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The biggest week of the half-year profit season looks set for a positive start following a record finish on Wall Street.

Australian futures rallied 37 points or 0.55 per cent. An open around those levels would reverse last week’s 34-point loss as Victoria re-entered lockdown.

US stocks rallied late on Friday to fresh highs ahead of tonight’s market holiday. Oil rose, along with most industrial metals. Gold trimmed its first weekly advance in three weeks. Chinese iron ore markets were closed for Lunar New Year holidays.

Wall Street

The S&P 500 and Nasdaq claimed new highs at the end of a largely range-bound week when the February rally seemed to lose momentum. The S&P 500 hit its peak in the closing minutes, rising 18 points or 0.47 per cent for a weekly tally of around 1.2 per cent.  

The Nasdaq Composite put on 70 points or 0.5 per cent and the Dow Jones Industrial Average 28 points or 0.09 per cent. Weekly totals for the tech and blue-chip indices were 1.7 and 1 per cent, respectively.

Cyclical stocks have outperformed this month in anticipation of a stimulus-fuelled recovery as vaccination programmes expand. Energy, financials and materials delivered strong returns. On Friday, energy led with a rise of 1.4 per cent, followed by materials +1 per cent and financials +1 per cent.

“We’re under-estimating the lag effect of all the money in the system as more and more vaccinations are delivered and as more of the country reopens,” Thomas Hayes, chairman of hedge fund Great Hill Capital, told  Reuters. “We are continuing this rotation that would be consistent with the new business cycle, and as yields go up, value and cyclicals will lead.”

Wall Street’s “fear gauge”, the VIX, closed below 20 for the first time in a year. Analysts said this could be interpreted as a sign investors see fewer risks in the near-term or a potential red flag about increasing complacency in the market.

The White House announced the US had signed deals for another 200 million vaccine shots from Pfizer and Moderna. President Joe Biden said the US would have enough doses for 300 million Americans by the end of July.

Over the weekend, the Senate acquitted former President Donald Trump of inciting the riot on Capitol Hill on January 6.

Australian outlook

Earnings season cranks into top gear this week. Almost half the 20 largest companies listed on the ASX are due to report between now and Friday night. BHP and Brambles report tomorrow; Rio Tinto and Coles on Wednesday; Wesfarmers, Fortescue Metals, CSL and Woodside Petroleum on Thursday; and Goodman Group on Friday. In addition three of the big four banks release quarterly updates: NAB tomorrow, Westpac on Wednesday and ANZ on Thursday. United Malt Group holds its AGM on Thursday.

Highlights today include trading updates from Altium, Aurizon, Bendigo Bank, GPT Group, JB Hi-Fi and Seven West Media.

On the economic front, the January jobs report on Thursday is this week’s big-ticket event. Economists predict a decline in the unemployment rate as the economy created around 30,000 jobs. Tomorrow the RBA releases the minutes from this month’s policy meeting.

Market holidays in the US and China are likely to crimp trading volumes through the first half of the week. Wall Street is closed tonight to mark President’s Day. Chinese markets will remain closed until Thursday for the week-long Lunar New Year celebration.

The US quarterly reporting is winding down and has been widely seen as a success.

“Fourth-quarter earnings are coming in well ahead of expectations, and analysts are now adjusting their 2021 earnings estimates upwards,” Brad McMillan, chief investment officer at Commonwealth Financial Network, wrote.

The Victorian lockdown triggered “risk-off” selling here on Friday, but is unlikely to have an enduring effect unless the lockdown is extended beyond its scheduled end on Wednesday night. The S&P/ASX 200 fell 43 points or 0.63 per cent on Friday to seal a weekly loss of 34 points or 0.5 per cent.

US action on Friday played to the ASX’s strengths: solid gains in financials and materials. Utilities and real estate struggled as bond yields rallied.

The dollar opened steady this morning at 77.53 US cents.

Commodities

US energy stocks rallied 1.4 per cent as tensions in the Middle East boosted crude prices. Brent crude settled $1.29 or 2.1 per cent ahead at US$62.43 a barrel after Iran-backed rebels hit a Saudi air base with a drone attack.  

“Traders are closely watching political friction develop in the Middle East, and hence a return to the political risk premium that had dominated oil prices in the past,” Manish Raj, chief financial officer at Velandera Energy told MarketWatch.

Gold trimmed a weekly gain as rising US bond yields undermined demand. Gold for April delivery settled $3.60 or 0.2 per cent lower at US$1,823.20 an ounce. The yellow metal gained 0.6 per cent during the week.

BHP and Rio Tinto rose in overseas trade. BHP’s US-listed stock gained 0.95 per cent and its UK-listed stock 0.57 per cent. Rio Tinto added 1.68 per cent in the US and 0.37 per cent in the UK. Chinese iron ore markets were closed for the Lunar New Year.

Copper shrugged off a week-long Chinese holiday. Benchmark copper on the London Metal Exchange climbed 0.8 per cent to US$8,352.25 a tonne. Aluminium gained 0.5 per cent, lead 0.9 per cent, zinc 1.8 per cent and tin 0.8 per cent. Nickel shed 0.3 per cent.

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