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Aussie shares looked set to build on last week’s tentative recovery after Wall Street sealed another round of record closes and key commodity prices improved.

ASX futures climbed 13 points or 0.18 per cent. The S&P/ASX 200 advanced 27 points or 0.4 per cent last week.

Iron ore climbed towards US$160 a tonne. Oil extended its rise for the week beyond 11 per cent. Industrial and precious metals also rallied. The dollar regained 73 US cents.

Wall Street

The S&P 500 and Nasdaq Composite closed at fresh highs after Federal Reserve Chair Jerome Powell prepared the market for a gradual stimulus unwind, but indicated rate rises remained some time off.

The S&P 500 rallied 39 points or 0.88 per cent to its 52nd record close of the year. The Nasdaq Composite advanced 184 points or 1.23 per cent. The Dow Jones Industrial Average put on 243 points or 0.69 per cent.

In a much-anticipated virtual address to the Fed’s annual Jackson Hole economic symposium, Powell said “it could be appropriate to start reducing the pace of asset purchases this year”, but the economy still had “much ground to cover” to reach the bank’s employment target for raising rates.

“The timing and pace of the coming reduction in asset purchases will not be intended to carry a direct signal regarding the timing of interest rate liftoff, for which we have articulated a different and substantially more stringent test,” Powell said.

The Fed chief said there had been “clear progress” towards the bank’s goal of maximum employment, but not the “substantial further progress” the bank has set as a benchmark for tighter policy. The Fed has been careful with its guidance to avoid the kind of “taper tantrum” that caused market ructions in 2013 when the bank began to wind back its bond purchases as the economy emerged from the Great Financial Crisis.

“Interest rate hikes are far, far away, and investors are happy about that,” Michael Arone, chief investment strategist for the US SPDR Business at State Street Global Advisors, said. “I think Powell deserves some credit for navigating the tapering of assets, avoiding a tantrum. The market seems well prepared for the start of tapering.”

Powell reiterated the bank’s belief a spike in inflation this year will be transitory. The core personal consumption expenditures price index used by the bank to set policy climbed 3.6 per cent last month. The reading was in line with expectations, but also the equal highest in 30 years. Personal income jumped 1.1 per cent.

Australian outlook

A positive open coming up after Fed Chair Powell successfully negotiated the challenge of telling Wall Street the punch bowl will be taken away, but not yet. The market shrugged and partied on.

The S&P/ASX 200 is still in repair mode following its worst week since January. The market made up ground last week, but has a long way to go to rejoin Wall Street at record levels. BHP and Rio Tinto should provide some momentum following gains in their overseas listings (more below).

Cyclical stocks led the US advance. Energy stocks jumped 2.62 per cent, materials 1.33 per cent and financials 1.31 per cent. Tech was also strong, rising 0.97 per cent. Aside from gold stocks (more below), defensive assets were subdued.

The fat lady is getting ready to sing as the domestic full-year earnings season nears its conclusion. A predictably mixed season has seen more earnings beats than misses, according to the FNArena Reporting Season Monitor, but produced more broker downgrades than upgrades. 

Of the 270 stocks covered, 123 (45.6%) produced results broadly in line with the consensus forecast, 93 (34.4%) were better and 54 (20%) were worse. Of those companies, 42 received ratings upgrades and 59 were downgraded.

The session ahead brings updates from Fortescue Metals, Altium, Crown Resorts, Healius and InvoCare. The season winds down tomorrow with an update from IGO. (Source: CommSec

The new month brings a flurry of economic data, the most important of which is Wednesday’s Q2 GDP report. Soft construction data last week briefly raised the threat of a negative reading, but those doubts seem to have diminished. The consensus among economists is for growth of around 0.6 per cent, a significant slowdown from 1.8 per cent growth over the first three months of the year.

The rest of the week looks like this: quarterly company operating profits (today); building approvals, private-sector credit, current account (Tuesday); manufacturing, GDP (Wednesday); trade balance (Thursday); and retail sales, construction (Friday).  

IPOs: After the extraordinary performance of newcomer Kuniko last week, traders will be eager for more listings. Unfortunately, the week ahead is light on quantity. There are just three companies listed by the ASX at present: Rubicon Water and TEK-Ocean Group (Thursday); and Ballymore Resources (Friday).

The dollar rebounded almost two cents last week as global growth worries receded. The Aussie was this morning down 0.03 per cent at at 73.03 US cents.

Commodities

Iron ore prices extended a week-long rebound from a collapse that pulled prices down more than 40 per cent in five weeks. The spot price for ore landed in China firmed US$5.70 or 3.7 per cent on Friday to US$159.05 a tonne.

Industrial metals also improved as the US dollar retreated. Benchmark copper on the London Metal Exchange rose 1.2 per cent to US$9,423.75 a tonne. Aluminium rallied 1.4 per cent, nickel 1.3 per cent, lead 0.1 per cent and tin 1 per cent. Zinc dipped 0.1 per cent.

BHP’s US-listed stock firmed 2.7 per cent and its UK-listed stock 2.15 per cent. Rio Tinto gained 2.45 per cent in the US and 1.66 per cent in the UK.

Oil ended a strong rebound week with further gains as a hurricane menaced production and refinery facilities in the Gulf of Mexico. Brent crude settled US$1.63 or 2.3 per cent higher at US$72.70 a barrel for a weekly tally of more than 11 per cent.

Gold rallied as the US dollar responded negatively to Powell’s speech. Metal for December delivery settled US$24.30 or 1.4 per cent ahead at US$1,819.50 an ounce. The NYSE Arca Gold Bugs Index jumped 3.68 per cent.

“Though Powell stated the Fed planned to moderate its easy-money monetary policy later this year, he also said it was his belief recent high inflation was transitory, seeming indicating any change would be moderate,” Jeff Klearman, portfolio manager at GraniteShares, told MarketWatch.

“Moderate changes in the Fed’s monetary policy are likely to leave real and nominal rates at or near historical lows supporting all asset prices, including gold,” he added.

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