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A relief rally swept Wall Street higher overnight as energy prices retreated and a measure of wholesale inflation came in weaker than expected.
Australian stocks were poised to open in positive territory, with gains likely to be capped by declines in commodity prices. Oil slumped into a bear market just five days after a 14-year high. Iron ore sank more than 6 per cent. Gold fell to a two-week low.
ASX futures firmed 41 points or 0.58 per cent. The S&P/ASX 200 dropped 0.72 per cent yesterday as the heavyweight miners declined.
Wall Street
Tech stocks led a sharp rebound ahead of tonight’s Federal Reserve rates decision. The central bank is widely expected to increase its benchmark rate for the first time since 2018.
The S&P 500 rallied 89 points or 2.14 per cent to its first gain in four sessions. The Nasdaq Composite advanced 367 points or 2.92 per cent. The Dow Jones Industrial Average gained 599 points or 1.82 per cent.
A sharp retreat in energy prices and milder-than-expected inflation data brought buyers back to the market. A Ukraine war-fuelled rally in crude oil continued to unravel after China locked down an entire province to contain a Covid outbreak.
Brent crude settled US$6.99 or 6.5 per cent lower at US$99.91 a barrel. The fall extended the global benchmark’s retreat from last week’s peak to 22 per cent, meeting the technical definition of a bear market.
The US benchmark fell 6.4 per cent to US$96.44, also 22 per cent below its March 8 peak.
“The collapse has been spectacular,” Fawad Razaqzada, market analyst at ThinkMarkets, wrote.
Worries about inflationary pressures were temporarily soothed by an unexpectedly gentle increase in producer prices. The core producer price index increased just 0.2 per cent last month, well below expectations. Economists polled by Dow Jones anticipated a rise of 0.6 per cent. Headline inflation also came in below expectations.
The tech stocks that had copped the worst of this year’s selling led last night’s rebound. Chipmaker Nvidia bounced 7.7 per cent, Netflix 3.85 per cent and Microsoft 3.87 per cent. Amazon gained 3.89 per cent and Apple 2.97 per cent.
Last night’s rally bucked the recent trend. The S&P 500 has risen on only two of the last nine sessions. The Nasdaq Composite re-entered a bear market this week.
“What you’re seeing is relief rallies on a bear market. There’s hopes and expectations that something will start resolving in Ukraine,” Tom Plumb, portfolio manager at Plumb Balanced Fund, told Reuters.
Australian outlook
A bright start coming up after Wall Street steadied ahead of tonight’s inevitable rate hike. Growth stocks look likely to lead after US Big Tech outperformed.
The US tech sector bounced 3.43 per cent, consumer discretionary (Amazon, Tesla) 3.39 per cent and communication services (Google, Netflix, Twitter) 2.25 per cent.
Bond proxies drew a bid as yields backed off two-year highs. Consumer staples gained 2.21 per cent. Healthcare firmed 1.93 per cent.
Declines in commodity prices are likely to hamstring today’s rally. The US energy sector slumped 3.72 per cent. The basic materials sector gained 1.1 per cent, but ASX heavyweights BHP and Rio Tinto both fell in overseas action (more below).
Just as strength in commodity prices helped the S&P/ASX 200 weather the worst of the Ukraine war global correction, declines will cap upside for the local market. China’s stubborn pursuit of a zero-Covid policy threatens to be a headwind for some time to come.
IPOs: two companies were set to debut this session. Pure Resources at 12 pm AEDT is an explorer with projects in the Kimberley and Eastern Goldfields of WA. Many Peaks Gold at 1 pm is an explorer focussed on gold and copper in Queensland.
The dollar held broadly steady overnight, lately down 0.01 per cent to 71.97 US cents.
Commodities
Iron ore continued to tumble amid concerns Chinese Covid lockdowns will dent demand for steel. Authorities locked down Shenzen and Jilin province to contain the largest outbreak of the pandemic. The spot price for ore landed in China dropped US$9.35 or 6.5 per cent to US$135.55 a tonne.
“China’s covid-19 outbreak will undoubtedly impact national steel demand, whether the easing of ‘zero tolerance’ permits infections to grow or the government imposes sweeping lockdowns,” Atilla Widnell, managing director at Navigate Commodities, said.
“Therefore, we view the market as having peaked for the time being until this outbreak runs its course and stimulus trickles through to real demand in the second half.”
BHP‘s US-traded depositary receipts shed 1.08 per cent and its UK listing dropped 2.04 per cent. Rio Tinto fell 0.42 per cent in the US and 1.68 per cent in the UK.
Gold closed at its weakest level in two weeks as a rising US dollar and bond yields dulled the appeal of alternative investments. Gold for April delivery settled US$31.10 or 1.6 per cent lower at US$1,929.70 an ounce.
Silver, platinum and palladium also declined. The NYSE Arca Gold Bugs Index firmed 0.64 per cent.
Industrial metals continued to retreat as the demand threat from lockdowns overshadowed upbeat Chinese economic data. Benchmark copper on the London Metal Exchange eased 0.43 per cent to US$9,892 a tonne. Aluminium fell 0.62 per cent, lead 0.35 per cent and zinc 0.35 per cent. Tin bounced 0.52 per cent.
Trade in nickel was set to resume tonight on the LME with new limits on price moves. Prices will only be allowed to move within 5 per cent of the previous closing price. The restrictions come after prices more than doubled in a single session last week.
