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Australian futures declined as traders weighed gains in commodities against a late dip on Wall Street and the growing threat of a lockdown in New South Wales.

US stocks finished mixed. Iron ore, crude and metals continued to recover from last week’s sell-off.

ASX futures retreated 29 points or 0.4 per cent as the dollar rose and NSW Premier Gladys Berejiklian warned her government would “go further and harder if we have to” with restrictions.  

Wall Street

US stocks sold off at the end of a directionless session clouded by uncertainty over rates and stimulus spending. Record factory activity underlined the case for reducing stimulus and raising rates. Atlanta Federal Reserve President Raphael Bostic said the economy was close to meeting the bank’s benchmark for tapering its bond-buying program.

The S&P 500 erased a slender gain in the final minutes, closing five points or 0.11 per cent lower. The loss was the index’s first this week.

The Dow Jones Industrial Average dipped 71 points or 0.21 per cent. The Nasdaq Composite held onto a gain of 18 points or 0.13 per cent.

The IHS Markit flash manufacturing purchasing managers’ index surged to 62.6 this month, the highest reading in the survey’s 12-year life. Readings above 50 indicate growth. Economists polled by Reuters expected the index to cool to 61.5 from a May reading of 62.1.

While a measure of services activity dropped to 64.8 from 70.4 in May, the result was still the second strongest recorded.  

“Today’s surveys will provide some confirmation for the Fed that the time to begin taking its foot off the accelerator is not far away,” Jai Malhi, global market strategist at JP Morgan Asset Management, told Reuters.

Atlanta Fed President Bostic said the economy was “well on its way to recovery from the pandemic”.

“Much of the data recently has come in stronger than I expected,” he told reporters. “GDP is on a strong trajectory. Inflation is higher and has been well above our target.”

Bond proxies retreated as US treasury yields ticked higher. Utilities sank 1.05 per cent, consumer staples 0.57 per cent and health 0.46 per cent. The yield on ten-year US government treasuries edged up almost two basis points.

Tesla jumped 5.27 per cent as cryptocurrencies stabilised. Bitcoin, which dropped below US$30,000 on Tuesday, firmed above US$33,000. Crypto-stocks such as Riot Blockchain and Coinbase closed higher.

Australian outlook

Sydney’s growing Covid-19 cluster appears to be casting a long cloud. The S&P/ASX 200 declined 44 points or 0.6 per cent yesterday despite positive US leads and gains on regional peers. Today’s US leads are weaker, but not as negative as our futures read implies.

New South Wales looks to be on the brink of another lockdown following yesterday’s surge in new cases. Health authorities reported 16 new locally-acquired infections. Premier Berejiklian told Parliament last night her government “will not hesitate to go further and harder if we have to”, laying the groundwork for tougher restrictions if the outbreak is not contained.  

Travel and tourism stocks will be back under the microscope. Most recorded modest losses yesterday as the threat of a shutdown increased.

Financials and energy stocks were among Wall Street’s best performers overnight, both sectors rising 0.27 per cent. The consumer discretionary sector rose 0.63 per cent, thanks mostly to Tesla.

Bond proxies declined. US materials dropped 0.62 per cent. The tech sector closed modestly lower, down 0.11 per cent.

Endeavour Group is due to list today in one of the biggest IPOs of the year. The drinks business is to be spun out of Woolworths. Woolies shareholders receive one Endeavour share for every WOW share they hold. The group owns Dan Murphy’s, BWS, Cellarmasters and 332 hotels and 1,775 liquor  licensed venues with 12,364 pokie machines.

The dollar continued to heal from its brief dip below 75 US cents, rising 0.29 per cent overnight to 75.76 US cents.

Commodities

A fifth straight weekly decline in US stockpiles helped oil record a new milestone in its post-Covid recovery. Brent crude settled 38 cents or 0.5 per cent ahead at US$75.19 a barrel, its first close above US$75 since October 2018.

“We’re starting to see a supply squeeze,” Phil Flynn, senior market analyst at The Price Futures Group, told MarketWatch after US crude stockpiles declined by eight million barrels last week.

Gold logged its highest finish in a week as the US dollar retreated from two-month highs. Metal for August delivery settled $6 or 0.3 per cent ahead at US$1,783.40 an ounce. The NYSE Arca Gold Bugs Index fell 1.01 per cent.

Iron ore firmed for a second day. The spot price for ore landed in China improved $3.90 or 1.8 per cent to US$216.60 a tonne.

BHP’s US-listed stock edged up 0.48 per cent and its UK-listed stock added 0.87 per cent. Rio Tinto put on 0.73 per cent in the US and 0.77 per cent in the UK.

Industrial metals continued to recover as Fed Chair Jerome Powell talked down the threat of rates rising too fast to contain inflationary pressures. Benchmark copper on the London Metal Exchange firmed 1.9 per cent to US$9,452.50 a tonne. Aluminium gained 0.7 per cent, nickel 1.9 per cent, lead 0.7 per cent and zinc 1 per cent. Tin eased 0.4 per cent.

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