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A relief rally swept Wall Street overnight, setting up a positive start to Australian trade as bargain-hunters take advantage of stocks at four-week lows.

The Dow mounted its strongest rally in a month, bouncing 1.6 per cent a day after its heaviest loss since October. Oil and metals rebounded.

ASX futures rallied 49 points or 0.68 per cent. The S&P/ASX 200 fell 0.46 per cent yesterday to a third loss in four sessions and a four-week closing low.

Wall Street

“Buy the dip” has been the trader’s mantra since last March. US stocks rebounded as a recovery in bond yields from five-month lows helped soothe worries about faltering economic growth.

The Dow Jones Industrial Average bounced 550 points or 1.62 per cent. The rally recouped most of Monday night’s 725-point decline, the blue-chip index’s largest fall in nine months.

The S&P 500 climbed 65 points or 1.52 per cent. The Nasdaq Composite gained 224 points or 1.57 per cent.

The rebound gathered momentum with bond yields. The yield on ten-year US treasuries hit a five-month low of 1.133 per cent before reversing to a gain of almost three basis points at 1.22 per cent. A steep decline in yields over the last month sharpened concerns that bond traders expected economic growth to stall in the face of a resurgence of Covid-19 cases in the US and beyond.

“The bond market has valid concerns. But, even with the moderated outlook, it still leaves a lot of room for equities,” Jack Ablin, chief investment officer at Cresset Capital Management, told Reuters. “The bond market isn’t calling for a recession, but perhaps a tamping down of growth expectations. We still believe equity risk-taking is still intact.”

Monday’s biggest losers led the revival. The S&P 1500 airlines index surged 6.27 per cent. Cruise companies Carnival and Norwegian put on 7.45 and 8.28 per cent, respectively. The Marriott hotel group gained 3.19 per cent.

The financial sector rallied with yields. Regional banks saw gains of up to 5 per cent. Bank of America put on 2.06 per cent.

The Nasdaq’s advance broke a five-session losing streak, the tech index’s longest since October. Apple rose 2.6 per cent following a broker upgrade. Microsoft, Facebook, Alphabet and Amazon also advanced.

The energy sector tracked a tentative recovery in oil following Monday night’s 6.8 per cent collapse in crude. Goldman Sachs said concerns about the likely impact of lockdowns related to the spread of the Delta coronavirus variant were overblown.

“Our bottom-up estimate of the impact that a Delta wave could have on global demand… points to a potential 1 million-barrel-a-day hit for only a couple months, and even less if vaccines prove effect at lowering hospitalizations,” Goldman said.

European stocks also recovered. The pan-European Stoxx 600 clawed back 0.52 per cent after diving 2.3 per cent on Monday.

Australian outlook

There were welcome signs overnight that the bull market remains intact. Phew. US investors bought the dip, as they have since the darkest hours of the pandemic sell-off. The S&P 500 respected its 50-day moving average and finished within 2 per cent of a record.

The S&P/ASX 200 hit a six-week low yesterday but quickly rebounded in a signal weakness remains a buying opportunity. Any move below 7250 on the index has been snapped up for the last month, even against a background of creeping Covid restrictions. South Australia and parts of regional NSW last night joined Victoria and Greater Sydney in lockdown. The ASX 200 touched 7205 yesterday before recovering to finish back within its trading band at 7252.

Wall Street’s best-performing sectors were industrials +2.74 per cent, financials +2.42 per cent and real estate +1.88 per cent. Tech put on 1.47 per cent, energy 1.38 per cent and materials 1.2 per cent. The defensive consumer staples was the only loser, easing less than 0.1 per cent.

The busiest day of the week for ASX IPOs today features: Gefen International AI (10.30 am AEST); BCAL Diagnostics (11.30 am); and Openn Negotiation (12 pm).

June retail sales and building approvals are slated for 11.30 am AEST.

The dollar continued to wallow near its lowest level of the year. The Aussie was last down 0.07 per cent at 73.32 US cents, close to levels last seen in December.

Commodities

Oil steadied after Monday’s 6.8 per cent plunge, which came after OPEC+ reached a deal to increase output and as traders fretted about the demand implications of the spread of the delta Covid variant. Brent crude bounced 73 US cents or 1.1 per cent overnight to settle at US$69.35 a barrel.

Gold edged to its first gain in four sessions. Metal for August delivery settled US$2.20 or 0.1 per cent ahead at US$1,811.40 an ounce. The NYSE Arca Gold Bugs Index tacked on 0.45 per cent.

Mining giants BHP and Rio Tinto rebounded in overseas trade. BHP’s US-listed stock gained 2.06 per cent after its UK-listed stock bounced 1.91 per cent. Rio Tinto rose 1.52 per cent in the US and 1.41 per cent in the UK. The spot price for iron ore landed in China finished steady at US$220.05 a tonne, according to CommSec.

Copper recouped some of Monday’s loss during a broadly positive session on the London Metal Exchange. Benchmark copper climbed 1.3 per cent to US$9,303.75 a tonne. Aluminium improved 1.9 per cent, nickel 1.2 per cent, lead 2.6 per cent and tin 0.1 per cent. Zinc fell 0.6 per cent.

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