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Australian shares were set to open little changed following a downbeat end to a positive week on Wall Street as investors weighed mixed jobs data and surging energy prices.

ASX futures eased four points or less than 0.1 per cent after US stocks closed narrowly lower. New South Wales will today ease lockdown restrictions after passing the 70 per cent double-vaccination milestone last week.

US crude broke above US$80 a barrel for the first time in nearly seven years. Iron ore resumed trade in China with a gain of more than 6 per cent. Gold and natural gas declined.

Wall Street

Wall Street’s main indices faded to slender losses as investors mulled the rates implications of disappointing jobs growth, rising wages and a decline in unemployment.

The S&P 500 dropped eight points or 0.19 per cent. The Dow Jones Industrial Average shed nine points or 0.03 per cent. The Nasdaq Composite gave up 74 points or 0.51 per cent as treasury yields climbed.

A muddled September employment report did little to assist investors hoping for a clear guide to the likelihood the Federal Reserve will announce a timeline to reduce support for the economy at next month’s meeting. The economy created fewer jobs than expected, but wages grew and the jobless rate declined.

The headline number was a big miss: the economy added 194,000 jobs, well short of the 500,000 predicted by economists polled by Reuters. The increase was the weakest in nine months.

However, the unemployment rate fell more than expected to 4.8 per cent, the lowest since 2016. The drop was partly attributed to people leaving the workforce. Average hourly earnings increased by 0.6 per cent, in a sign of growing wage pressure. August jobs growth was revised upwards to 366,000 from an initial reading of 235,000.

While some commentators thought the weak headline number might delay the Fed’s plan to tighten monetary policy, futures trading indicated the market still expects a rate increase by the end of next year. The futures market for the federal funds rate priced in a 100 per cent chance of a rate increase by next December following the report.

“These numbers were not bad enough for the Fed to change course,” Eric Green, Chief Investment Officer of Equity at Penn Capital, told Investing.com.

Treasury yields climbed in a sign bond traders still anticipate tighter monetary policy. The ten-year yield cracked 1.6 per cent for the first time since early June. That in turn, weighed on sectors that benefit from lower rates, including technology and bond surrogates. Energy stocks were among the session’s few winners.

Friday’s setback was not large enough to deny the Dow its biggest weekly gain since June. The blue-chip average added 1.2 per cent last week. The S&P 500 put on 0.8 per cent (its best return since August) and the Nasdaq a skinny 0.1 per cent.

Australian outlook

The local market faces a litmus test of a week. Following a soft run since mid-August, the S&P/ASX 200 showed signs last week of building a base and possibly laying the foundations for a change of direction.

The index climbed more than 100 points over the last two sessions to the top of the down-trending channel that has developed since its August all-time high. The gains came as New South Wales prepared to ease restrictions following more than 100 days in lockdown. A breakout through the top of the channel would attract buying from investors waiting for the current seasonal weakness to pass.

Energy and financials provided Wall Street’s only bright spots on Friday. The energy sector surged 3.12 per cent as West Texas Intermediate briefly moved above US$80 a barrel. The financial sector rallied 0.48 per cent with a rise in treasury yields.

Bond proxies – sectors with some of the same safe, defensive characteristics as bonds – declined. Real estate sank 1.12 per cent, utilities 0.73 per cent and health 0.47 per cent. The materials sector also weakened, falling 0.56 per cent.

Energy prices are emerging as a source of worry for the wider market. Rising prices stoke inflation, increase business costs and drain consumers’ wallets. Natural gas prices hit a 13-year high in the US last week. Crude prices touched their highest in seven years.

Back home, AGM season is well underway. Meetings this week include: Viva Energy (today); CSL, Telstra, Aurizon, iSignthis (Tuesday); Commonwealth Bank, Southern Cross Media (Wednesday); Lovisa, Silex, ARB Corporation (Thursday); and Treasury Wine Estates (Friday).

Thursday’s September employment report is this week’s big-ticket event on the economic calendar. The impact of lockdowns in eastern states are expected to drive a rise in the jobless rate to 4.8 per cent from 4.5 per cent as the economy sheds approximately 135,000 jobs. However, surprises are highly likely after an unexpected decline in the jobless rate last month to a 12-year low.

Also scheduled this week: monthly business confidence, weekly consumer confidence (Tuesday); monthly consumer sentiment, quarterly building activity (Wednesday); and a speech by RBA Deputy Governor Guy Debelle on climate risks (Thursday).

A new US earnings season kicks off on Wednesday with third-quarter reports from JPMorgan Chase and Delta Air Lines. Also reporting this week: BlackRock (Wednesday); Bank of America, Citigroup, Morgan Stanley, Wells Fargo, UnitedHealth, Alcoa (Thursday); and Goldman Sachs (Friday).  

IPOs: there are a few more listings in the pipeline this week following last week’s lull. Recharge Metals, scheduled to list at 2 pm AEDT today, is a copper explorer focussed on three projects in WA.

The rest of the week currently looks like this: Diablo Resources, Minerals 260 and Resilience Mining Mongolia (Tuesday); and Aurum Resources and Eastern Metals (Thursday). Note that listings are frequently subject to delays and cancellations.

The dollar started the week steady at 73.07 US cents.

Commodities

Iron ore ripped higher as Chinese traders restocked following the Golden Week market holiday. The spot price for ore landed in China surged US$7.25 or 6.2 per cent to US$125.05 a tonne.

BHP and Rio Tinto were mixed in overseas trade. BHP’s US-listed stock rose 1.12 per cent and its UK-listed stock added 0.65 per cent. Rio Tinto put on 0.5 per cent in the US after easing 0.43 per cent in the UK.

Oil capped a 5 per cent advance for the week with a fresh seven-year high. The US benchmark, WTI, traded as high as US$80.11 before settling US$1.05 or 1.3 per cent ahead at US$79.35 a barrel. Brent crude settled 44 US cents or 0.5 per cent higher at US$82.39 a barrel. Both measures recorded a seventh straight weekly advance.

“Global crude and natural-gas inventories are tight, and production growth may not be sufficient to meet demand growth,” Marshall Steeves, energy markets analyst at IHS Markit, told MarketWatch.

Natural gas prices backed down from last week’s 13-year peak. November futures declined 11 cents or 2 per cent in the US to US$5.565 per million British thermal units. Prices have more than doubled this year.

Industrial metals rallied after mixed US jobs data depressed the greenback. Benchmark copper on the London Metal Exchange firmed 1.1 per cent to US$9,387.75 a tonne. Aluminium improved 0.6 per cent, nickel 5.3 per cent, lead 2.5 per cent, zinc 3.5 per cent and tin 2.4 per cent.

“The moves have been pretty remarkable today,” Gianclaudio Torlizzi, partner at Italian consultancy T-Commodity, told Reuters. “The market remains very tight on the supply side so it is very vulnerable to what the dollar does. So when the dollar reacted negatively to the payroll data, that gave steam to the metals.”

Gold finished little changed as an early bounce faded. Gold for December delivery settled US$1.80 or 0.1 per cent weaker at US$1,757.40 an ounce. The NYSE Arca Gold Bugs Index gained 0.66 per cent.

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