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Australian shares were poised to open sharply higher as a commodities rally offsets losses in the US after the Federal Reserve pledged to get tough on inflation.
ASX futures action pointed to the strongest open since late January. SPI futures climbed 80 points or 1.11 per cent.
Oil rallied more than 7 per cent to a two-week high. Aluminium jumped 4 per cent after Australia banned ore exports to Russia. Index heavyweights BHP and Rio Tinto rose in overseas trade.
Wall Street
The Dow fell for the first time in six sessions after Jerome Powell warned inflation was “much too high” and the bank was willing to get more aggressive. The Fed Chair said the central bank could raise rates by 50 basis points at future meetings to drag inflation down from a 40-year high.
The Dow Jones Industrial Average declined 202 points or 0.58 per cent. The S&P 500 eased two points or 0.04 per cent. The Nasdaq Composite shed 55 points or 0.4 per cent.
Powell said the economy was strong enough to handle higher rates and the bank should move “expeditiously”.
“If we conclude that it is appropriate to move more aggressively by raising the federal funds rate by more than 25 basis points at a meeting or meetings, we will do so,” he told the National Association of Business Economists.
The Fed Chair dismissed fears a sharp increase in borrowing costs could cause a recession.
“Recessions chronologically followed the conclusion of a tightening cycle, but the recessions were not apparently due to excessive tightening of monetary policy,” he said.
Rate-sensitive growth stocks declined as yields rallied. The yield on ten-year treasuries climbed more than 15 basis points to 2.3 per cent.
Meta Platforms fell 2.31 per cent, Netflix 1.58 per cent and Microsoft 0.42 per cent. Boeing sank 3.6 per cent after one of its 737 passenger jets crashed in China.
Also weighing on market sentiment was a sharp increase in energy prices as Europe considered joining a US embargo on Russian imports. Crude climbed more than 7 per cent (more below). Gasoline and heating oil also finished sharply higher.
European Union governments were set to meet this week to consider an embargo. Occidental Petroleum surged 8.41 per cent. Marathon Oil put on 8.58 per cent and Exxon Mobil 4.5 per cent.
Australian outlook
Miners and energy producers looked set to propel the S&P/ASX 200 to a two-month high at today’s open. The US energy sector surged 3.79 per cent overnight. The basic materials sector climbed 0.85 per cent, with both BHP and Rio Tinto advancing (more below).
Lenders may also benefit from a jump in US lending rates, although Wall Street did not warm to that theme overnight. US financials eased 0.13 per cent.
Defensive sectors were mixed but mostly higher. Utilities gained 0.68 per cent and consumer staples 0.12 per cent. Healthcare eased 0.12 per cent and real estate 0.52 per cent.
The ASX 200 retreated 0.22 per cent yesterday in anticipation of overnight weakness in the US.
Reserve Bank Governor Philip Lowe is due to address the Walkley Awards for Business Journalism in Sydney at 12 pm AEDT. Also scheduled this morning are weekly consumer confidence figures.
IPOs: Norfolk Metals lists at 11 am AEDT. This explorer is focussed on gold and uranium and has projects in Tasmania and South Australia.
The dollar eased 0.15 per cent to 73.99 US cents.
Commodities
Oil pushed back towards a 14-year high as the European Union debated banning Russian energy imports. Europe imports roughly 30 per cent of its energy needs from Russia.
“This means that large quantities would have to be obtained elsewhere, which would further tighten the market. This would then further step up the pressure on OPEC+ to produce more oil,” Commerzbank analyst Carsten Fritsch said.
Brent crude settled US$7.69 or 7.1 per cent ahead at US$115.62 a barrel. The US benchmark gained 7.1 per cent. Both measures booked their highest closes since 14-year highs on March 8.
Aluminium prices jumped after Australia halted exports of alumina and aluminium ores to Russia. Prime Minister Scott Morrison announced the ban in response to Russia’s “unrelenting and illegal aggression” towards Ukraine.
Benchmark aluminium on the London Metal Exchange rallied 4.17 per cent to US$3,522 a tonne. The most traded contract on the Shanghai Futures Exchange gained 2.3 per cent.
Nickel traded “limit down” for a fourth day on the exchange. Prices fell 14.99 per cent to US$31,380. Prices briefly traded above US$100,000 a tonne before trading was suspended on March 8. Last night’s fall brought prices back in line with Shanghai, where nickel was reportedly trading at around US$32,390 a tonne.
Copper dropped 0.6 per cent, lead 0.09 per cent and tin 0.96 per cent. Zinc gained 2.07 per cent.
Iron ore fell after China’s steel-making hub of Tangshan introduced temporary measures to contain a Covid outbreak. Regional authorities suspended public transport and introduced traffic restrictions.
“The pandemic outbreak in many regions has led to lower downstream demand, and logistics in some areas were disrupted,” SinoSteel Futures analysts wrote.
The spot price for ore landed in China declined US$1.12 or 0.7 per cent to US$150.23 a tonne.
Mining giants BHP and Rio Tinto were unaffected as the Goldman Sachs Commodity Index jumped 4.94 per cent. BHP gained 4.14 per cent in the US and 4.99 per cent in the UK. Rio Tinto added 3.01 per cent in the US and 3.26 per cent in the UK.
Gold settled little changed, then rallied in the wake of Powell’s hawkish rates outlook. Metal for April delivery settled 20 US cents or less than 0.1 per cent ahead at US$1,929.50 an ounce.
After settlement, the price climbed US$5.70 or 0.3 per cent to US$1,935. The NYSE Arca Gold Bugs Index firmed 2.14 per cent.
