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Hopes for further rate cuts and positive earnings surprises look set to buoy Australian shares at today’s open despite a soft night on Wall Street.
As US stocks rolled back from record highs, ASX SPI200 index futures edged up three points or less than 0.1 per cent to 7113, suggesting the market should open within a few points of yesterday’s close. Exporters stand to benefit from an overnight dive in the dollar to decade lows, the Aussie lately off 0.85 per cent at 66.18 US cents.
The ASX 200 climbed 18 points or almost 0.3 per cent yesterday to a new record of 7162.5 after soft jobs data firmed the case for rate cuts, and a string of companies from Qantas to LendLease beat earnings expectations. The day ahead brings profit reports from the health and consumer sectors, including Mayne Pharma Group, Monash IVF, Ardent Leisure, Inghams, Adairs and BWX.
US stocks slumped mid-morning before staging a partial recovery as traders struggled to make sense of the latest Covid-19 virus data from China. Additional changes to the way Chinese authorities calculate infections compounded the confusion.
The Dow dived 388 points before trimming its final loss to 128 points or 0.44 per cent. The broader S&P 500 shed 13 points or 0.38 per cent. The Nasdaq gave up 66 points or 0.67 per cent.
Market analysts thrashed around for explanations for the scale of the morning plunge. Some pointed to a Global Times report on 36 new cases in a Beijing hospital that suggested the spread of the virus was accelerating beyond the Hubei province. Others pointed to scepticism over the accuracy of Chinese data after authorities made yet another change to the way they define confirmed cases. Deaths in Iran and South Korea added to concerns that the epidemic remains uncontained. The number of confirmed case in South Korea more than doubled to 82.
The skittish market action suggested plenty of traders have their eyes on the exits after US indices hit fresh highs on Wednesday.
“This market is just moving on momentum and, at this point, it’s priced close to perfection,” Christian Fromhertz, CEO of The Tribeca Trade Group, told CNBC. “At this point, if we start seeing anything negative, it will probably force some people to start taking profits.”
Safe havens, including gold and government bonds, benefitted from down-moves in riskier assets. Gold climbed for a sixth straight session to a seven-year high. Gold for April delivery settled $8.70 or 0.5 per cent ahead at $US1,620.50 an ounce.
The combination of record stock prices and a multi-year high in gold is unusual, since gold is used by many traders as a hedge against weakness in the US dollar and risk assets. Craig Erlam, senior market analyst at Oanda, offered a theory: “The fact gold gains come as stock markets are at, or around, record highs and the dollar index is also at near-three year highs is a little bizarre. The only feasible explanation for gold’s relentless march higher in that situation is the expectation that central banks are going to be forced to pump more liquidity into the system to manage the coronavirus situation.”
Oil climbed to its highest level in more than three weeks after US crude inventories increased by less than analysts expected. Brent crude settled 19 cents or 0.3 per cent ahead at $US59.31 a barrel.
A rise in iron ore yesterday did not translate into gains for the nation’s largest ore miners. BHP’s US-listed stock declined 1.55 per cent and its UK-listed 0.85 stock per cent. Rio Tinto eased 0.26 per cent in the US after edging up 0.19 per cent in the UK. The spot price for iron ore landed in China improved $1.95 or 2.2 per cent to $US91.10 a dry ton.
The coronavirus headlines flipped industrial metals into reverse following an interest rate cut in China yesterday. Benchmark copper on the London Metal Exchange retreated 0.8 per cent to $US5.727 a tonne. Aluminium lost 0.5 per cent, nickel 1.2 per cent and zinc 0.8 per cent. Lead was bid down 0.9 per cent. Tin gained 0.3 per cent.
Besides another heavy schedule of company earnings, the day ahead brings a rash of flash manufacturing and services updates: here at 9 am EST, this evening in Europe and the early hours of tomorrow in the US.
