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Australian stocks were set to open higher following a recovery on Wall Street amid progress towards a deal to avert a federal government default.
ASX futures firmed 33 points or 0.46 per cent, signalling a positive start after two days of declines. The S&P/ASX 200 faded yesterday to a loss of 58 points or almost 0.6 per cent as a rate rise in New Zealand raised questions about the domestic rates outlook.
Overnight, US stocks eked out slender gains. Oil and natural gas prices tumbled. Industrial metals declined. Gold edged higher.
Wall Street
US stocks overcame heavy early losses following Republican moves to end a stalemate over the federal debt ceiling. The major indices rebounded after Senate Minority Leader Mitch McConnell said he would support a short-term extension to the debt limit to give Democrats more time to raise the ceiling.
The S&P 500 flipped a decline of almost 1.3 per cent into a final gain of 18 points or 0.41 per cent. The Dow Jones Industrial Average finished 102 points or 0.3 per cent ahead after earlier falling more than 450 points. The Nasdaq Composite advanced 68 points or 0.47 per cent.
McConnell announced he would back a stop-gap suspension of the debt ceiling to ease the current crisis. The federal government was expected to hit the debt ceiling on October 18, bringing it to the brink of a historic default.
“To protect the American people from a near-term Democrat-created crisis, we will also allow Democrats to use normal procedures to pass an emergency debt limit extension at a fixed dollar amount to cover current spending levels into December,” he said. “This will moot Democrats’ excuses about the time crunch they created and give the unified Democratic government more than enough time to pass standalone debt limit legislation through reconciliation.”
The shift came after President Joe Biden warned a default would “lead to self-inflicted wounds that risk the market tanking and wiping out savings and costing jobs”.
Investors bought back into Big Tech as treasury yields came off session highs. The yield on ten-year treasuries hit a fresh three-and-a-half-month high before easing less than a basis point following McConnell’s statement. Microsoft gained 1.51 per cent, Alphabet 1.13 per cent and Amazon 1.27 per cent.
Yields climbed earlier in the session after strong private payrolls sharpened expectations for tomorrow night’s September jobs report. Private companies hired an extra 568,000 Americans last month, well above the Wall Street estimate of 425,000. The market believes a strong jobs report tomorrow would encourage the Federal Reserve to announce a reduction in its bond-buying program at its next meeting – the so-called “taper”.
Airlines declined after Goldman Sachs downgraded American and JetBlue, citing higher fuel costs and weak demand for travel. American Airlines fell 4.33 per cent, JetBlue 2.67 per cent and the S&P 1500 airlines index 1.43 per cent.
Australian outlook
A strong finish in the US sets the scene for a recovery session here. The S&P/ASX 200 finished near a four-month low yesterday following two days of declines. Gains are likely to be constrained by tomorrow night’s US jobs report and fears of another “taper tantrum” if employment growth is stronger than expected.
The market will likely have to rely on tech stocks and bond proxies to do the heavy lifting. A retreat in yields encouraged US traders to buy utilities +1.53 per cent, consumer staples +1 per cent, real estate +0.98 per cent and technology +0.69 per cent.
Energy stocks declined 1.05 per cent following sharp retreats in natural gas and crude (more below). The materials sector dipped 0.26 per cent. Financials edged up 0.16 per cent.
The Australian Industry Group releases a measure of services sector activity at 8.30 am AEDT.
IPOs: E79 Gold Mines lists at 1 pm AEDT. The company is a gold explorer with two prospects in the WA goldfields.
The dollar eased 0.13 per cent to 72.75 US cents.
Commodities
Natural gas dived more than 10 per cent in the US from a 13-year high after President Vladimir Putin announced Russia would increase supplies to Europe to ease an energy crunch. Russia has previously been accused of withholding supply to boost prices.
British natural gas prices fell more than 6 per cent. US futures dropped 64 cents or 10.1 per cent to US$5.675 per million British thermal units.
Oil fell from multi-year highs following a report the US was considering releasing strategic reserves. The Financial Times said Energy Secretary Jennifer Granholm was considering the move to tame soaring gasoline prices after US crude hit a seven-year high on Tuesday.
West Texas Intermediate retreated US$1.50 or 10.9 per cent to US$77.43 a barrel. Brent crude settled US$1.48 or 1.8 per cent lower at US$81.08 a barrel.
BHP and Rio Tinto reversed higher in US trade after falling on the London Stock Exchange. BHP’s US-listed stock put on 0.86 per cent after its UK-listed stock sagged 1.39 per cent. Rio Tinto added 1.04 per cent in the US and shed 0.47 per cent in the UK. The spot price for iron ore landed in China was steady at US$117.80 a tonne with markets closed for Golden Week.
Gold overcame early weakness as US yields faded. Gold for December delivery settled 90 US cents or 0.05 per cent ahead at US$1,761.80 an ounce after trading as low as US$1,745.40. The NYSE Arca Gold Bugs Index rose 2.34 per cent.
Copper declined as reports of a second Chinese property developer missing a bond repayment raised fears of more defaults and weaker demand. Benchmark copper on the London Metal Exchange dropped 1.4 per cent to US$9,052.60 a tonne. Aluminium lost 0.7 per cent, nickel 0.4 per cent, lead 0.3 per cent and zinc 1 per cent. Tin inched up 0.2 per cent.
“Fantasia Holdings Group was the latest Chinese developer to fall into crisis after failing to repay a maturing bond. This adds to strains of the nation’s heavily leveraged property firms following Evergrande’s debt woes,” ANZ analysts wrote.
