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The first big week of the domestic half-yearly earnings season looks set for a subdued start despite fresh highs in the US. 

Australian index futures edged up five points or less than 0.1 per cent following the market’s best week since early November.

The S&P/ASX 200 put on 233 points or 3.5 per cent last week, ending at its highest level since last February. Earnings season cranks into gear this week with reports from Commonwealth Bank, Telstra, IAG and Newcrest (see below for more).

On Friday, US stocks nudged to new record finishes. Oil hit a 13-month peak. Gold and silver rebounded. Iron ore declined. Industrial metals rallied.

Wall Street

The S&P 500 and Nasdaq wrapped up a strong week with fresh highs amid optimism over President Joe Biden’s US$1.9 trillion stimulus plan. The Dow and S&P 500 completed a clean sweep of five straight advances during their strongest week since November.

The S&P 500 put on 15 points or 0.39 per cent to extend its tally for the week to 4.65 per cent. The Dow Jones Industrial Average gained 92 points or 0.3 per cent on the day and 3.89 per cent for the week. The Nasdaq Composite added 79 points or 0.57 per cent for the session and 6.01 per cent for the week.

Friday’s advance followed underwhelming employment data that helped Biden make his case for spending big. The economy added just 49,000 jobs last month, narrowly below expectations. December employment figures were revised substantially lower.

“The biggest risk is not going too big but too small,” Biden said on Friday. “It’s very clear our economy is still in trouble,” he added.

Expectations were growing that the Democrats will push through Biden’s American Rescue Plan more or less intact. On Friday, the Senate passed a budget resolution that advanced the bill without Republican support. The relief package includes stimulus payments of US$1,400 per person, increased jobless benefits and funding for vaccines and increased testing.

Stretched stock market valuations have found some support from a generally upbeat quarterly reporting season. With a week left, S&P 500 companies looked set to deliver a quarter of earnings growth, defying expectations for another quarter of losses .

Volatility declined further despite an uptick in some “meme stocks” after trading platform Robinhood removed trading restrictions on GameStop and AMC Entertainment. GameStop bounced 19.2 per cent on Friday, but lost 80 per cent over the week. AMC extended its weekly decline to 48 per cent with a drop of 3.7 per cent.

Australian outlook

With US retail speculative mania put to bed as a market driver, the spotlight this week should shift to how well Australian companies have navigated the pandemic. This reporting season has already shown the possibility of surprises, both upside and downside.

“High hopes are attached to this February earnings season as cyclical tailwinds blow stronger. The reporting season is expected to reflect a recovery in corporate earnings from the COVID-19 crisis,” Kalkine Group CEO Kunal Sawhney said.  

Dividends are anticipated to remain in the spotlight this reporting season, with a major proportion of ASX-listed companies releasing forward guidance,” he added. “Results of ASX majors like Insurance Australia Group, Commonwealth Bank, AMP, Boral, Newcrest Mining and Telstra are likely to keep investors at the edge of their seat.  Among these, Commonwealth’s anticipated payout is closely eyed amid removal of dividend limits by APRA and improving asset quality.”

The week ahead starts slowly with Argo Investments today. Tomorrow brings reports from Suncorp, Dexus, Challenger, Boral and Shopping Centres Australasia. Wednesday has two heavy-hitters in CBA and IAG, plus Megaport. Thursday looks like the biggest day of the week by volume: AMP, ASX, Downer EDI, Beach Energy, Transurban, Telstra, AGL, Newcrest and Magellan. The week winds down with Mirvac and Baby Bunting on Friday. (Sources: CommSec, ABC.)

The economic calendar brings business confidence data on Tuesday and consumer sentiment on Wednesday.

The US quarterly reporting season is into its final leg. Tailenders this week include Twitter, Disney, Cisco, General Motors, Uber, Coca-Cola and PepsiCo. Federal Reserve Chair Jerome Powell is due to deliver a speech on Wednesday night. The weekly jobless claims report on Thursday is a potential market-mover following three weeks of improvement.

The Lunar New Year shutdown starts in Asia on Thursday and generally has a depressive effect on equity trading volumes across the region and on demand for iron ore and other raw materials. The Shanghai Stock Exchange closes for five days.

The US materials sector outperformed on Friday, rising 1.7 per cent. Energy stocks gained 0.9 per cent. The financial sector nudged up 0.1 per cent. Tech stocks dropped 0.2 per cent.

The dollar bounced sharply on Friday following the US jobs disappointment, but dipped at this morning’s open. The Aussie eased 0.14 per cent to 76.64 US cents.

Commodities

Oil scored its highest finish since last January as investors continued to position for an expected uplift in demand this year. Brent crude settled 50 cents or 0.9 per cent ahead at US$59.34 a barrel.

“The move speaks to the ongoing strength of a broader rally that has carried over from late 2020, largely pushed forward by broader market optimism and the start of successful vaccine deployment around the world,” Robbie Fraser, manager of global research at Schneider Electric, wrote. “While near-term headwinds have emerged, the longer-term optimism remains intact, bringing steady support.”

BHP and Rio Tinto rose in US action as industrial metals rallied and iron ore continued to build a base. BHP’s US-listed stock gained 1.16 per cent and its UK-listed stock 0.47 per cent. Rio Tinto added 1.24 per cent in the US after losing 0.5 per cent in the UK. The spot price for iron ore landed in China slipped $2.15 or 1.4 per cent to US$155.90 a tonne.

A weakening US dollar and US stimulus optimism boosted industrial metals. Benchmark copper on the London Metal Exchange climbed 1.3 per cent to US$7,927 a tonne. Aluminium gained 1.1 per cent, nickel 2.2 per cent, lead 0.6 per cent, zinc 1.5 per cent and tin 0.3 per cent.

Precious metals rebounded as investors anticipated the inflationary impact of a big stimulus package. Gold for April delivery settled $21.80 or 1.2 per cent higher at US$1,813 an ounce. Silver for March delivery bounced 79 cents or 3 per cent to U$27.019.

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