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Australian shares were poised to build on yesterday’s two-week high following a bank-led rally on Wall Street as lending rates continued to rise.
ASX futures advanced 18 points or 0.25 per cent. The S&P/ASX 200 surged more than 1 per cent yesterday on upbeat earnings from Macquarie Group and strengthening commodity prices. Index heavyweight Commonwealth Bank was set to release half-year earnings today.
Overnight, iron ore tested US$150 a tonne. Aluminium hit a 14-year peak. Oil retreated. Gold advanced ahead of tomorrow night’s US inflation report.
Wall Street
US stocks rose as investors weighed corporate earnings and a rise in treasury yields ahead of the January consumer price index.
The Dow Jones Industrial Average climbed 372 points or 1.06 per cent. The S&P 500 gained 38 points or 0.84 per cent. The Nasdaq Composite added 179 points or 1.28 per cent.
“Now that we are both over the hump with earnings season and investors are prepared for another hot inflation report, the ongoing rotation trade will likely continue,” Edward Moya, senior market analyst at Oanda, told clients.
“Today, traders are finding value in tech and embracing financials as global bond yields steadily increase.”
The S&P 500 banking index rallied 1.5 per cent as long-term lending rates hit their highest since November 2019. The yield on ten-year US treasuries was knocking on the door of 2 per cent ahead of what is expected to be the launch of a new Federal Reserve tightening cycle next month.
Bank of America gained 1.77 per cent, Wells Fargo 2.41 per cent and JPMorgan Chase 1.87 per cent. Lenders welcome higher rates for the opportunity to expand margins.
Geopolitical tensions subsided after Russian President Vladimir Putin’s meeting with President Emmanuel Macron soothed concerns a Russian invasion of Ukraine was imminent. Negotiations over Iran’s nuclear program resumed.
The energy sector fell 2.12 per cent as some of the “risk premium” came out of crude. Prices have been boosted by threats of a boycott of Russian oil. A US-Iran nuclear deal could potentially end sanctions on Iranian oil, easing global pricing pressure.
“The U.S. government is attempting to tame oil prices by urgently negotiating a new nuclear agreement with Iran,” Louise Dickson, senior oil markets analyst at Rystad Energy, said.
Gains in Apple and Microsoft propelled the Nasdaq. Facebook owner Meta Platforms fell for a fourth night after billionaire Peter Thiel stepped down from the board. Peloton surged for a second session after shedding its CEO and announcing sweeping jobs cuts.
Australian outlook
The clouds continue to clear after the January market storm. Wall Street has upside momentum. Importantly, the main US indices this morning defied their recent trend towards late fades. All three finished near session highs.
The S&P/ASX 200 has regained more than half of its 2022 losses and has established a short-term up-trend since bottoming on January 27. Today’s cautious futures reading likely reflects the scale of yesterday’s advance. The benchmark yesterday jumped 76 points or 1.07 per cent despite soft leads.
Financials were among last night’s best US performers, rising 1.38 per cent. The tone for today’s ASX action will likely be set by interim earnings from Commonwealth Bank.
US materials enjoyed a strong night, advancing 1.57 per cent. Tech gained 1.27 per cent and industrials 1 per cent. Energy, real estate and communication services (Facebook) were the night’s only losers.
Today’s interim earnings include updates from CBA, BWP Trust and Bailador Technology Investments.
Monthly consumer sentiment figures are due at 10.30 am AEDT. There are no IPOs scheduled today.
The dollar rose 0.28 per cent to 71.46 US cents.
Commodities
Iron ore tested US$150 a tonne after China weakened emissions curbs on steelmakers. The government shifted a deadline for “peak emissions” from 2025 to 2030, granting the steel sector five more years before they have to rein in pollution. The change came as China struggled with a loss of economic momentum.
“This is a big adjustment to the timetable, which gives more room for the steel sector to reach peak emissions in an orderly way,” Xu Xiangchun, analyst with Mysteel said. “A rush to meet carbon goals could lead to ‘unbearable economic costs’,” he added.
Iron ore futures in Singapore rose as high as US$153 before easing to US$148.20. The spot price for ore landed at Tianjin ended the session 55 US cents or 0.4 per cent higher at US$149.95 a tonne.
BHP and Rio Tinto finished strongly in US trade after hitting six-month highs in ASX action. BHP‘s US-traded depositary receipts gained 1.04 per cent after its UK listing eased 0.24 per cent. Rio Tinto put on 1.92 per cent in the US and 1.83 per cent in the UK.
Oil settled at its lowest level in a week. Brent crude dropped US$1.91 or 2.1 per cent to US$90.78 a barrel. The international benchmark started the week at its highest level since October 2014.
“The Biden administration is feeling pressure to lower inflation, and the fastest way to do that would be to lower energy prices,” Robert Yawger, executive director of energy futures at Mizuho, said.
Aluminium touched its highest price since 2008, supported by Chinese environmental caps on output and a Covid outbreak in a major Chinese production centre. Benchmark aluminium on the London Metal Exchange (LME) climbed as high as US$3,236 before finishing 2.3 per cent ahead at US$3,204 a tonne.
Inventories have fallen sharply after China slashed output to reduce pollution ahead of the Winter Olympics. Reuters reported a Covid outbreak in Baise threatened to further disrupt production.
Among other industrial metals on the LME, copper declined 0.49 per cent, nickel 3.23 per cent and zinc 1.26 per cent. Lead rose 0.46 per cent and tin 0.09 per cent.
Gold logged its highest close in almost three weeks ahead of tomorrow night’s US inflation report. Metal for April delivery settled US$6.10 or 0.3 per cent ahead at US$1,827.90 an ounce. The NYSE Arca Gold Bugs Index improved 1.16 per cent.
