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Australian shares look set to open slightly firmer following gains on commodity markets and a mixed close on Wall Street.
ASX futures edged up eight points or 0.12 per cent, hinting at modest relief following yesterday’s 59-point slump. Half-year earnings updates are due this morning from heavyweights Commonwealth Bank and Insurance Australia Group.
US stocks closed little changed. Oil rose for an eighth session. Iron ore moved back above US$160 a tonne. Gold touched its strongest level in more than a week. The dollar firmed above 77 US cents.
Wall Street
A fierce six-day rally in US stocks showed signs of fatigue in the absence of fresh catalysts. The major indices opened underwater before recovering most of their losses, supported by declining Covid cases, improving vaccination numbers and optimism about further stimulus measures.
The S&P 500 eased four points or 0.11 per cent, breaking its winning run. The Dow Jones Industrial Average gave up nine points or 0.03 per cent. The Nasdaq Composite held on to a gain of 20 points or 0.14 per cent as tech stocks outperformed.
“A six-day winning streak will give any reasonable investor a reason to pause,” William Herrmann, managing partner at Wilshire Phoenix, told Reuters. “But the backdrop is largely positive for stocks and I’m not sure there could be a better backdrop for risk assets in the near to intermediate term with monetary and fiscal stimulus and then the hope that the vaccine rollout goes out as planned.”
Tech giants Facebook, Microsoft and Netflix all gained at least 0.5 per cent as investors returned to some of the big winners from the pandemic. Twitter rallied 2.9 per cent ahead of reporting earnings this morning.
This month’s rally in energy stocks stuttered despite an eighth straight gain in Brent crude. US energy stocks eased 1.5 per cent amid concerns the broader market is due a retrace after a blistering start to the month.
“We expect a buyable 5-10% Q1 correction as the big ‘unknowns’ coincide with exuberant positioning, record equity supply, and ‘as good as it gets’ earnings revisions,” Jared Woodard, investment and ETF strategist at Bank of America, told clients.
President Joe Biden met with the CEOs of some of the US’s largest companies to sell his US$1.9 trillion stimulus plan and advocate for an increased minimum wage. The stimulus plan has been one of the prime drivers behind recent market gains.
Australian outlook
Barring a black swan or nasty earnings surprise from Commonwealth Bank, the S&P/ASX 200 looks likely to stabilise this session. The index took a solid tumble yesterday as investors took profits on a rally that had lifted stocks more than 4 per cent in six sessions.
The market has mixed leads for the day ahead. Wall Street had a directionless session. Commodity markets remained strong, supported by a weakening greenback. The Australian dollar firmed overnight and remains a headache for the RBA, exporters and companies with significant US earnings. The Aussie climbed 0.35 per cent to 77.35 US cents.
US energy and mining stocks moved counter to gains in commodities. The energy sector sank 1.5 per cent and materials 0.7 per cent. The financial sector inched up 0.1 per cent. Real estate was the best of the sectors, rising almost 0.5 per cent as US bond yields declined.
Oil has been a standout all month, but may soon reach a tipping point where it switches from market tailwind to headwind. While higher energy costs are a sign of an improving economy, they are also a major input cost for many listed companies.
CBA’s half-year trading update is a potential mood-changer. Reports are also due today from IAG and Megaport. Consumer sentiment figures are scheduled.
Commodities
Oil sealed its longest winning run in a year with an eighth straight advance. Brent crude settled 53 cents or 0.9 per cent higher at US$61.09 a barrel.
“With supply dynamics of the global oil market as clear and steady as they have been in years, trader focus has turned to demand in recent sessions, and with the continued vaccine distribution efforts, falling COVID case counts, and another huge stimulus package working its way through Congress, demand expectations are rising,” analysts at Sevens Report Research wrote.
A recovery in iron ore continued ahead of the Lunar New Year shutdown in China. The spot price for ore landed in China rallied $3.65 or 2.8 per cent to US$163.45 a tonne. Ore prices slumped from above US$170 a tonne last month to around US$150 as unused inventory piled up at steel producers. China shuts down from five days from tomorrow to celebrate the Lunar New Year.
BHP and Rio Tinto had mixed fortunes in overseas trade. Rio Tinto put on 1.54 per cent in the US and 0.17 per cent in the UK. BHP’s US-listed stock gained 0.03 per cent after its UK-listed stock shed 0.55 per cent.
Gold edged to a third straight gain and its best close since the start of the month. Gold for April delivery settled $3.30 or 0.2 per cent ahead at US$1,837.50 an ounce. The NYSE Arca Gold Bugs Index dipped 0.4 per cent. Silver declined 17 cents or 0.6 per cent to US$27.402.
