Join our daily newsletter At The Bell to receive exclusive market insights
Record highs on Wall Street, strength in commodities and a decline in the dollar promise respite for Australian investors following three days of falls.
The S&P/ASX 200 suffered its biggest drop in a month yesterday, tumbling 1.8 per cent to a four-week low.
A 23-point or 0.4 per cent rally in SPI200 index futures points to an opening rebound ahead of confirmation that the economy fell into recession last quarter.
Aussie outlook
The local market has been battered by a surging dollar and end-of-reporting-season rebalancing, falling 290 points or 4.7 per cent in five sessions from last Tuesday’s five-month high to yesterday’s session low. Overnight, the dollar retreated from two-year highs, lately trading 0.05 per cent lower at 73.72 US cents after trading above 74 US cents on Tuesday.
Resource stocks look set to rebound following gains in iron ore, oil and most metals (more below). Index heavyweight BHP’s US-listed stock jumped 3.14 per cent and its UK-listed stock 2.27 per cent. Rio Tinto put on 1.6 per cent in the US and 0.43 per cent in the UK.
The day ahead is expected to bring confirmation that the economy has fallen into its deepest recession since the Great Depression. The GDP report for the three months to the end of June due at 11.30 am EST is expected to show a contraction of around 6 per cent as lockdown restrictions strangled activity.
The economy shrank 0.3 per cent during the first quarter of the year as the restrictions began to bite. A technical recession is defined as two consecutive quarters of contracting activity. Australia has not suffered a recession since 1991.
Wall Street
Records continued to tumble in the US as stock splits and upbeat economic data helped lift the S&P 500 and Nasdaq to all-time highs. The S&P 500 climbed 26 points or 0.75 per cent, showing no signs of fatigue after five months of gains and its best August since 1986.
The Nasdaq Composite rose 164 points or 1.39 per cent. The Dow Jones Industrial Average gained 216 points or 0.76 per cent.
Index heavyweight Apple climbed 4 per cent on a second day of heavy buying following a stock split that made its shares more accessible for retail investors. Zoom Video soared 40.8 per cent after more than quadrupling revenues last quarter. Other work-from-home winners such as Amazon and Facebook also rallied in a continuation of a theme that has dominated the global rebound since March.
Optimism about the global economy was boosted by encouraging factory reports from around the world. Upside surprises from China and Europe were followed by a US beat: The Institute for Supply Management’s manufacturing purchasing managers’ index rose for a third month to 56 last month, its best result since November 2018.
“Some of the manufacturing data that came out really helped boost investor confidence today,” Lindsey Bell, chief investment strategist at Ally Invest in the US told MarketWatch. “You have to acknowledge that a lot of this economic data is coming off extremely low and distressed numbers… But what’s most important to the market is that we’re moving in the right direction.”
Commodities
Materials was the best-performing US sector following upbeat factory reports, rising 2.75 per cent as copper hit a two-year high and iron ore climbed for a third day. The spot price for iron ore landed in China improved $1.10 or 0.9 per cent to US$125.45 a dry ton.
Benchmark copper on the London Metal Exchange hit US$6,830 per metric ton before paring its gain to 0.2 per cent at US$6,708.75. Aluminium added 1 per cent, nickel 1.1 per cent, zinc 1.5 per cent and tin 1.9 per cent. Lead eased 0.1 per cent.
Oil edged higher for the first time in four sessions as the night’s economic data boosted hopes for a pick-up in demand. Brent crude settled 30 cents or 0.7 per cent ahead at US$45.58 a barrel.
Gold clung on for its highest close in two weeks after failing to hold the US$2,000 level. Metal for December delivery settled 30 cents or less than 0.1 per cent higher at US$1,978.90 an ounce after trading as high as US$2,001.20. The rot set in after manufacturing data boosted the greenback.
