Market Herald logo

Subscribe

Be the first with the news that moves the market

This week’s stock market recovery looked set to continue after a broad rally lifted Wall Street following its worst week in more than two years.

ASX futures climbed 48 points or 0.75 per cent, signalling a second day of gains. The S&P/ASX 200 rallied 90 points or 1.4 per cent yesterday to its first rise in eight sessions.

Wall Street’s main indices bounced between 2.1 and 2.5 per cent when trade resumed after the Juneteenth long weekend.

Copper and crude rose. Iron ore markets were mixed. Gold eased for a second day. The dollar was little changed below 70 US cents.

Wall Street

A broad-based rally lifted the market as recession and inflation fears temporarily abated. All 11 sectors rose as the major indexes soared back from their heaviest weekly losses since March 2020.

The S&P 500 climbed 90 points or 2.45 per cent. The Dow Jones Industrial Average gained 641 points or 2.15 per cent. The Nasdaq Composite added 271 points or 2.51 per cent.

All three indices had their best session this month. Almost nine out of every ten stocks on the S&P 500 rose.

“The outstanding question is whether this is simply a bounce or the bottom,” Sam Stovall, chief investment strategist at CFRA Research, said. “I think that this could certainly be a bounce but not the bottom because the one missing ingredient is a fear-based capitulation sell-off.”

CNBC pointed out there have been ten other bounces of more than 2 per cent during this year’s bear market. All gave way to renewed selling. Stovall expects the S&P 500’s decline from its January peak to reach 30 per cent before any extended recovery.

The rally had no obvious catalysts. The main indices looked short-term oversold after plunging last week. The S&P 500 plunged 5.8 per cent last week. The Dow and Nasdaq Composite lost 4.8 per cent.

Sales of existing homes declined 3.4 per cent in May, in line with expectations. Goldman Sachs increased its assessment of the odds of a recession in the next year to 30 per cent from a previous forecast of 15 per cent. Morgan Stanley set the likelihood at 35 per cent.

“At this point, a recession is no longer just a tail risk given the Fed’s predicament with inflation,” Morgan Stanley said.

The energy sector jumped 5.14 per cent as crude recovered from last week’s falls. A broker upgrade lifted Exxon Mobil 6.22 per cent. Diamondback Energy bounced 8.17 per cent.

Among the heavyweights, Apple gained 3.28 per cent, Alphabet 4.11 per cent and Microsoft 2.46 per cent. Tesla surged 9.35 per cent after announcing plans to lay off around 10 per cent of staff.

Australian outlook

Further gains look likely after Wall Street delivered on the promise of yesterday’s futures action. A broad recovery on commodity markets should add to tailwinds.

The question, as always, is whether the bottom is in. The answer, as always, is it’s too early to say. Sharp rebounds are typical of bear markets, luring in another batch of investor hopefuls only to wash them out again. There have been several promising recoveries already this year, some lasting for weeks before selling resumed.

Several analysts voiced doubts about last night’s recovery for one simple reason: nothing major had changed. The Fed is still set on raising rates aggressively and the economic effects have yet to play out. While markets are forward-looking, there were too many unknowns at this stage to call a bottom.

The rising tide lifted all US sectors. Energy was the standout with a jump of 5.14 per cent. Consumer stocks also shone: discretionary gained 2.82 per cent and staples 2.69 per cent.

Financials rose 2.02 per cent. The materials sector brought up the rear with a rise of 1.47 per cent.

The S&P/ASX 200 looked short-term oversold at the start of the week and rebounded 1.4 per cent yesterday. Buyers were encouraged when the RBA appeared to take a 75bps increase in rates off the table. Governor Philip Lowe also downplayed the risk of recession.

There is nothing substantial on the economic calendar today to affect the market mood. The next market-moving event at a global level is Fed Chair Jerome Powell’s testimony before Congress tonight.

IPOs: Odette Six Metals is set to list at 12 pm AEST. This explorer has two green metals projects near Esperance in WA. Another listing originally scheduled for today – Coolabah Metals – has been delayed, new date to be announced.

The dollar was little changed this morning, up 0.06 per cent to 69.72 US cents.

Commodities

Oil recouped some of last week’s losses amid record Chinese imports of Russian crude. China imported 2.06 million barrels a day last month, up from 1.33 million bpd in May 2021.

“The more displaced Russian oil we see going to the likes of China and India, the easier it should be for the global market to deal with the EU’s ban on Russian seaborne crude imports,” Warren Patterson, head of commodities strategy at ING, wrote.

Brent crude settled 52 US cents or 0.5 per cent higher at US$114.65 a barrel. The US benchmark bounced 1.4 per cent as it played catch-up after the long weekend.

Iron ore markets were mixed in the wake of Monday’s price plunge. The most-traded contract on the Dalian Commodity Exchange firmed 0.4 per cent. The spot price for ore landed at Tianjin dropped US$2.45 or 1.9 per cent to US$128.93 a tonne.

Ore prices have collapsed in the last week and a half as steelmakers slashed production in the face of weak demand and shrinking profits. A Bloomberg gauge of profitability at steel mills fell to a five-year low as supply outweighed demand under lockdown.

“Our internal modeling shows that steel margins in China have been negative since the beginning of April,” Erik Hedborg, principal steel analyst at CRU Group, told Bloomberg.

BHP‘s US-traded depositary receipts eased 0.07 per cent after its UK listing put on 1.42 per cent. Rio Tinto gained 1.33 per cent in the US and 2.44 per cent in the UK.

Copper prices were supported by the threat of a strike at Chile’s state-owned Codelco mine. Benchmark copper on the London Metal Exchange edged up 0.1 per cent to US$8,995.49 a tonne. Aluminium improved 0.5 per cent, nickel 0.9 per cent, zinc 3 per cent and tin 1.8 per cent. Lead dipped 0.1 per cent.

Gold retreated for a second day as investors favoured risk assets over havens. Metal for August delivery settled US$1.80 or 0.1 per cent lower at US$1,838.80 an ounce. The NYSE Arca Gold Bugs Index climbed 1.21 per cent.

More From The Market Herald

" ASX Close: Commodities crunch outweighs tech bounce

A recession panic on commodity markets drove the Australian share market to its first loss of the week.

" ASX Update: Tech stocks soar as miners, oilers swoon

A recovery in the beaten-down tech sector helped cushion the share market against a severe plunge on commodity markets.

" ASX Today: Commodities plunge as recession fears swirl

A collapse in commodity prices points to early pressure on the ASX despite a huge comeback session for US stocks.

" ASX Close: Shares shrug off rate hike, rise for 2nd day

Australian shares rose for a second day after the Reserve Bank raised its benchmark rate by 50 basis points and exporters caught a