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Wall Street roared back overnight, setting up the Australian market for a positive end to a volatile week dominated by the economic threat from the omicron Covid variant.

The Dow bounced more than 1.8 per cent, comfortably reversing Wednesday night’s fall. The S&P 500 and Nasdaq also rallied, along with oil and copper. Iron ore and gold declined. 

ASX futures bounced 52 points or 0.72 per cent, signalling temporary relief from a week of near-constant down-pressure. The S&P/ASX 200 has fallen on four of the last five sessions.

Wall Street

Investors piled back into beaten-up pandemic-sensitive sectors after two confirmed omicron cases in the US reported mild symptoms from the virus.

The Dow Jones Industrial Average soared 620 points or 1.82 per cent. The S&P 500 rallied 64 points or 1.42 per cent. The Nasdaq Composite added 128 points or 0.83 per cent.

“It is a bit of a ‘buy the dip’ environment… uncertainty will persist over the next week or so as scientists do more studies over the new variant,” Sam Stovall, chief investment strategist at CFRA Research, told Reuters.

The Governor of California said a fully-vaccinated patient who was the first confirmed omicron US case has suffered only mild symptoms and is improving. A Minnesota resident confirmed as the nation’s second case has completely recovered. He was also fully vaccinated.  

The White House announced it was tightening travel regulations to and within the United States. Mask requirements on domestic flights and public transport were extended to March 18. In-bound international travellers will have to provide a negative Covid test to gain entry. President Joe Biden said the variant was “a cause for concern, but not panic”.

Investors snapped up companies that had suffered the biggest hits since the new Covid variant was identified. The S&P 1500 Hotels, Resorts and Cruise Lines Index jumped 5.81 per cent. The airlines index soared 7.13 per cent.

Boeing climbed 7.57 per cent to spearhead gains on the Dow after China cleared the aircraft manufacturer’s troubled 737 Max to resume flying.

The pivot in risk appetite was underlined by a 2.85 per cent bump in the Russell 2000 index of small caps. The VIX or volatility index retreated almost 12 per cent from Wednesday’s 10-month high.

The Nasdaq trailled as investors favoured stocks with better exposure to an improving economy. Apple declined 0.61 per cent following reports of weakening demand for iPhones.

Lawmakers once again pulled back from a damaging government shutdown, striking a stop-gap deal to fund federal agencies until mid-February. The deal will allow negotiators to reach a longer-term compromise on funding.

Australian outlook

Wall Street finally put in the kind of convincing rebound the Australian market has been anticipating all week. Dip-buyers have been out in force since Monday, buying the S&P/ASX 200 every time it dropped below 7200. The index finished just 11 points lower yesterday after earlier tumbling 67 points to a two-month low.

That dynamic means the benchmark has a shot at finishing higher for a week of virtually unrelenting down-pressure. Futures action suggests the index could turn positive for the week shortly after the open. Whether there is enough certainty in the market to sustain those gains remains to be seen.

The night session brought no relief for the dollar. The Aussie has fallen around four and a half cents since the start of November to a 12-month low. The local unit was lately down 0.24 per cent at 70.91 US cents.

All 11 US sectors advanced, led by industrials +2.89 per cent, energy +2.85 per cent and financials +2.83 per cent. The materials sector put on 1.98 per cent.

A rebound in interest rates pushed healthcare, consumer staples and tech to the bottom of the gains. Healthcare added 0.4 per cent, consumer staples 0.8 per cent and technology 0.84 per cent.

In domestic economic news, the Australian Industry Group’s November construction index is due at 8.30 am AEDT.

IPOs: Orange Minerals lists at 1.30 pm AEDT. This gold-copper explorer has projects in the Lachlan Fold Belt in NSW and the Eastern Goldfields in WA.  

Commodities

Oil rallied despite an OPEC+ decision to add more production next month in the face of demand doubts after the emergence of the omicron Covid variant. The cartel defied expectations by opting to continue their current policy and add 400,000 barrels per day in January. Crude prices initially collapsed on the news, then recovered.

The US benchmark, West Texas Intermediate, slumped to US$62.43 a barrel, then flew back to settle 93 cents or 1.4 per cent ahead at US$66.50. The international benchmark, Brent crude, settled 80 US cents or 1.2 per cent higher at US$69.67 a barrel after a similar response.

“The market is realizing this decision is actually quite astute, proving that OPEC+ is playing chess not checkers,” Rebecca Babin, senior energy trader at CIBC Private Wealth US, wrote.

Natural gas futures fell to their lowest level in the US since August. January futures dropped 4.7 per cent to US$4.056 per million British thermal units.

BHP and Rio Tinto shrugged off a dip in iron ore. BHP‘s US-listed stock surged 4.32 per cent. Its UK-listed stock added 1.18 per cent. Rio Tinto gained 3.17 per cent in the US and 0.63 per cent in the UK.

Iron ore declined after China unveiled a plan to break its dependence on imports by increasing domestic production by 30 per cent. An advisor to the Chinese government said the fact 80 per cent of ore came from Australia and Brazil was a risk to supply security. The spot price for ore landed in China sank US$3.05 or 3 per cent to US$98.35 a tonne.

Gold sagged to a seven-week low as the overnight improvement in risk appetite favoured equities over havens. Metal for February delivery settled US$21.60 or 1.2 per cent lower at US$1,762.70 an ounce. The NYSE Arca Gold Bugs Index shed 0.84 per cent.

Copper rebounded amid growing hopes omicron’s economic impact may be milder than previous strains. March copper climbed 1.2 per cent to US$4.3 a pound on Comex.

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