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Aussie shares were set to open strongly ahead as a rebound on Wall Street helped settle nerves ahead of tomorrow’s interest rate rise.

ASX futures surged 96 points or 1.49 per cent, signalling early relief from three days of losses. 

Gains in US stocks partly offset worries about commodity prices. Iron ore, steel, coal and copper sank on Friday on fears of an accelerating global slowdown. The dollar traded below 68 US cents for the first time in two years.

The Reserve Bank meets tomorrow and is widely expected to raise the cash rate target by 50 basis points.

Wall Street

US stocks rallied into a long weekend as weak economic data and downbeat corporate outlooks suggested rate rises were having a chilling effect on the economy. Trading volumes were light ahead of tonight’s Independence Day holiday.

The S&P 500 bounced 40 points or 1.06 per cent. The Dow Jones Industrial Average gained 322 points or 1.05 per cent. The Nasdaq Composite added 99 points or 0.9 per cent.

All 11 sectors rallied as a new quarter got underway. Consumer stocks and bond proxies outperformed as a decline in treasury yields eased pressure on borrowing costs. The main indices opened underwater before finishing at their highs.

“We’re headed into the holiday weekend and having a late-day relief rally,” Joseph Sroka, chief investment officer at NovaPoint, told Reuters. “But we’ll likely have to wait until investors return from the holiday weekend to see if it’s sustainable at the start of the new quarter.”

Factory activity was weaker than expected as new orders contracted. The Institute for Supply Management’s manufacturing index fell to its lowest since June 2020. The new orders index dropped to 49.2 from 55.1, the first contraction since May 2020.

Weak outlooks from chipmaker Micron Technology and department store Kohl’s continued a run of downbeat forecasts ahead of this month’s quarterly corporate reporting season. Micron dropped 2.95 per cent. The chipmaker’s soft guidance also weighed on rivals, including Nvidia and Qualcomm. Kohl’s dived 19.64 per cent after downgrading its forecasts and scrapping takeover talks.

General Motors overcame a warning about supply-chain issues. The automaker gained 1.35 per cent after reaffirming full-year guidance.  

The relief rally came at the end of another losing week, the fourth in the last five. For the week, the S&P 500 lost 2.2 per cent, the Dow 1.3 per cent and the Nasdaq 4.1 per cent.

The indices were also sitting on fat losses for the year. The S&P 500 shed 20.6 per cent during the first half. The Dow was down more than 15 per cent and the Nasdaq Composite 29.5 per cent.

Australian outlook

A strong advance in ASX futures suggests a bright start to the week as traders take advantage of a US holiday and short-term oversold conditions. The S&P/ASX 200 has fallen for three straight days. Friday’s 0.43 per cent fade came as iron ore and other commodities slumped in China.   

Pressure on commodity prices may be alleviated by fresh stimulus measures reported over the weekend. The Chinese government will raise US$44.8 billion to fund infrastructure projects, according to Chinese media.

Iron ore and other industrial commodities slumped on Friday amid on-going worries about softening global growth (see below). China’s leadership had been accused of talking up stimulus plans without announcing concrete measures.

The dollar edged back above 68 US cents this morning after hitting a two-year nadir on Friday. The Aussie traded as low as 67.65 US cents before recovering to 68.12 US cents.

The Reserve Bank meets tomorrow. The market has priced in a 50 basis-point increase in the cash rate target to 1.35 per cent. Any other outcome would be a surprise. The main interest lies in the guidance for the August meeting, where expectations are currently for an increase of between 25 and 50 basis points.

A new month brings a flurry of economic data. Monthly job advertising and building approvals are due at 11.30 am AEST today. Tomorrow brings construction and retail sales figures. Thursday offers the trade balance and a services index.

Today’s Independence Day holiday in the US will reduce market participation until tomorrow night. It’s worth noting the last US long weekend (Juneteenth, two weeks ago) acted as a welcome circuit-breaker in the market’s downward spiral at the time. It’s possible today’s holiday may serve the same purpose. Certainly, Friday’s bounce was a positive omen.

All 11 US sectors advanced, led by utilities +2.48 per cent and consumer discretionary +1.97 per cent. Energy stocks gained 1.44 per cent as crude oil rose for the first time in three sessions.

The US materials sector glided past commodities pressure, rising 0.67 per cent. Financials firmed 1.43 per cent.

Data flow in the US is weighted towards the second half of this week. Jobs openings and the minutes from the latest Fed meeting land on Wednesday night. Private payrolls figures are due Thursday. The week climaxes with the monthly employment report on Friday.

The domestic market is in a seasonal lull, so far as company newsflow is concerned. Quarterly reports start to dribble in this week, but the vast majority will come much later in the month. The full-year earnings season kicks off next month.

Data from the Australian Shareholders’ Association shows the index’s best performers in FY22 were all miners: Core Lithium +295.8%, Whitehaven Coal +149.5 per cent, Lake Resources +132.4 per cent and New Hope +100 per cent. The fiscal year’s worst were Zip Co -94.2 per cent, PointsBet -79 per cent and Magellan -76 per cent.

IPOs: the ASX lists just two potential newcomers for the week ahead. MetalsGrove Mining is pencilled in to debut on Wednesday. Aeramentum Resources is scheduled for Thursday.

Commodities

Mining heavyweights BHP and Rio Tinto fell in overseas trade as iron ore and copper wilted under demand worries.

“Recession fears are the dominating factor right now, that’s taking casualties right, left and centre. Every time there’s an indication of more hawkish policy, markets fall further,” Nitesh Shah, commodity strategist at WisdomTree, told Reuters.

Iron ore, steel and coal prices slumped in China. The spot price for ore landed at Tianjin plunged US$14.77 or 11.4 per cent to US$115.23 a tonne, according to CommSec. The most-traded contract on the Dalian Commodity Exchange sank 6.9 per cent to US$111.47.

Dalian coking coal dropped 6.1 per cent. Coke shed 3.8 per cent. Stainless steel dropped 2.4 per cent. Steel rebar fell 2.5 per cent.

On the London Metal Exchange, benchmark copper skidded 2.6 per cent to US$8,040.25 a tonne. Nickel gave up 3.9 per cent. Zinc lost 3.4 per cent. Aluminium was steady. Lead firmed 1.8 per cent and tin 0.8 per cent.

BHP‘s US-traded depositary receipts sagged 3.65 per cent. The miner’s UK listing shed 3.18 per cent. Rio Tinto gave up 1.95 per cent in the US and 1.67 per cent in the UK.

Oil sealed a weekly advance with its first rise in four sessions. Brent crude settled US$2.60 or 2.4 per cent ahead at US$111.63 a barrel. The rally lifted the global benchmark 2.3 per cent for the week.

Gold dropped below US$1,800 an ounce before trimming its loss. Metal for August delivery settled US$5.80 or 0.3 per cent lower at US$1,801.50 after trading as low as US$1,783.40.

Friday’s low was the yellow metal’s weakest since January. The NYSE Arca Gold Bugs Index shrugged off the pressure, rising 2.85 per cent.

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