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Australian shares pointed sharply higher after US investors bought recovery prospects as the Federal Reserve downplayed inflation worries.

ASX futures rallied 44 points or 0.65 per cent, signalling a quick reversal of most of yesterday’s losses. The S&P/ASX 200 skidded 61 points yesterday as Asian markets recorded heavy falls.

Overnight, the Dow hit a record as US stocks swatted away a jump in bond yields. Copper hit a nine-and-a-half-year peak. Oil logged its strongest close in 13 months. The dollar made a three-year high. Iron ore and gold retreated.

Wall Street

In a repeat of Wednesday’s swing session, US stocks opened weak then surged after Fed Chair Jerome Powell again dismissed the near-term threat from inflation. Powell said it could take more than three years for inflation to reach the bank’s target for raising rates. That was enough for investors worried about a premature end to this era of cheap debt to pile back in.

The Dow Jones Industrial Average set the pace as beaten-up recovery plays once again outperformed Big Tech. The blue-chip average climbed 425 points or 1.35 per cent. Planemaker Boeing jumped 8.1 per cent and energy giant Chevron 3.7 per cent.

The S&P 500 put on 44 points or 1.14 per cent. The Nasdaq Composite gained 133 points or 0.99 per cent as traders dipped a toe in some of the tech sector’s fallen stars. The S&P 500/Citigroup Pure Value Index outpaced the Pure Growth Index by 2.27 per cent to 1.48 per cent.

“What’s happening is just a little bit of a shift out of growth and into value but today things are going slightly back to normal and you have a little bit more moving into growth as well,” David Yepez, lead equity analyst at Exencial Wealth Advisors, told Reuters.

Powell’s testimony before the House Financial Services Committee steadied market nerves after the yield on ten-year US government bonds topped 1.4 per cent overnight for the first time in a year. The rebound in yields this month has slowed share market gains amid concerns about the profit impact of higher borrowing costs and the possibility the Fed may reduce its stimulus program. Powell put those concerns to bed overnight, reaffirming the bank’s commitment to wait until inflation holds consistently above 2 per cent.

“We believe we can do it, we believe we will do it. It may take more than three years,” he said.

Drugmaker Johnson & Johnson climbed 1.4 per cent after the US regulator approved the company’s single-shot Covid-19 vaccine for emergency use. The vaccine became the third to be endorsed for use in the US.

Reddit favourite GameStop was back in the headlines, surging 103.9 per cent late in the session.

Australian outlook

In hindsight, yesterday’s 61-point ASX dive looks like another head-fake in a stop-start week. Asian losses were quickly forgotten once the trading cycle reached the US. The Fed gave Wall Street a comforting pat on the hand, reassuring investors there will be no ugly surprises until at least 2023, and likely beyond.

Local investors will keep a wary eye on the dollar. An attack on the psychologically-significant 80 US cents level might trigger another bout of market nerves. Overnight, the Aussie rose as high as 79.68 cents and was lately up 0.65 per cent at 79.63 US cents.

A jittery S&P/ASX 200 has moved in a different direction each session this week, but should turn positive once again this morning. Cyclical sectors continued to lead in the US. Energy stocks surged 3.7 per cent, industrials 1.9 per cent and materials 0.9 per cent. The financial sector – a potential winner from higher yields – jumped 2 per cent to a record.

Tech stocks regained their footing, rising 1.5 per cent. The rate-dependent utilities sector was the only significant loser, falling almost 1.2 per cent.

The last major day of the interim earnings season brings updates from Afterpay, Qantas, A2M Milk, Flight Centre, Southern Cross Media, Qube, Stockland, Ardent Leisure, Iluka, Sandfire, Galaxy, Z1P Co and Lynas (sources: CommSec, TradingView).   

Commodities

Copper rose for a fifth straight session in the US, settling at its highest level since 2011. Metal for March delivery climbed 2.8 per cent to US$4.2945 a pound. Hard commodity prices have benefitted from a weakening US dollar, diminishing inventories and demand expectations as the global economy recovers.

Oil scaled fresh 13-month highs, helped by artificial production caps imposed by OPEC+. Brent crude settled $1.67 or 2.6 per cent ahead at US$67.04 a barrel.

Gold once again lost its hold on the US$1,800 level as the rise in bond yields drew investment funds back to treasuries. Metal for April delivery settled $8 or 0.4 per cent weaker at US$1,797.90 an ounce. The NYSE Arca Gold Bugs Index resisted the trend, rising 1.1 per cent.

BHP and Rio Tinto shrugged off yesterday’s ASX falls. BHP’s US-listed stock put on 1.39 per cent and its UK-listed stock 1.33 per cent. Rio Tinto gained 1.38 per cent in the US and 0.68 per cent in the UK. The spot price for iron ore landed in China dipped 25 cents or 0.1 per cent to US$172.50 a tonne.

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