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Futures action pointed to tentative opening gains for Australian shares as commodity strength helps offset a tech-led sell-off in the US.

ASX futures held on to a gain of 10 points or 0.14 per cent as iron ore, industrial metals and crude rallied. The Nasdaq shed almost 2.5 per cent and the S&P 500 nearly 0.9 per cent.

The S&P/ASX 200 faded to a third straight loss yesterday following a mammoth capital raise by index heavyweight CSL. The index needs a gain of at least 58 points this session to regain positive territory for the week.

Wall Street

US stocks reversed much of Wednesday night’s gains as investors appeared to reassess the implications of a hawkish Federal Reserve policy outlook. Big Tech spearheaded the declines.

The S&P 500 fell 41 points or 0.87 per cent a day after closing near a record. The decline unwound more than half of Wednesday’s 1.63 per cent advance.

The tech-heavy Nasdaq Composite led the retreat, falling 385 points or 2.47 per cent. The Dow Jones Industrial Average resisted the selling until late in the session, finishing 30 points or 0.08 per cent in the red.

High-valuation tech stocks fell heavily as investors repositioned for higher rates next year. The Federal Reserve signalled on Wednesday that a majority of policymakers expect three rate increases next year and three more in 2023.

Chipmaker Nvidia sank 6.8 per cent, AMD 5.37 per cent, Apple 3.93 per cent and Microsoft 2.91 per cent. Growth stocks are particularly vulnerable to increased borrowing costs because analysts adjust their valuations to reflect higher costs.

Investors rotated into value stocks less dependent on borrowing to fund growth. The Russell 1000 Value Index gained 0.46 per cent, versus a 2.21 per cent decline in the Growth Index.

“The Fed gave the market what it wanted, and today I think investors are turning again to pandemic uncertainty, and they’re also cautious going into the end of the year,” Lindsey Bell, chief investment strategist at Ally Invest, told Reuters.

Data indicated the highly-transmissible omicron Covid variant had quickly gained traction in the US, accounting for almost 3 per cent of new cases over the past week. Infections in the UK hit a record high.

The outlook for global interest rates continued to shift quickly. The Bank of England surprised investors overnight by becoming the first major central bank to raise. The BoE lifted its benchmark to 0.25 per cent from 0.1 per cent despite surging Covid cases.

The European Central Bank announced plans to reduce support for the economy and end its Pandemic Emergency Purchase Program in March. Both announcements were well-received by investors. Britain’s FTSE 100 put on 1.25 per cent. The pan-European Stoxx 600 gained 1.23 per cent.

Australian outlook

Futures action suggests the S&P/ASX 200 should play catch-up after a lost session yesterday dominated by CSL’s $6.3 billion capital raising. The market will have to battle the ‘Friday effect’: the tendency for short-term traders to lock in profits at the end of the week.

A final-hour bounce on Wall Street softened an otherwise alarming session. The Nasdaq Composite was down almost 3 per cent at its nadir.

The weakness was centred entirely in Big Tech. The technology sector fell 2.86 per cent, consumer discretionary (Tesla, Amazon) 2.23 per cent and communication services (Google, Twitter, Netflix) 0.58 per cent.

Perhaps surprisingly, eight of eleven US sectors advanced. The best performers were the two sectors with the biggest market weightings down under. Financials put on 1.21 per cent, materials 1.04 per cent.

Gold stocks were a standout. The NYSE Arca Gold Bugs Index surged 5.22 per cent as the yellow metal gained almost 2 per cent (more below). Energy gained 0.66 per cent and industrials 0.05 per cent.

NAB, Nufarm and Incitec Pivot are among companies holding annual general meetings today.  

IPOs: today could be the busiest day of the year for new listings if all get away successfully. The ASX has five companies slated to make their stock market debuts.

SHAPE Australia at 10.30 am AEDT is a specialist building firm.

IPD Group at 12 pm services the electrical industry.

Winton Land at 1 pm is a developer with several large-scale projects underway in New Zealand and Australia.

AVADA Group at 1.30 pm (originally listed for yesterday) provides traffic management to government and the civil infrastructure sector.

My Rewards International at 1.30 pm offers employee and customer loyalty programs.

The dollar rallied 0.22 per cent to 71.82 US cents.

Commodities

Iron ore climbed to an eight-week high amid hopes of increased steel production next year as China looks to fire up a slowing economy. The spot price for ore landed in China rallied US$5 or 4.6 per cent to US$114.70 a tonne.

Steel mills are reportedly raising production after meeting government-mandated curbs on output to reduce pollution ahead of the Winter Olympics. Production this year to the end of November was 2.6 per cent lower than the same period last year. China’s central bank last week loosened lending constraints on banks to release liquidity into the market.

“Iron ore futures gained as signs of higher China steel production emerged. Crude steel output in the first 10 days of December climbed 12% from a month earlier, according to China Iron & Steel Association,” ANZ senior commodity strategist Daniel Hynes said.

BHP‘s US-listed stock rallied 0.33 per cent. The miner’s UK-listed stock gained 2.04 per cent. Rio Tinto added 1.96 per cent in the US and 2.91 per cent in the UK.

Oil hit a three-week high amid geopolitical tensions between Russia and Ukraine and following a decline in US stockpiles. Brent crude settled US$1.14 or 1.5 per cent ahead at US$75.02 a barrel.

Gold miners surged after the precious metal climbed to its highest in three weeks, supported by a falling greenback. Metal for February delivery settled US$33.70 or 1.9 per cent ahead at US$1,798.20 an ounce. The yellow metal traded as high as US$1,800.60.

Analysts suggested traders were looking for hedges amid simmering tensions on the Crimean peninsula and as Covid case numbers rose in the US and Europe.

Naeem Aslam, chief market analyst at AvaTrade, said the spread of the omicron variant “persuaded investors to take some exposure to the precious metal until the coronavirus situation cools down”.

Industrial metals jumped as traders interpreted the Fed’s hawkish rates outlook as a vote of confidence in the strength of the US economy. Copper for March delivery rose 2.9 per cent to US$4.305 a pound on Comex. The advance followed the closure of a major mine in Peru.

Zinc charged 5.7 per cent on the London Metal Exchange after a Belgian producer announced it would close a plant in France because of soaring energy prices. Several industries in Europe have been forced to reduce or halt production due to power costs. European gas futures closed at a record overnight.

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