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The ASX was poised to recoup some of yesterday’s loss following a mixed finish on Wall Street as the Federal Reserve indicated rate increases remained some time away.  

ASX futures rallied 19 points or 0.26 per cent, signalling an early rebound from yesterday’s 52-point fall on the S&P/ASX 200. The local market retreated yesterday as falls in the US were compounded by hot inflation data and an extension to the NSW lockdown.

Overnight, a rebound in iron ore lifted mining giants BHP and Rio Tinto in overseas trade. Oil edged to a two-week high. Gold rallied after the Fed policy update. Copper declined.

Wall Street

US stocks finished mixed but broadly flat after the Federal Open Market Committee left rates on hold, as expected, and reiterated it needs to see “substantial further progress” on employment and inflation before tightening monetary policy.

“We have not reached substantial further progress yet,” Chair Jerome Powell said. “We see ourselves having some ground to cover to get there.”

The broadest of the three major indices, the S&P 500, closed little changed, down less than a point or 0.02 per cent. The Dow Jones Industrial Average shed 128 points or 0.36 per cent. The Nasdaq Composite rallied 102 points or 0.7 per cent, thanks in large part to a post-earnings bounce in Google parent Alphabet.

The Fed noted “progress” had been made towards its goals, but not the “substantial” progress needed to wind back its bond buying program and increase rates. The bank is currently buying US$120 billion a month in bonds.

“I would want to see some strong jobs numbers,” Powell said.

The likelihood of a rate increase next year edged higher following the meeting, according to CME’s FedWatch tool. The odds on a hike next year rose to 62 per cent from 54.4 per cent before the meeting.

“Fed’s continued patience is being cheered by the markets,” Anu Gaggar, global investment strategist at Commonwealth Financial Network, told CNBC. “There was acknowledgement of continued progress towards the Fed’s goals, but there is ways to go before the Fed can be nudged to act.”

Alphabet climbed 3.18 per cent after reporting a 69 per cent surge in ad revenue. Boeing’s first profit since late 2019 lifted the Dow component company 4.18 per cent. Apple and Microsoft, which also reported earnings, fell 1.22 and 0.11 per cent, respectively.

Australian outlook

Investors look eager to buy the dip. The S&P/ASX 200 yesterday suffered its first real setback in a week, falling 0.7 per cent during a session of downbeat news. Some of that fall was stoked by a decline in US futures that was not reflected in the overnight action.  

This morning’s upbeat US futures also likely reflect overnight gains in BHP and Rio Tinto. The mining giants have provided much of the muscle behind a run of record closes over the last week. Both companies retreated from record levels in Australian trade yesterday.

Overnight, BHP’s US-listed stock rose 1.38 per cent. The Big Australian’s UK-listed stock gained 0.3 per cent. Rio Tinto jumped 4.64 per cent in the US and 1.42 per cent in the UK.

The local market took a month to come to terms with the Greater Sydney lockdown but now seems willing to move on. Yesterday’s announcement of a four-week extension hardly came as a surprise, given the recent run of rising triple-digit case numbers.

Investors seem to have come around to the view that any economic damage from lockdowns will be quickly reversed upon reopening. In the meantime, the hit to the economy merely pushes out the unwelcome moment when the Reserve Bank winds down its bond buying program and raises the cash rate.

Energy was the pick of the US sectors, rising 0.97 per cent. The materials sector edged up 0.25 per cent. Bond proxies such as consumer staples, real estate and utilities declined. The financial sector eased 0.21 per cent.

Quarterly import/export prices are scheduled for 11.30 am AEST.

IPOs: there are two cabs on the rank this session. M3 Mining, listing at 11.30 am, is a Western Australian gold explorer. East 33, listing at 12.30 pm, is a Sydney rock oyster producer and supplier.

The dollar rose 0.1 per cent to 73.73 US cents.

Commodities

A decline in US stockpiles helped lift oil to a two-week high. Brent crude settled 35 US cents or 0.5 per cent ahead at US$73.87 a barrel. The Energy Information Administration reported US crude inventories fell for the ninth time in ten weeks, indicating healthy demand.

The spot price for iron ore landed in China edged up 80 US cents or 0.4 per cent to US$201.25 a tonne.

Gold settled almost unchanged before the Fed meeting, but rebounded as the US dollar wilted. Metal for August delivery settled ten US cents or 0.01 per cent lower pre-announcement at US$1,799.70 an ounce. The contract was last up US$6.20 or 0.34 per cent at US$1,806 in electronic trade.

Copper backed off a six-week high ahead of the Fed announcement. Benchmark copper on the London Metal Exchange declined 0.8 per cent to US$9,664 a tonne. Aluminium gained 2 per cent, nickel 1 per cent, lead 0.3 per cent and tin 0.3 per cent. Zinc dipped 0.1 per cent.

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