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Record finishes on Wall Street point to a strong start to Australian trade, but border closures and dire Covid numbers over the weekend threaten investor enthusiasm.

ASX futures surged 76 points or 1.06 per cent as the Dow, S&P 500 and Nasdaq Composite rebounded at the end of a volatile week. An open of that magnitude would reverse Friday’s 68-point dive on the S&P/ASX 200.

However, new Covid-19 cases in New South Wales were expected to crack three digits today for the first time in this outbreak, increasing the likelihood of an extended lockdown. Victoria yesterday announced it was closing its border to NSW and the ACT.  

Wall Street

Cyclical stocks led a sharp recovery in the US ahead of a new quarterly reporting season. The S&P 500 rallied 49 points or 1.13 per cent to a record close.

The Dow Jones Industrial Average put on 448 points or 1.3 per cent. The Nasdaq Composite gained 142 points or 0.98 per cent.

Economically-sensitive sectors spearheaded the advance as a rebound in bond yields helped soothe concerns over slowing economic growth. The yield on ten-year US treasuries rose for the first time in eight sessions. Falling yields triggered wobbles on equity markets last week amid speculation bond movements anticipated a slowdown in global growth as the Delta Covid variant dampened activity in Asia and Europe.

The financial sector rallied 2.87 per cent ahead of a big week of quarterly updates from the major banks. Goldman Sachs, JPMorgan Chase and Bank of America will all report in the next few sessions. Higher borrowing costs are a net positive for lenders because of the opportunity to increase margins.

The materials and energy sectors both gained 2.01 per cent as crude and bulk metals rallied. Industrials gained 1.62 per cent.

“What an about-face from all of the gloom and doom from [Thursday],” Jake Dollarhide, chief executive officer of Longbow Asset Management, told Reuters. “The US is in a bubble compared to the rest of the world, in a break from COVID. How long that’s going to last we don’t know… Until that narrative changes, this is a market with a lot of free money and low interest rates.”

Gains in tech stocks were kept in check by a crackdown on anti-competitive practices. President Joe Biden signed an executive order on Friday including 72 actions and recommendations aimed at curbing excesses and encouraging competition.

Friday’s rebound lifted the major indices back into positive territory for the week. The S&P 500 and Nasdaq both gained roughly 0.4 per cent last week. The Dow added 0.2 per cent.

Australian outlook

The session ahead shapes up as another test of investors’ willingness to favour positive overseas leads over the deteriorating domestic outlook. US action favoured the sectors that matter most on the ASX: financials and materials. BHP and Rio Tinto  jumped more than 4 per cent in overseas trade (more below).

However, the odds on the nation’s most populous state reopening next weekend dimmed significantly after health authorities reported 50 new local cases on Saturday and 77 yesterday. NSW Premier Gladys Berejiklian warned today’s tally was likely to hit triple digits.

“I’ll be shocked if it’s less than 100,” Ms Berejiklian said.

The domestic market has underperformed Wall Street significantly over the last three weeks as the Sydney lockdown put a brake on risk appetite. The S&P 500 has put on almost 5 per cent since June 25. The S&P/ASX 200 has fallen 1.3 per cent.

The local benchmark seems to have settled into a sideways trading range similar to the month that preceded the late May/early June breakout to record levels. On Friday, the index tested and rejected a near three-week low, recovering sharp initial losses to close back within the current range.

Thursday’s June jobs report is this week’s key economic release. The market consensus among economists is for another dip in the unemployment rate to 5 per cent from 5.1 per cent in May. Total employment is expected to increase by 20,300 following a 115,200 surge in May.

Also this week: monthly business confidence, weekly consumer sentiment (Tuesday); and monthly consumer sentiment and quarterly building activity (Wednesday).

The rush to list continues. This week’s IPO slate currently includes: Aerison Group, Resource Base and Western Mines (today); Industrial Metals, Pantera Minerals (Tuesday); Victory Goldfields (Wednesday); Mount Monger Resources, Openn Negotiation (Thursday); and BCAL Diagnostics (Friday). Note that listing dates are frequently subject to revision.

Overseas, investors will watch a new US quarterly corporate reporting season for clues to the pace of global economic growth. Bond yields slumped last week and cyclical stocks wobbled in a sign some investors were questioning whether the sugar hit from the pandemic rebound may be waning.

Earnings start to trickle in from tomorrow night. The first week is dominated by the big banks. Goldman Sachs and JPMorgan Chase launch the season on Tuesday, followed by Bank of America, Wells Fargo and Citigroup on Wednesday, and Morgan Stanley on Thursday.

The dollar inched up 0.04 per cent this morning to 74.83 US cents.

Commodities

Oil rebounded briskly at the end of a choppy week clouded by divisions within the OPEC oil cartel and demand worries as the delta Covid variant spread through Asia. Brent crude settled US$1.43 or 1.9 per cent ahead at US$75.55 a barrel.

Gold capped a third straight winning week with further gains as the US dollar eased from three-month highs. Metal for August delivery settled $10.40 or 0.6 per cent ahead at US$1,810.60 an ounce. For the week, the yellow metal put on 1.5 per cent.

BHP and Rio Tinto rebounded with copper and other industrial metals. BHP’s US-listed stock surged 4.05 per cent after its UK-listed stock gained 4.34 per cent. Rio Tinto bounced 4.26 per cent in the US and 4.09 per cent in the UK. The spot price for ore landed in China eased US$1.70 or 0.8 per cent to US$216.50 a tonne.

Copper shrugged off concerns about growth and speculation about potential monetary easing in China. Benchmark copper on the London Metal Exchange rallied 2.1 per cent to US$9,482.25 a tonne. Aluminium gained 2.3 per cent, nickel 2.4 per cent, lead 1.2 per cent, zinc 1.6 per cent and tin 0.2 per cent.

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