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The busiest day of the corporate reporting season to date was set for a cautiously positive start after better-than-feared earnings from retailers lifted the Dow and S&P 500.
ASX futures edged up 12 points or 0.17 per cent. The S&P/ASX 200 closed at a ten-week high yesterday following a strong trading update from mining giant BHP.
Earnings season hits top gear this session with reports from CSL, Santos, Brambles and a host of other companies (more below).
Overnight, Wall Street’s main indices closed mixed but mostly higher. Oil closed at its lowest since January. Iron ore and gold declined. Industrial metals were mixed. The dollar steadied above 70 US cents.
Wall Street
The Dow Jones Industrial Average rose for a fifth day after updates from Walmart and Home Depot underlined the resilience of the American consumer. The S&P 500 advanced before running into technical resistance at its 200-day moving average. Declines in tech stocks weighed on the Nasdaq.
The Dow led with a rise of 240 points or 0.71 per cent. The S&P 500 trimmed its gain to eight points or 0.19 per cent. The Nasdaq Composite fell 26 points or 0.19 per cent.
Home Depot jumped 4.06 per cent after increasing sales by 5.8 per cent last quarter, soothing worries that soaring prices would crush demand. Resilient demand from building professionals helped offset a 3 per cent drop in customer transactions. The company reaffirmed its full-year guidance.
Walmart popped 5.11 per cent after beating revised guidance. Earnings fell less than expected. A profit warning last month sent tremors through the market.
The consumer staples and consumer discretionary sectors both rallied more than 1 per cent as traders bought other beaten-down retail stocks. Consumer stocks have been under pressure this year amid concerns higher rates and inflation would undercut demand.
“When you transition from a bear market to a bull market, especially one where the Fed is raising rates and there are concerns over the consumer, you really want to see consumer discretionary underpinned by enthusiasm. And today’s move in discretionary names is positive for the market,” Quincy Krosby, chief global strategist at LPL Financial, said.
A rebound in the cost of long-term borrowing weighed on borrowing-dependent growth stocks. The energy sector fell with fuel prices as soft Chinese economic data earlier in the week continued to weigh.
The S&P 500 topped out just below its 200-day moving average at 4,326. The broadest of the three benchmarks rose as high as 4,325 before paring its rise, closing at 4,305.
Australian outlook
The S&P/ASX 200 looks set to open modestly higher, provided today’s heavy schedule of corporate earnings contains no major surprises.
A strong full-year result from BHP set the tone for yesterday’s rally. The market will hear today from CSL, Santos, Brambles, Amcor, Dexus, Vicinity Centres, Redbubble, Downer EDI, Emeco, Magellan, Super Retail Group, Domain Holdings, Nearmap, Bapcor, Fletcher Building, Lifestyle Communities, Corporate Travel Management, Pact Group and Whispr (sources: CommSec, Australian Financial Review).
The market is on a roll, following four-and-a-half weeks of virtually unbroken gains. The ASX 200 advanced another 41 points or 0.58 per cent yesterday after BHP reported the second-largest full-year profit in its history.
Overnight action in the US suggests support for consumer stocks, as well as financials +0.69 per cent, materials +0.58 per cent and industrials +0.45 per cent.
Growth stocks struggled. Tech dropped 0.29 per cent. Bond proxies came under mild down-pressure as rising treasury yields sucked funds away from real estate -0.42 per cent and health -0.27 per cent.
Back home, quarterly wage price index data at 11.30 am AEST will have an impact on how the Reserve Bank approaches next month’s policy meeting. Economists expect to see wages gain traction with unemployment at multi-decade lows.
The dollar was flat this morning at 70.19 US cents.
Commodities
Oil gave up early gains as a draft nuclear agreement between Iran and the European Union appeared to make progress. A deal to lift sanctions on Iranian oil would bring more supply on-market. Buying interest was also tempered by demand worries after data earlier in the week showed China’s economy was losing momentum.
Brent crude settled US$2.76 or 2.9 per cent lower at US$92.34 a barrel. The US benchmark, West Texas Intermediate, dropped 3.2 per cent to US$86.53.
Gold logged back-to-back losses, closing at its weakest in more than a week. Metal for December delivery settled US$8.40 or 0.5 per cent lower at US$1,789.70 an ounce. The NYSE Arca Gold Bugs Index bounced 0.33 per cent.
“The fact that gold isn’t shedding too much of its recent gains could be a positive sign over the medium term, although it would have to overcome what has become a strong barrier of resistance this past week,” Craig Erlam, senior market strategist at Oanda, said.
Iron ore fell as worries about the Chinese economy outweighed news of government support for property developers. Reuters reported that a state-owned bond insurance company will start guaranteeing bonds issued by some private developers.
The most-traded contract on the Dalian Commodity Exchange faded to a fourth straight loss, down 0.3 per cent to 720.5 yuan. The spot price for ore landed in China eased 16 US cents or 0.1 per cent to US$106.63 a tonne.
BHP‘s US-traded depositary receipts surged 5.9 per cent following yesterday’s strong full-year result. The miner’s UK stock gained 5.47 per cent. The halo effect helped lift Rio Tinto 4.22 per cent in the US and 3.85 per cent in the UK.
Industrial metals were mixed as weak Chinese demand signals weighed. Benchmark copper on the London Metal Exchange inched up less than 0.1 per cent to US$7,975 a tonne. Nickel put on 1 per cent. Zinc gained 3.1 per cent. Aluminium dipped 0.1 per cent, lead 0.7 per cent and tin 0.4 per cent.
US-traded copper edged up 0.2 per cent to US$3.6245 per pound on Comex.
