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Australian stocks were set to open at a three-week high after Wall Street broke its longest weekly losing run since the Great Depression in spectacular fashion.

Strong gains on Friday capped the best week for the Dow and S&P 500 since November 2020. Oil rose to an 11-week high. Iron ore, industrial metals and gold also advanced.

The S&P/ASX 200 was poised to open above 7200 for the first time since May 6. SPI 200 futures surged 83 points or 1.15 per cent.  

Wall Street

US stocks soared amid tentative signs inflation may have peaked. The Federal Reserve’s preferred inflation measure logged its smallest increase in a year and a half. A separate report showed consumer spending was stronger than expected last month.

The S&P 500 climbed 100 points or 2.47 per cent. The Dow Jones Industrial Average put on 576 points or 1.76 per cent. The Nasdaq Composite added 390 points or 3.33 per cent.

The Dow’s five-day advance of 6.2 per cent ended a run of eight straight weekly declines, its longest since 1932. The S&P 500 added 6.5 per cent for the week and the Nasdaq 6.8 per cent. Both indices had fallen for seven weeks, their worst streak since the dotcom bust.

“We have come a long way down pretty fast and if we can stabilize here then the declines we’ve seen might be all that’s needed, or something close to that,” Tom Martin, senior portfolio manager at Globalt Investments, told CNBC.

Inflation as measured by the personal consumption expenditures (PCE) index increased just 0.2 per cent last month. Core inflation slowed for a second month for the first time since the early days of the pandemic. Core PCE slowed to annual growth of 4.9 per cent from 5.2 per cent in March.

Consumer spending increased by a stronger-than-expected 0.9 per cent as wages improved. Economists polled by The Wall Street Journal anticipated a smaller increase of 0.7 per cent.

The data showed Americans spent more on new cars, restaurants and accommodation. The average wage increased by 0.4 per cent amid a tight labour market.

“The demise of the consumer now [appears] to have been greatly exaggerated,” Christopher Harvey of Wells Fargo said.

Retailers outperformed as buyers shrugged off mixed earnings from Gap, CostCo and Big Lots. Trading updates from Dell, Autodesk and Marvell helped the tech sector.

The scale of Friday’s gains was exaggerated by below-average trading volumes ahead of a long weekend. US markets close tonight for Memorial Day.

Australian outlook

The Australian trading week looks set for an exuberant start amid optimism Wall Street is finally building a bottom after weeks of downward momentum. Hopes have flickered and faded sporadically over the last two months as each US relief rally quickly reversed. Last week was the first burst of sustained buying since mid-March.

The ASX 200 has weathered the storm better than its US counterpart, and therefore arguably has less ground to make up if last week’s reversal gains momentum. The S&P 500 dipped briefly into bear market territory last week (more than 20 per cent from this year’s high). By contrast, the ASX 200’s peak-to-low retrace was a comparatively modest 9.2 per cent.  

The dollar has benefitted from the improved market mood, rising 0.28 per cent this morning to 71.6 US cents, its highest in more than three weeks.

The worst-performing US sectors in recent weeks were Friday’s best. Consumer discretionary (retailers, Big Tech) jumped 3.47 per cent. The other two Big Tech sectors were close behind: tech +3.44 per cent, communication services +2.62 per cent.

All 11 sectors advanced. Materials put on 2.3 per cent, industrials 2.05 per cent and financials 1.79 per cent.

The global money-go-round will slow today as Wall Street takes a holiday. The New York Stock Exchange, Nasdaq and other markets close tonight for Memorial Day. 

Looking to the week ahead, the most important domestic data-point is likely to be Wednesday’s Q3 GDP report. Soft construction and private capital expenditure reports point to a slowdown in growth.

The rest of the domestic economic calendar looks like this: building approvals, company profits, current account, private sector credit (Tuesday); retail sales, trade balance (Thursday); and construction data (Friday).  

Duxton Water holds its AGM in Melbourne this morning. Western Areas holds its annual meeting online on Wednesday.

IPOs: the grim run for new listings continues with just a solitary company scheduled to hit the boards this week. Nordic Nickel is pencilled in for Wednesday.

Overseas, potential market-moving events include US consumer confidence on Tuesday night and US jobs data on Thursday and Friday. 

Commodities

Iron ore bounced off a one-week low as buyers bet on Chinese government measures stimulating demand. Authorities announced a series of policy adjustments last week aimed at firing up an economy hamstrung by Covid restrictions.

The spot price for ore landed in China rose 94 US cents or 0.7 per cent to US$133.41 a tonne. The most-active September contract on the Dalian Commodity Exchange jumped 4.4 per cent to US$128.24.

“Iron ore prices edged higher as investors continue to look ahead to stimulus measures supporting demand,” Daniel Hynes, commodity strategist at ANZ, said.

On the London Metal Exchange, benchmark copper climbed 1.2 per cent to US$9,453.50 a tonne. Aluminium gained 0.2 per cent, nickel 4 per cent, lead 1.9 per cent, zinc 3.3 per cent and tin 1.4 per cent.

BHP and Rio Tinto booked solid gains in overseas trade. BHP‘s US-traded depositary receipts firmed 3.82 per cent after its UK stock added 3.53 per cent. Rio Tinto tacked on 1.47 per cent in the US and 1.26 per cent in the UK.

Oil ended at its highest in 11 weeks in the US ahead of the start of a new “driving season”. Tonight’s Memorial Day holiday traditionally marks the start of summer in the US.

West Texas Intermediate climbed 98 US cents or 0.9 per cent to US$115.17 a barrel. The international benchmark, Brent crude, settled US$2.03 or 1.7 per cent ahead at US$119.43. Brent’s finish was the strongest since March 25.

Gold edged higher as softening US inflation capped interest in hedges. Metal for June delivery settled US$3.70 or 0.2 per cent higher at US$1,851.30 an ounce. The NYSE Arca Gold Bugs Index firmed 0.39 per cent.

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