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Aussie stocks were poised to open little changed after a bear market rally in the US lost momentum as strong economic data underlined inflationary pressures.
ASX futures closed flat, signalling a pause after three days of gains. The S&P/ASX 200 has bounced 4.7 per cent since last week’s low. The index surged 1.94 per cent yesterday to a two-week high.
US stocks closed modestly lower after seesawing for much of the session. Iron ore, crude oil and most industrial metals rose. Gold declined. The dollar retreated towards 69 US cents.
Wall Street
US stocks pared last week’s strong rebound as robust economic data and a recovery in commodity prices supported the case for higher interest rates. Wall Street has slumped this year on concerns surging inflation will drive rates so high the economy will fall into recession.
The S&P 500 stuttered to a loss of 12 points or 0.3 per cent. The Dow Jones Industrial Average eased 62 points or 0.2 per cent. The Nasdaq Composite shed 83 points or 0.72 per cent.
The market roared higher last week as commodity prices slumped, easing inflationary pressures. Friday’s 3.06 per cent rally on the S&P 500 was the strongest in two years. Inflationary worries revived overnight as iron ore bounced more than 5 per cent in China and oil and base metals also recovered.
Positive economic data supported the Federal Reserve’s argument that the economy is strong enough to handle higher rates. Orders for durable goods increased 0.7 per cent last month, more than three times as much as economists expected. Core capital goods (a proxy for manufacturing) increased 0.5 per cent. Pending home sales improved 0.7 per cent, breaking a run of weak results.
This week’s key report is likely to be Thursday night’s consumer price index, a gauge of inflationary pressures. Investors are trying to assess whether last week’s global stock recovery marked a turning point in this year’s slump, or just another bear market bounce.
“From here, the expectation is probably once again that we’ve hit peak inflation, even if the rollover is very slow, and that financial markets should see reduced volatility into year-end,” Tom Tzitzouris, head of fixed income research at Strategas, said. “If we see another push higher in inflation, however, all bets are off and volatility should accelerate again.”
Technology and consumer stocks were the session’s biggest drag as the cost of long-term borrowing increased. The yield on ten-year US treasuries climbed back above 3.2 per cent for the first time in three sessions.
Energy was the pick of the sectors as solid US economic data helped put a floor under last week’s sell-off. Valero Energy jumped 8 per cent, Devon Energy 7.48 per cent and Marathon Oil 4.85 per cent.
Australian outlook
Wall Street took a breather overnight after swinging from severely ‘oversold’ to modestly ‘overbought’ in a week. Some of the heat came out of the rally without major consequences to the technical outlook. End-of-quarter buying should cushion the market from serious downside at least until Thursday night’s consumer inflation report.
Back home, the looming end of the financial year should support the S&P/ASX 200 this week. However, sharp moves in individual underlying assets are possible as portfolio managers put the best possible gloss on a challenging year.
The ASX 200 enters this session on a three-session winning run and looking in need of a breather after its second-best rise of the year. A broad rally lifted all 11 sectors yesterday as the market jumped 127 points.
Trade today will likely be more selective. Just three sectors advanced in the US overnight: energy +2.78 per cent, utilities +0.81 per cent and health +0.39 per cent.
The sectors dominated by ‘Big Tech’ filled three of the bottom four slots. The fourth was materials, down 0.81 per cent. The financial sector eased 0.44 per cent.
ANZ’s weekly consumer confidence survey is due for release this morning.
IPOs: Bindi Metals lists at 12 pm AEST. Bindi is a copper-gold explorer with projects in WA and Queensland.
The dollar slid 0.26 per cent to 69.25 US cents.
Commodities
Iron ore prices bounced sharply from six-month lows as China continued to relax Covid restrictions. Beijing announced pupils could return to school. Shanghai declared victory over the virus after recording zero new cases for the first time in two months.
The most-traded ore contract on the Dalian Commodity Exchange jumped 5.3 per cent. The spot price for ore landed in China rose US$1.15 or 0.9 per cent to US$129.68 a tonne.
BHP‘s US-traded depositary receipts improved 2.41 per cent after its UK listing climbed 3.32 per cent. Rio Tinto edged up 0.48 per cent in the US and 1.45 per cent in the UK.
Industrial metals steadied as recession fears subsided. Copper bounced two cents or 0.6 per cent in the US to US$3.7625 a pound.
Benchmark copper on the London Metal Exchange eased 0.29 per cent to US$8,357 a tonne. Aluminium bounced 0.76 per cent, nickel 3.55 per cent, lead 3.76 per cent and tin 7.21 per cent. Zinc dipped 0.51 per cent.
“Copper is supported by optimism around the lifting of COVID-19 restrictions in China,” Giles Coghlan, analyst at broker HYCM, told Reuters. “But it is hard to see whether it will last as it all depends on whether a global recession can be avoided.”
Oil rose for a second night as strong US economic data soothed concerns about a slowdown in demand. Brent crude settled US$1.97 or 1.7 per cent ahead at US$115.09 a barrel.
Gold drifted lower as G7 nations debated banning Russian imports. Metal for August delivery settled US$5.50 or 0.3 per cent lower at US$1,824.80 an ounce. The NYSE Arca Gold Bugs Index firmed 0.71 per cent.
