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Strong ASX futures point to a second day of gains after Wall Street reversed the last of Monday’s market rout, spurred by strong earnings, rising bond yields and fading growth fears.
Wall Street’s major benchmarks rallied more than 0.8 per cent to finish within 1 per cent of all-time highs. Oil bounced 4 per cent. Iron ore and gold declined.
ASX futures surged 64 points or 0.89 per cent. An advance of that scale would lift the S&P/ASX 200 back into positive territory for a week that began with two straight declines.
Wall Street
US stocks pushed back toward record territory as economically-sensitive cyclicals spearheaded a second day of gains. Travel, small caps and financials were among the standouts as a continuing rebound in bond yields soothed concerns about the economic outlook.
The Dow Jones Industrial Average climbed 286 points or 0.83 per cent. The blue-chip average dived 725 points on Monday, but has now made it all back, thanks to last night and a 550-point bounce on Tuesday night.
The S&P 500 climbed 36 points or 0.82 per cent. The Nasdaq Composite put on 133 points or 0.92 per cent.
“There’s a lot of nice follow-through from yesterday. On Monday there was a growth scare, and on Tuesday we recovered from that. Investors realised it was an over-reaction,” Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, told Reuters.
“Today is a continuation from yesterday showing that although global growth may be impacted in the short run, we ultimately are still on a recovery path, and it makes sense to stay long the market.”
Markets were spooked earlier in the week by a dive in US treasury yields to five-month lows. The decline in yields was interpreted by some investors as a sign economic growth was expected to slow. Overnight, the yield on ten-year US treasuries climbed almost seven basis points to just below 1.3 per cent.
“People are comforted by 10-year bond rates, it’s a sign of the recovery play,” Peter Tuz, president of Chase Investment Counsel, told Reuters. “There’s flight away from safety today.”
The Russell 2000 index of small caps climbed 1.81 per cent. The S&P 1500 airlines index rose 3.3 per cent. Cruise line Carnival soared 9.44 per cent. The Hyatt hotel group gained 4.7 per cent.
A night of generally well-received corporate earnings lifted Coca-Cola 1.92 per cent, Johnson & Johnson 0.62 per cent, Chipotle 11.54 per cent and Verizon 0.67 per cent. Netflix slid 3.28 per cent on disappointing subscriber data.
Australian outlook
The bull market remains alive and well following a continuation session in the US. Monday’s growth scare appears done and dusted (for the time being), so it is onwards and upwards for the ASX.
The S&P/ASX 200 climbed a slightly hesitant 56.5 points or 0.78 per cent yesterday, finishing with roughly half its gains at its session high. Investors should now have the confidence to finish the repairwork.
If futures traders are correct, the index should move towards the upper reaches of its current trading range. What happens from there will depend on the economic hit from pandemic lockdowns. Yesterday’s June retail sales report showed the early effect of the Greater Sydney lockdown and the tail-end of the previous Victorian lockdown. Sales declined 1.8 per cent from May.
Unfortunately, New South Wales shows little sign of emerging any time soon. Current restrictions have brought infection rates under control but authorities have so far been unable to “bend the curve”. Victoria and South Australia may have acted quickly enough to produce a better result.
Energy was the pick of the US sectors overnight, surging 3.53 per cent as crude prices continued to recover. Financials gained 1.71 per cent, materials 1.09 per cent and industrials 1 per cent.
The only losers were traditional defensives/bond proxies. Utilities eased 1.1 per cent, real estate 0.35 per cent and consumer staples 0.14 per cent.
Quarterly business confidence and monthly trade figures were scheduled for 11.30 am AEST. Trade in Japan is suspended today for the Sea Day public holiday.
IPOs: Insurer NobleOak Life was due to list today at 11 am. Gold explorer Victory Goldfields follows at 1 pm.
The dollar rebounded after trading below 73 US cents in the wake of yesterday’s soft retail sales report. The Aussie bounced 0.3 per cent to 73.6 US cents.
Commodities
Iron ore fell after the Chinese government reportedly told some producers to reduce production to maintain annual output at 2020 levels. Ore inventories at Chinese ports increased for a third week. The spot price for ore landed in China fell US$6.45 or 2.9 per cent to US$213.60 a tonne.
BHP and Rio Tinto were lifted by the rising tide overseas. BHP’s US-listed stock gained 2.59 per cent and its UK-listed stock 2.72 per cent. Rio Tinto climbed 1.83 per cent in the US and 2.31 per cent in the UK.
A decline in US stockpiles helped oil bounce 4.2 per cent. Brent crude settled US$2.88 ahead at US$72.23 a barrel. Crude stocks at the US’s main storage hub fell 1.4 million barrels to their lowest since January 2020.
“If you look at the draw in Cushing, Oklahoma, we’re getting to a dangerously low level,” Phil Flynn, senior market analyst at The Price Futures Group, told MarketWatch. “We’re almost out of oil at the Cushing delivery point if we continue to draw at this rate.”
Gold faded to its lowest settlement in almost two weeks as US yields improved. Metal for August delivery settled $8 or 0.4 per cent lower at US$1,803.40 an ounce. The NYSE Arca Gold Bugs Index rose 1.44 per cent.
Copper overcame early weakness as appetite for risk assets improved. Benchmark copper on the London Metal Exchange rose 0.2 per cent to US$9,318 a tonne. Lead added 0.5 per cent and tin 0.1 per cent. Nickel and aluminium eased 0.5 per cent. Zinc shed 1.1 per cent.
