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Soaring commodity prices and a record close on Wall Street point to a positive start to Australian action after yesterday’s wobble.
ASX futures rebounded 20 points or 0.28 per cent as iron ore flew above US$200 a tonne for the first time, copper hit a decade high, gold topped US$1,800 and the Dow closed at a new peak.
Wall Street
US stocks rallied as a sharp drop in claims for unemployment benefits raised optimism about tonight’s April jobs report. The Dow Jones Industrial Average surged 319 points or 0.93 per cent to a fresh record.
The S&P 500 put on 34 points or 0.82 per cent. The Nasdaq Composite edged up 50 points or 0.37 per cent as growth stocks continued to underperform cyclicals.
First-time claims for jobless benefits fell below 500,000 last week for the first time since the start of the pandemic. Initial claims declined by 92,000 to 498,000, well below the Dow Jones estimate of 527,000.
The result sharpened expectations for tonight’s April employment data. Economists surveyed by Dow Jones anticipate the economy added around a million jobs last month, bringing the jobless rate down to 5.8 per cent from 6 per cent.
“Today’s read is another proof point that we’re one step closer to full economic recovery, sooner than some may have expected,” Mike Loewengart, managing director of investment strategy at E-Trade Financial, told CNBC.
“Given the tightness of the labor market, as reported in business surveys, we expect claims to fall for the foreseeable future, with sub-300K a reasonable objective for the summer,” analysts at Pantheon Macroeconomics said.
The Russell 1000 Value Index rallied 0.8 per cent, outpacing a 0.48 per cent rise in the Growth Index. The Value Index has put on 17 per cent this year versus a 5 per cent gain in the Growth Index as traders favour companies exposed to the uplift from an improving economy.
Big Tech mostly advanced, helping the Nasdaq rise for the first time in five sessions. The FAANG group of tech leaders all advanced.
Vaccine-makers were mixed after the White House backed calls to waive patent rights on Covid-19 vaccines. Moderna lost 1.44 per cent and Pfizer 0.99 per cent. Johnson & Johnson gained 0.4 per cent. Novavax added 0.45 per cent.
Australian outlook
The S&P/ASX 200 has the fourth rise of a mostly positive week in sight after yesterday’s Covid-induced wobble. The index reversed 34 points or 0.48 per cent yesterday after Greater Sydney was placed under limited restrictions and the Chinese government cut a communication link with the federal government.
Neither of those developments in themselves will have a long-term impact on the economy, although both could be harbingers of more serious developments to come. Today’s NSW government morning update on infections will have more impact than usual and could be a market-mover if it is bad.
A quarterly monetary policy statement from the Reserve Bank at 11.30 am AEST could also affect the mood, but any changes were likely flagged in Tuesday’s policy statement. A report on services sector activity is also due this morning.
The dollar pushed back towards 78 US cents overnight as gains in bulk metals fuelled buying in commodity currencies. The Aussie climbed 0.4 per cent to 77.82 US cents.
Resource stocks should lead after significant developments in iron ore, copper, aluminium and gold (more below). The US materials sector gained 0.91 per cent, with both BHP and Rio Tinto benefitting. Financials was Wall Street’s best performer with a rise of 1.43 per cent. Consumer staples gained 1.33 per cent after Kellogg lifted its guidance.
Commodities
Iron ore soared above US$200 tonne for the first time after China’s latest diplomatic salvo against Australia. China’s National Development and Reform Commission yesterday suspended participation in the China-Australia Strategic Economic Dialogue, a key communications channel.
The spot price for ore landed in China surged $9.95 or 5.2 per cent to US$202.65 a tonne. Australia supplies around two-thirds of China’s ore imports, a key ingredient in steel. Chinese steel prices hit record levels this week, thanks to improving margins.
“Recent production cuts in Tangshan have boosted demand for higher-quality ore and prompted mills to build iron ore inventories as their margins are on the rise,” Erik Hedborg, Principal Analyst, Steel at CRU Group said.
BHP‘s US-listed stock rose 1.52 per cent and its UK-listed stock added 0.35 per cent. Rio Tinto gained 1.08 per cent in both the US and UK markets.
Copper neared ten-year highs and aluminium moved close to 2018 prices during a strong night on the London Metal Exchange. Benchmark copper rallied 1.5 per cent to US$10,095.50 a tonne. Aluminium put on 1.6 per cent, nickel 0.2 per cent, lead 2.1 per cent, zinc 0.4 per cent and tin 3.8 per cent. US-traded copper climbed 1.7 per cent to a decade high of US$4.60 a pound.
Gold regained the US$1,800 an ounce level for the first time since February, supported by inflation worries, a weaker greenback and falling bond yields. Metal for June delivery settled $31.40 or 1.8 per cent higher at US$1,815.70 an ounce. The NYSE Arca Gold Bugs Index jumped 3.9 per cent.
Oil declined following an unexpected increase in US gasoline inventories. Brent crude settled 87 cents or 1.3 per cent weaker at US$68.09 a barrel.
