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Shares look set to open little changed as investors weigh a rebound on Wall Street and strong gains in crude and other commodities against a soaring dollar.
US stocks bounced 0.7 per cent. Energy stocks led as US crude cracked US$50 a barrel for the first time since February. Copper – the “metal with the degree in economics” – neared an eight-year high.
ASX SPI200 index futures faded seven points or 0.1 per cent as the local dollar hit its strongest level since March 2018.
Wall Street
US stocks rebounded from their heaviest loss in two months as resource stocks responded to surging commodity prices. Gains were kept in check by the Georgia Senate runoff race, which will determine the balance of power in Congress.
The S&P 500 climbed 26 points or 0.71 per cent. The Dow Jones Industrial Average gained 168 points or 0.55 per cent. The Nasdaq Composite added 121 points or 0.95 per cent.
The energy sector charged 4.5 per cent after Saudi Arabia agreed to cut production by a million barrels a day during February and March. The deal allowed Russia and Kazakhstan to increase their quotas by a combined 75,000 a day, ending a damaging stand-off within the OPEC+ oil cartel.
The US crude benchmark, West Texas Intermediate surged $2.31 or almost 4.9 per cent to US$49.93 a barrel. Prices touched U$50.20, their first advance above U$50 since the start of the pandemic. The international benchmark, Brent crude, settled $2.51 or 4.9 per cent ahead at US$53.60.
Sentiment got a boost from news US factory activity was the strongest in almost two and a half years. The Institute of Supply Management’s manufacturing index rose to 60.7 last month from 57.5 in November. Economists had predicted a Covid-induced reduction in activity to 57.
Senate runoff
Georgia was on investors’ minds as the state returned to the polls for a runoff election that will decide whether the Democrats take control of the Senate, as well as the White House and House of Representatives. Reuters reported polling gave two Democrat challengers a slight lead over Republican incumbents.
“There’s a portion of the investment community that worries if Georgia votes in the Democrats, that taxes are going to rise and policy extremes are going to happen. But that’s a minority of the investment population,” Robert Pavlik, senior portfolio manager at Dakota Wealth, told Reuters. “The majority of the investment community still believes it’s not the end of the world.”
Australian outlook
Futures trading suggests limited interest today in pursuing a solid rebound on Wall Street and some very positive moves in commodity markets. There are at least two reasons.
Firstly, the dollar surged almost a cent overnight as the greenback continued to implode. The Aussie hit 77.78 US cents for the first time since April 2018 and was last trading at 77.67 cents. A strong dollar is a negative for exporters, aside from miners who benefit from higher prices for raw materials under a wilting greenback.
Secondly, the ASX will trade in the shadow of the Georgia Senate runoffs. Markets hate uncertainty. Exit polling and early returns will drive US futures, which in turn will affect buying interest here. It is worth noting last night’s share market action suggests US investors are becoming more comfortable with the prospect of a Democrat sweep. In other words, short-term self-interest (hopes for bigger stimulus) may outweigh longer term doubts (fears of higher corporate taxes and more red tape).
The mining sector has outperformed all week and looks set for further gains today. Energy stocks, in particular, should shine. In the US, the energy sector put on 4.5 per cent. The materials sector gained 2.3 per cent. Industrials climbed 1 per cent, thanks in part to a 4.4 per cent bounce in Boeing. The financial sector added 0.4 per cent and technology 0.7 per cent.
Commodities
Mining heavyweights BHP and Rio Tinto extended yesterday’s ASX rallies in overseas action, fuelled by gains in iron ore and copper. BHP’s US-listed stock put on 3.19 per cent and its UK-listed stock 1.4 per cent. Rio Tinto gained 2.4 per cent in the US and 0.26 per cent in the UK. The spot price for iron ore landed in China climbed $2.65 or 1.6 per cent to US$167.15 a tonne.
This week’s rally in US gold stocks stalled despite further gains in precious metals. The NYSE Arca Gold Bugs Index faded 0.9 per cent. Gold for February delivery settled $7.80 or 0.4 per cent ahead at US$1,954.40 an ounce. Silver added 1 per cent.
Copper for March delivery in the US climbed eight cents or more than 2 per cent to US$3.64 a pound. Benchmark copper on the London Metal Exchange climbed 1.9 per cent to US$7,994.50 a tonne. Aluminium gained 0.4 per cent, nickel 1.6 per cent, lead 1.5 per cent, zinc 0.7 per cent and tin 0.9 per cent.
“The lower [US] dollar is supporting copper and focus is on the vaccines which imply stronger growth in the medium term,” Quantitative Commodity Research analyst Peter Fertig told Reuters. “China’s economy is in good shape, it is driving force behind metals demand.”
