a deluge of minnows on Friday, last day of the season. Morningstar also lists Oil Search and Western Areas tomorrow.
The US quarterly season continues with reports this week from tech heavyweights Apple and Facebook, as well as Tesla, Boeing and AmEx.
The economic calendar lightens towards the end of the month. This week's highlights are Wednesday's quarterly consumer inflation and business confidence reports. Wall Street has a Federal Reserve meeting this week and advance GDP figures.
The dollar bounced 0.82 per cent this morning to 77.21 US cents.
A surprise increase in US stockpiles helped push oil lower. Brent crude settled 69 cents or 1.2 per cent weaker at US$55.41 a barrel.
Gold trimmed its first winning week in three as the US dollar rallied. Metal for February delivery settled $9.70 or 0.5 per cent lower at US$1,856.20 an ounce on Friday, but gained 1.4 per cent for the week. The NYSE Arca Gold Bugs Index dipped 1.1 per cent.
BHP and Rio Tinto declined in overseas trade as Covid concerns weighed on iron ore and copper. BHP's US-listed stock gave up 0.75 per cent and its UK-listed stock 1.12 per cent. Rio Tinto shed 1.2 per cent in the US and 0.81 per cent in the UK. The spot price for iron ore landed in China retreated $1.95 or 1.1 per cent to US$168.60 a tonne.
Copper was lowered by concerns about Chinese demand as Covid cases rose ahead of the Lunar New Year holiday slowdown. Benchmark copper on the London Metal Exchange fell 0.3 per cent to US$7,993.50 a tonne. Nickel declined 0.7 per cent and tin 0.8 per cent. Aluminium added 0.1 per cent, zinc 0.3 per cent and lead 0.3 per cent.