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Aussie shares pointed higher as a strong rebound in iron ore helped offset wobbles on Wall Street amid contagion fears following forced hedge fund selling.    

The Dow led as US stocks closed mixed. Strong Chinese demand helped drive iron ore back towards US$170 a tonne. Oil retreated after a blockage in the Suez Canal was cleared. Gold fell to a three-week low.  

ASX futures climbed 44 points or 0.65 per cent.

Wall Street

US stocks struggled to overcome early jitters as traders weighed the implications of forced sales last week following margin calls on a private hedge fund.

The Dow Jones Industrial Average led the fightback, recovering from a 160-point loss to finish 98 points or 0.3 per cent ahead. The S&P 500 trimmed a loss of 0.8 per cent to three points or 0.09 per cent. Rising bond yields pulled the Nasdaq Composite down 79 points or 0.6 per cent.

Bank stocks were among the biggest drags amid concerns about leverage and exposure. A US hedge fund, identified by insiders as Archegos Capital, defaulted last week on margin calls, triggering a wave of forced selling. The share prices of companies including Viacom and Discovery plunged 30 – 50 per cent.

Overnight, Credit Suisse dived 11.5 per cent in US trade after warning it was exposed to the fund’s failure as a counterparty and faced a “significant” hit to first-quarter earnings. The bank said other lenders were also affected and exiting positions. Japanese investment bank Nomura said it faced a “significant loss”. Its share price tumbled 14.1 per cent.

Analysts said the fallout from the fund’s collapse was likely to be contained. However, regulators may feel obliged to act.

“It’s a black eye for the financial industry because it suggests that there still may not be a full handle on risk control when it comes to leveraged trading,” Rick Meckler, partner at Cherry Lane Investments, told Reuters. “This seems like a pretty specific case. It could lead to increased regulation… but the impact on broader markets is going to be small.”

The S&P financial sector fell 0.9 per cent, with losses shrinking as the session wore on. JPMorgan Chase shed 1.6 per cent and Goldman Sachs 0.5 per cent. The VIX volatility index climbed 10.8 per cent.

“While other funds may be caught in the mess, we fail to see how this specific car crash of a trade ends up propagating across the financial system via counterparty default,” Bespoke told clients.

The Dow and S&P 500 hit fresh highs on Friday as ripples from a spike in bond yields continued to fade. The Nasdaq, home to companies with most exposure to higher borrowing costs, briefly entered a bear market during the month-long rout and remained more than 7 per cent off its February peak.

Australian outlook

Futures action suggests a resumption of the strong uptrend that evolved last week and yesterday lifted the S&P/ASX 200 to its highest level since March 2. The index was dragged lower late in the session by creaking US futures, finishing 25 points in the red. This morning’s bullish futures suggest we should regain that, plus some more.

“We’re just waiting for some sector leadership,” ThinkMarkets analyst Carl Capolingua said. “The banks have had a great run recently, but they’re taking a breather. Healthcare got a boost last week as the Australian Dollar weakened… but the sector doesn’t quite have as much clout as the banks or materials when it comes to index points.

“I think the materials sector could be the one to watch this week. It’s had a pullback since the ‘commodities super-cycle’ hype reached fever pitch at the start of March.”

A strong rebound in iron ore may provide a catalyst. The spot price for iron ore landed in China surged $6.25 or 3.9 per cent yesterday to US$167.70 a tonne. The rally followed strong manufacturing data from China.

However, overseas share price action for BHP and Rio Tinto was weak. BHP’s US-listed stock fell 0.7 per cent and its UK-listed stock 0.6 per cent. Rio Tinto lost 1.38 per cent in the US and 0.96 per cent in the UK.

The best of the gains in the US were in bond proxies. Utilities gained 1.1 per cent and consumer staples 1 per cent. The tech sector dropped 0.5 per cent and energy 1.3 per cent.

The economic calendar offers nothing of note today to change the overnight narrative.

The dollar dipped 0.07 per cent to 76.31 US cents.

Commodities

Oil retreated after a container ship blocking the Suez Canal was freed. The Ever Given was refloated and moved to an anchor point. Brent crude settled 42 cents or 0.7 per cent lower at US$64.15 a barrel.

A strengthening greenback helped push gold to its weakest close in three weeks. Gold for April delivery settled $20.10 or 1.2 per cent lower at US$1,712.20 an ounce.

Copper fell 0.8 per cent to US$4.04 a pound.

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