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Aussie shares were poised to open at a two-month high as gains on Wall Street offset pressure on commodity prices after the Chinese economy lost momentum.
ASX futures rallied 22 points or 0.32 per cent as Wall Street’s main indices overcame early weakness.
Crude oil, iron ore and metals fell after weak Chinese data and a surprise rate cut raised questions about the Chinese economy. The Australian dollar fell back towards 70 US cents.
The ASX 200’s largest company by market capitalisation, BHP, reports full-year earnings today, along with industrial property giant Goodman Group, James Hardie, Seven West Media and a host of others.
Wall Street
US stocks finished higher as traders bet weak economic data from China and the US may keep interest rate increases in check. High-growth shares led as treasury yields declined.
The Dow Jones Industrial Average rallied 151 points or 0.45 per cent. The blue-chip average closed above its 200-day moving average for the first time since April.
The S&P 500 gained 17 points or 0.4 per cent. The Nasdaq Composite put on 81 points or 0.62 per cent.
Traders found the positives in dire economic data from both sides of the globe. The People’s Bank of China unexpectedly cut lending rates yesterday after factory output, retail sales and investments fell significantly short of expectations last month.
In the US, a measure of manufacturing activity in the greater New York area plunged 42.4 points to -31.3 this month. Economists had expected the gauge to remain in positive territory. A separate report showed confidence among home builders fell into negative territory for the first time since 2020.
“Some investors believe that the soft data will temper the Federal Reserve rate hike expectations,” CommSec noted.
Early pressure from energy and financial shares was slowly overpowered by gains in bond proxies and growth stocks as treasury yields declined. Apple and Microsoft provided much of the momentum.
The Vanguard S&P 500 Growth Index Fund put on 2.06 per cent, versus a 1.43 per cent increase in the Value Index Fund.
“We’re back to growth doing well relative to value, and market participants looking at the Fed and saying, ‘Hey, they’re going to be cutting rates here sooner than we know, and that’s going to be good for the equity market’,” Paul Nolte, portfolio manager at Kingsview Investment Management, said.
Australian outlook
The prospects for the day ahead appear mixed, but generally positive. Declines in commodities are likely to hold back the energy and heavily-weighted materials sectors. US energy lost almost 2 per cent. US basic materials dipped around 0.1 per cent.
However, the S&P/ASX 200 has good momentum following three weeks of gains and the current market mood is forgiving. The Australian benchmark advanced 32 points or 0.45 per cent yesterday in the face of data suggesting Chinese demand for raw materials is likely to weaken. The reaction to that news would have been severe a few months back.
Forex markets took a dimmer view of the Chinese data. The Australian dollar was knocked down 1.34 per cent to 70.2 US cents.
US investors bought bond proxies – stocks that attract interest when bond yields weaken – and growth. The night’s best-performing sectors were consumer staples +1.05 per cent, utilities +0.81 per cent and technology +0.63 per cent.
How the session evolves here will be dictated to a large extent by the reaction to this morning’s full-year earnings report from BHP. With a valuation of around $195 billion and an index weighting of roughly 10 per cent, the Big Australian can move the market a long way by itself.
This year’s downturns in iron ore, copper and nickel means earnings are unlikely to be as strong over the second half as they were in the first.
“The mixed outlook for commodities has already seen rival mining heavyweight Rio Tinto disappoint investors this earnings season as it declared a smaller dividend than expected and no special dividend at all,” Tony Sycamore, market analyst at City Index, said.
“Earlier this week, BHP launched an $8.4bn bid for copper miner, OZ Minerals. The $25 per share bid was pitched at a 32% premium to OZ Minerals’ last traded price at $18.92, a signal that the Big Australian holds a more optimistic view than some of the global economy. The OZ Minerals board rejected the bid, and the market now waits to see if BHP will come back with a revised offer.
“For the record, the expectation is for BHP to report an underlying net profit of US$20.4bn, up 19.3% for Full Year 2021.”
Other companies reporting today include Goodman Group, James Hardie, Seven West Media, SEEK, Challenger, Temple & Webster, Shopping Centres Australasia, Growthpoint Properties, Tassal Group, Life3260 and Sims (sources: CommSec, Australian Financial Review).
The day’s other potential market-moving news is the 11.30 am AEST release of the minutes from this month’s Reserve Bank meeting. The minutes should throw further light on the outlook for interest rates after a series of hikes this year.
Commodities
Oil skidded 3.1 per cent as traders anticipated a drop-off in demand as the global economy slows. Brent crude settled US$3.05 lower at US$95.10 a barrel. The US benchmark fell 2.9 per cent to US$89.41.
“The data out of China didn’t bring any good news for the black gold, and coming into the European session from the Asian session, oil prices were already under punishment. It was the Chinese retail sales data that drove the pessimism among traders,” Naeem Aslam, chief market analyst at AVATrade, said.
“The picture became, even uglier when the US Empire State manufacturing data came out, which literally fell off the cliff. This US economic data could not have brought any more bad news for the oil prices.”
Iron ore and industrial metals wilted under the same pressures. The spot price for ore landed in China dropped US$3.07 or 2.8 per cent to US$106.79 a tonne. The most-traded ore contract on the Dalian Commodity Exchange dropped 2.9 per cent to 707.50 yuan.
Benchmark copper on the London Metal Exchange fell 1.4 per cent to US$7,972 a tonne. Aluminium gave up 1.9 per cent, nickel 4.5 per cent, lead 0.7 per cent, zinc 1.2 per cent and tin 1.8 per cent.
BHP‘s US-traded depositary receipts shed 1.83 per cent ahead of this morning’s full-year earnings release. The miner’s UK listing dropped 0.78 per cent. Rio Tinto lost 2.81 per cent in the US and 2.24 per cent in the UK.
Gold closed back under US$1,800 an ounce as the US dollar rose. Gold for December delivery settled US$17.40 or 1 per cent weaker at US$1,798.10 an ounce. The NYSE Arca Gold Bugs Index dropped 1.55 per cent.
