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Aussie stocks are primed for substantial opening gains following a reversal on Wall Street after the US Federal Reserve announced new stimulus measures.
The local market looks set to open more than 2 per cent higher, paring a losing run that has dragged the S&P/ASX 200 down 429 points or almost 7 per cent in three sessions. ASX SPI200 index futures rallied 141 points or 2.5 per cent this morning.
A swing session in the US saw stocks reverse heavy opening falls after the Fed widened its approach to buying corporate bonds. The S&P 500 finished 25 points or 0.83 per cent ahead after being down as much as 2.5 per cent in early action. The Dow flipped a 760-point loss into a gain of 158 points or 0.62 per cent. The Nasdaq rose 137 points or 1.43 per cent as big tech led the charge.
The Fed announcement added fuel to a recovery that was already well underway. The central bank announced it will expand its market support from buying exchange-traded funds to individual corporate bonds. The intent is to ease credit conditions after the central bank last week revealed it expects the economic recovery from pandemic lockdowns to be long and hard. The bank’s initial announcement of the US$750 billion bond-buying program on March 23 marked the bottom of the initial four-week market sell-off as the global economy threatened to screech to a standstill under lockdown restrictions.
“The Fed is always going to try and show who’s boss,” Ilya Feygin, senior strategist at WallachBeth Capital in the US, told CNBC. “It’s continuously proving it can do more and it’s effective. That’s been the primary driver of this market.”
Banks and big tech led the rally. Bank of America gained 1.5 per cent, Citigroup 1.4 per cent and Wells Fargo 0.9 per cent. Apple, Amazon, Facebook and Netflix all gained at least 1.1 per cent. The Dow’s best performers were Raytheon Technologies, up 2.6 per cent, and Goldman Sachs, up 2.3 per cent.
The early weakness reflected fears of a second wave of COVID-19 after several US states reported rises in infections as they pressed ahead with reopening their economies. White House economic advisor Larry Kudlow said the Trump administration had no intention of imposing a second shutdown. China last week reported its biggest increase in cases since mid-April.
Weak Chinese economic data yesterday added to concerns that the road back from pandemic lockdowns may be slower than many economists have projected. The Federal Reserve last week indicated it will keep interest rates near zero for at least two and a half years, dousing expectations of a V-shaped recovery. US sentiment was boosted overnight by a sharp improvement in the Empire State index, which tracks economic activity in the greater New York district.
Australia’s mining giants were held back by the Chinese data miss and a decline in the price of iron ore. BHP’s US-listed stock fell 1.32 per cent and its UK-listed stock 3.26 per cent after the spot price for iron ore landed in China eased $1.90 or 1.8 per cent to US$103.45 a dry ton. Rio Tinto gave up 0.71 per cent in the US and 2.51 per cent in the UK.
The US energy sector underperformed the broader market, edging up just 0.1 per cent despite a reversal in oil. Brent crude settled 99 cents or 2.6 per cent ahead at US$39.72 a barrel after extending last week’s 8.4 per cent fall to a session low of US$37.24.
Gold retreated despite a decline in the US dollar. Gold for August delivery settled $10.10 or 0.6 per cent lower at US$1,727.20 an ounce.
Most industrial metals softened under the demand implications of a second wave of coronavirus in China. Benchmark copper on the London Metal Exchange deteriorated 1.4 per cent to US$5,678.75 a tonne. Aluminium lost 0.4 per cent, lead 1.1 per cent and tin 0.5 per cent. Nickel added 0.6 per cent and zinc 0.4 per cent.
The falling greenback boosted the Australia dollar. The Aussie was lately up 0.81 per cent at 69.18 US cents.
The day ahead will bring an insight into the Reserve Bank’s economic outlook with the release of the minutes from its last monetary policy meeting at 11.30 am EST. Wall Street has retail sales on tap tonight, as well as industrial production figures, business inventories and testimony from Fed Chair Jerome Powell before the Senate Banking Committee.
