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Australian stocks were poised to open higher for a second day after cautious optimism on the eve of a new earnings season lifted US stocks to fresh highs.

ASX futures rallied 20 points or 0.28 per cent as the S&P 500 and Nasdaq Composite closed at records. The Dow cracked 35,000 for the first time since May.

Iron ore reversed Friday’s decline. Demand worries and a rise in the US dollar helped drag crude and metals lower.

Wall Street

US stocks showed few nerves at the start of a potentially market-moving week including updates from the big banks, inflation data and congressional testimony from Federal Reserve Chair Jerome Powell.

The S&P 500 climbed 15 points or 0.35 per cent. The Dow Jones Industrial Average rallied 126 points or 0.36 per cent, closing at 34,996 after rising as high as 35,015. The Nasdaq Composite put on 31 points or 0.21 per cent.

The Q2 earnings season kicks into gear tonight with reports from Goldman Sachs, JPMorgan Chase and Pepsico. All three companies advanced overnight. Goldman shares gained 2.35 per cent, JPMorgan 1.43 per cent and Pepsico 0.02 per cent.  

Market analysts anticipate a stunning recovery in earnings from the same period last year when the pandemic was at its height. FactSet data indicates earnings are expected to be on average 64 per cent higher than Q2 2020. Sixty-six companies on the S&P 500 have issued positive earnings guidance ahead of this season.  

“Most investors are expecting blockbuster earnings results and these will likely be peak earnings results,” Jack Ablin, chief investment officer at Cresset Wealth Advisors, told CNBC. “The most important element of these reports this week will be the outlook discussion from management and not necessarily the numbers of the last three months.” 

Bank of America, Wells Fargo and Citigroup report on Wednesday. Morgan Stanley and UnitedHealth follow on Thursday.

Inflation reports tonight and tomorrow also have the potential to move the market if they disappoint investors anticipating confirmation this year’s spike in prices will be “transitory”, as predicted by central banks in the US and here.

“The inflation data is likely going to reignite some concern in the near term over how hot things are running,” Art Hogan, chief market strategist at National Securities, told Reuters.

“CPI (consumer price index) and PPI (producer price index) coming in above estimates will bring back that tug of war between growth and inflation.”

Australian outlook

A positive start awaits, with investors looking increasingly willing to discount the economic impact of a prolonged lockdown in Greater Sydney. The S&P/ASX 200 rallied 60 points or 0.83 per cent yesterday, despite the worst case numbers of the NSW breakout. After lagging Wall Street badly over the last three weeks, the local market appears ready to play catch-up.

Financials was the pick of the US sectors last night, rising almost 1 per cent ahead of a week of earnings updates. Next best were communication services +0.9 per cent, real estate +0.86 per cent and consumer discretionary +0.59 per cent.

Weakness in metals and crude kept a lid on producers. The materials sector edged up 0.26 per cent. Energy stocks eased 0.11 per cent. Consumer staples dropped 0.21 per cent.

The session ahead here brings June business confidence data, plus a weekly update on consumer sentiment.

IPOs: Australian Industrial Minerals is set to make its debut at 1 pm AEST. The company’s main project is an alluvial sand deposit in the Northern Territory, where it extracts industrial abrasives.  

The dollar slid 0.11 per cent to 74.81 US cents.

Commodities

Oil fell for the first time in three sessions as traders fretted about the demand implications of the spread of the delta coronavirus variant. Brent crude settled 39 cents or 0.5 per cent lower at US$74.10 a barrel.

“Traders are now refocusing on the spread of the Covid-19 pandemic and global concerns over the new variants’ expansion are weighing on prices, despite tightening oil supplies globally,” Louise Dickson, oil markets analyst at Rystad Energy, wrote.

“Infections are on the rise in several countries around the world and if restrictions need to be added or reinstated again, they could have an impact on economic growth, and consequently on oil consumption.”

Most industrial metals retreated as the US dollar index edged back towards three-month highs. Benchmark copper on the London Metal Exchange fell 1.1 per cent to US$9,374.75 a tonne. Aluminium dropped 0.4 per cent, nickel 0.5 per cent and zinc 0.9 per cent. Lead was unchanged. Tin improved 1 per cent.

Iron ore reversed Friday’s loss. The spot price for ore landed in China rose $1.95 or 0.8 per cent to US$218.45 a tonne.

The mining giants consolidated Friday’s 4%+ surges on overseas markets. BHP’s US-listed stock inched up 0.04 per cent. Its UK-listed stock eased 0.24 per cent. Rio Tinto added 0.05 per cent in the US and lost 0.1 per cent in the UK.

Gold succumbed to mild profit-taking following its best week in almost two months. Metal for August delivery settled $4.70 or 0.3 per cent weaker at US$1,805.90 an ounce. The NYSE Arca Gold Bugs Index eased 1.32 per cent.

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