This week’s Santa rally looks to have one last gift for Australian investors after positive Covid developments and benign economic data helped lift Wall Street.
ASX futures rose 48 points or 0.66 per cent, pointing to a fourth straight gain during a holiday-shortened session. The exchange closes early today at 2.10 pm AEDT (including closing auction) for a four-day break.
Overnight, gold ended at a five-week high. Oil, copper and aluminium advanced. The dollar firmed towards 72.5 US cents.
US stocks entered the Christmas break at record levels following a third straight advance. The main indices climbed on light volume as positive developments in the fight against Covid bolstered confidence the global economy will weather the omicron outbreak.
The S&P 500 climbed 29 points or 0.62 per cent to an all-time closing high. The Dow Jones Industrial Average added 197 points or 0.55 per cent. The Nasdaq Composite gained 131 points or 0.85 per cent.
“Today, it is about economic optimism that this variant is not going to be as bad as delta and original virus,” Kent Engelke, chief economic strategist at Capitol Securities Management, told MarketWatch. “But it is economic optimism on light volume.”
Optimism was boosted by several Covid-related announcements:
- Vaccine-makers AstraZeneca and Novavax reported their jabs were effective against omicron.
- Merck’s anti-viral pill for treating Covid at home was approved by the US regulator. The pill was the second in two days to be authorised by the US Food and Drug Administration.
- Two British studies replicated South African findings that omicron causes fewer hospitalisations than delta.
“Today is a very calm day. It’s the relief over Omicron apparently not being as bad as we feared,” Ryan Detrick, chief market strategist at LPL Financial, said.
Progress in treating the virus helped offset news of soaring case numbers in Europe. New infections in the UK passed 100,000 per day. France moved close to 90,000 per day. Greece banned public Christmas events. Several countries made mask-wearing mandatory again.
The night’s economic data reassured US investors the recovery remained on track. Orders for durable goods increased by 2.5 per cent last month, more than the 1.5 per cent rise expected by economists. Consumer sentiment and consumer spending ticked higher. First-time claims for unemployment benefits were steady at pre-pandemic levels.
Financial markets are full of festive cheer heading into the Christmas break. Investors in glass-half-full mode are seizing on the Covid positives and ignoring the soaring case numbers that threatened to Grinch this market as recently as Monday.
How long markets can shrug off the economically-deleterious effect of consumer caution and a massive wave of worker absences remains to be seen. But for now, Australian traders can look forward to another positive session.
The S&P/ASX 200 has put on 95 points in three gulps since Tuesday. The Australian benchmark has a multi-week closing high in its sights if investors hold their nerve until 2.10 pm.
Wall Street closes tonight for Christmas but will trade twice next week before the ASX reopens on Wednesday. Normally, that would inject a note of caution into Australian trade, but with US markets at all-time highs, the party seems likely to continue.
There is nothing on the economic calendar to change the narrative. Corporate announcements will be light. Trading volumes yesterday were the lowest of the year and likely to be lower still this session.
Nine of eleven US sectors rose. There were solid gains for the two with the biggest market weighting on the ASX. Materials gained 1.01 per cent and financials 0.55 per cent.
Consumer discretionary was the best of the pack with a rise of 1.24 per cent. Real estate and utilities were the only declines, falling 0.36 and 0.03 per cent, respectively.
IPOs: the last listing before the Christmas break is Solis Minerals at 11 am AEDT. Solis is an explorer with copper prospects in Chile and Peru.
The dollar climbed 0.5 per cent to 72.48 US cents.
Gold logged a five-week closing high as the US dollar declined. Metal for February delivery settled US$9.50 or 0.5 per cent ahead at US$1,811.70 an ounce. The NYSE Arca Gold Bugs Index gained 0.69 per cent.
Oil ended a strong week with a third straight advance as traders continued to discount the economic threat from omicron. Brent crude settled US$1.56 or 2.1 per cent ahead at US$76.85 a barrel.
The US benchmark climbed 1.4 per cent to extend its advance for the week to 4.3 per cent. Both benchmarks closed at their highest in around a month.
“It seems all the major catalysts that await oil in the New Year lean towards higher prices,” Edward Moya, senior analyst at Oanda, said. “This week, supply disruptions from Libya and Nigeria and a bullish EIA [US Energy Information Administration] report have WTI crude trading comfortably above the $70 level. The U.S. is a net exporter again, diesel demand roared back, and stockpiles are dropping.”
BHP and Rio Tinto rose in overseas trade as iron ore finished a tick lower. The most-traded ore futures contract on China’s Dalian Commodity Exchange dropped 0.1 per cent.
BHP‘s US-listed stock gained 1.14 per cent and its UK-listed stock 1.01 per cent. Rio Tinto put on 0.5 per cent in the US and 0.21 per cent in the UK.
On-going concerns about smelter shutdowns helped lift aluminium to a two-month high. Benchmark aluminium on the London Metal Exchange firmed 0.6 per cent.
“The market is pricing in the risk premium stemming from the European power market, where we have already seen some aluminium supply losses,” ING analyst Wenyu Yao said.
Copper edged up 0.1 per cent on Comex to US$4.3925 a pound.