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Shares were poised to open higher following record closes in the US as traders weighed a rebound in air travel, a decline in bond yields and a vaccine setback.  

ASX futures rallied 26 points or 0.38 per cent after the Dow and S&P 500 hit new highs. 

Wall Street

The Nasdaq Composite was the pick of the major indices, rising 140 points or 1.05 per cent following a retreat in bond yields. The US ten-year yield ticked down two basis points to 1.61 per cent, relieving pressure on companies whose valuations depend on borrowing to generate future earnings.  

“Bond yields remain the primary risk facing the stocks market,” Jim Paulsen, chief investment strategist at the Leuthold Group, told CNBC. “However, they are calm so far this morning and as the speed of their recent advance pauses,  it’s allowing investors to focus more on just how low yields remain overall.”

The Dow Jones Industrial Average rose 175 points or 0.53 per cent. The blue-chip average survived a mid-session wobble as value stocks came under pressure after a string of European countries suspended vaccination programs because of concerns over blood clots. A late surge helped the S&P 500 to a final gain of 26 points or 0.65 per cent.

Tech stocks outperformed during a choppy session when all three major indices traded briefly in the red. A reported shortage in computer chips helped lift Broadcom and NXP Semiconductors.  

Airline stocks took wing after a surge in air travel. Almost 1.4 million Americans flew on Friday, the most in more than a year. United Airlines rose 8.3 per cent and American Airlines 7.7 per cent.  The S&P 1500 airlines index added 4.1 per cent. Hotels and cruise companies also saw gains.

On a broader level, cyclicals came under pressure from news Italy, Germany, France and Spain were joining Ireland and the Netherlands in suspending use of the AstraZeneca vaccine. The move follows reports of blood clotting issues among three health workers who had received the vaccine. Europe’s regulator said there was no evidence the vaccine had caused clots, but it would investigate.

Australian outlook

The S&P/ASX 200 looks set for solid opening gains, despite pressure in the US on key ASX strengths. Rate-sensitive US financials dropped 0.6 per cent as bond yields declined (higher rates are broadly positive for lenders because of the opportunity to expand margins).

The materials sector – the other pillar of the ASX – finished more than 0.1 per cent ahead, thanks to a late recovery. However, BHP and Rio Tinto trended lower following on-going pressure on iron ore. BHP’s US and UK listings both shed 2.06 per cent. Rio Tinto gave up 2.08 per cent in the US and 2.58 per cent in the UK. The spot price for ore landed in China fell $2.05 or 1.2 per cent to US$163.65 a tonne.

Energy stocks sank 1.3 per cent after Brent crude failed to hold US$70 a barrel. ThinkMarkets analyst Carl Capolingua said weakness in the domestic sector may be an opportunity for local investors looking for pockets of potential out-performance.

“We still think that sector is still undervalued,” he said. “You look at the US energy sector and it’s up around 120 per cent since the COVID lows. In comparison our energy sector is up only 70 per cent. We’re clearly lagging, and I think we can catch up. The sector also tends to be a natural hedge against inflation and higher interest rates and that’s a bonus right now.”

The night’s best US gains were among traditional bond surrogates: utilities +1.4 per cent and real estate +1.2 per cent. Tech stocks gained 1.1 per cent.

Volatility remains elevated on the ASX ahead of the end of the JobKeeper program. The ASX 200 swung through a 66-point range yesterday before ending six points or 0.1 per cent higher.

The minutes from this month’s Reserve Bank policy meeting are due at 11.30 am AEDT. Quarterly housing price figures are scheduled for the same time.

The dollar eased 0.04 per cent to 77.58 US cents.

Commodities

Gold climbed to its highest level in nearly two weeks. Gold for April delivery settled $9.40 or 0.6 per cent ahead at US$1,729.20 an ounce. The NYSE Arca Gold Bugs Index rose 2.1 per cent.

“Gold is attempting to stabilize after the recent pullback,” a Sevens Report Research newsletter said.

Oil ticked lower as the suspension of vaccination programs in Europe placed a question mark over the demand outlook. Brent crude settled 34 cents or 0.5 per cent lower at US$68.88 a barrel after trading as high as US$70.03.

Copper ended broadly flat at US$4.1405 a pound.

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