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Commodity stocks shone during a mixed night on Wall Street, signalling a cautiously positive start for the ASX as iron ore and key metals neared multi-year highs.
ASX futures rallied five points or 0.07 per cent after the Dow hit a new peak. Copper traded at its strongest level in ten years. Iron ore neared a record.
Wall Street
The Dow Jones Industrial Average was the best of the major indices for a second day as investors continued to favour cyclicals over the growth stocks that thrived during the pandemic. The blue-chip average climbed 97 points or 0.29 per cent. Chevron and Dow Inc led.
The energy and materials sectors outperformed as the S&P 500 held onto a skinny gain of three points or 0.07 per cent at the end of a choppy session. The Nasdaq Composite declined for a second night. The tech-heavy index shed 51 points or 0.37 per cent as Facebook, Amazon and Netflix retreated.
Cyclical stocks outperformed as optimism about the economy pointed to further gains in commodity prices. Lumber, corn and steel have risen sharply this year. US energy stocks rallied 3.33 per cent overnight and the materials sector gained 1.32 per cent.
“We’ve seen inflation beneficiaries shoot through the roof,” Andrew Smith, Chief Investment Strategist at Delos Capital Advisors, said. “That’s going to lead real rates higher and that’s going to be the source for those cyclical trades to continue to work,” he added
The rally in cyclical continued despite mildly disappointing economic data. Expectations for tomorrow night’s April employment report were dampened by news the private sector hired an additional 742,000 Americans last month, short of the 800,000 expected by economists polled by Dow Jones.
Rival measures of activity in the services sector were mixed. The IHS Markit PMI beat expectations, but the ISM index came in short. Both measures indicated healthy expansions of activity.
Vaccine-makers declined after the White House declared its support for waiving patent protections to allow developing countries to manufacture their own vaccines. Moderna dived 6.19 per cent. Johnson & Johnson lost 0.42 per cent. Pfizer gave up most of its earlier gains to finish 0.05 per cent ahead.
General Motors climbed 4.05 per cent after beating earnings estimates and stating it was “highly confident” about its full-year guidance.
Australian outlook
Another mixed night on Wall Street, but once again the underlying drivers favour gains on the ASX. Energy and materials led in the US, with the financial sector a close third with a rise of 0.94 per cent. BHP and Rio Tinto flew higher in overseas action (more below).
The local market has good momentum after the Reserve Bank upgraded its economic forecasts on Tuesday while keeping its policy settings unchanged. The S&P/ASX 200 rallied 28 points or 0.39 per cent yesterday to a 14-month high. The index drew within 75 points of its old record.
The biggest headwinds in the US were traditional defensive sectors. Utilities dropped 1.71 per cent. Real estate shed 1.52 per cent.
NAB releases interim earnings today, the third of the big four to report this week, following updates from Westpac and ANZ. The financial sector hit a pandemic-era high yesterday, underlining the scale of the recovery. CBA, largest of the four, traded at its strongest level in six years.
Rio Tinto holds its AGM today. Markets in Japan and China reopen after three days of public holidays.
The dollar rebounded 0.45 per cent overnight to 77.48 US cents.
Commodities
Iron ore finished just $1.15 off an all-time high. The spot price for ore landed in China rose $3.05 or 1.6 per cent to US$192.70 a tonne. BHP’s US-listed stock surged 3.53 per cent and its UK-listed stock gained 4.99 per cent. Rio Tinto added 3.69 per cent in the US and 4.74 per cent in the UK.
Copper touched US$10,040 a tonne, a new ten-year high, before retreating to US$9,922 in late trade on the London Metal Exchange. The metal’s all-time high was US$10,190 back in February 2011.
Gold recovered some of Tuesday’s losses after Treasury Secretary Janet Yellen walked back a suggestion rates might have to rise to cool the economy. The original comments boosted the dollar, lifted bond yields and dulled demand for precious metals. Gold for June delivery settled $8.30 or 0.5 per cent ahead at US$1,784.30 an ounce. The NYSE Arca Gold Bugs Index gained 0.83 per cent.
“In the commodity sphere, gold was another casualty of Yellen’s communication mishap, suffering at the hands of rising Treasury yields and a firmer dollar,” Marios Hadjikyriacos, investment analyst at XM, wrote.
Oil finished modestly higher but well off its session peak. Brent crude settled 8 cents or 0.1 per cent ahead at US$68.96 a barrel after rising as high as US$69.95. The US benchmark eased six cents or 0.1 per cent.
