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Shares look set to open little changed following a mixed close on Wall Street as gains in cyclical sectors offset declines in tech stocks.
Australian index futures eased three points or less than 0.1 per cent, suggesting a pause after yesterday’s breathless start to the week. The S&P/ASX 200 surged 105 points or 1.8 per cent yesterday to its highest close in three weeks amid optimism Victoria may have turned a corner in containing COVID-19 and the new corporate earnings season may not be as bad as feared.
The traditional value stocks of the Dow Jones Industrial Average led overnight gains in the US. The 30-stock blue-chip average climbed 358 points or 1.3 per cent as aircraft-builder Boeing, heavy machinery manufacturer Caterpillar and chemical company Dow all gained at least 5 per cent.
The broader S&P 500 edged up nine points or 0.27 per cent. Seven straight gains have lifted the index to within 1 per cent of its pre-pandemic record.
The Nasdaq slipped 43 points or 0.39 per cent as traders rotated out of the big tech stocks that have propelled the market recovery into cyclical stocks that depend more on the health of the economy. Microsoft and Facebook dropped 2 per cent and Netflix 2.3 per cent.
Previous rotations from growth stocks into value have been fleeting, but several commentators speculated that the overnight trend may continue time amid recent evidence that the recovery is gathering pace.
“As the [northern] summer COVID-19 spike wanes, investors are more inclined to view the economic recovery as real,” said James Meyer, chief investment officer at Tower Bridge Advisors in the US, told MarketWatch. “That could mean the recent move toward cyclical stocks is real and sustainable for the first time since the pandemic began.”
Investors awaited fresh developments after President Donald Trump turned up the pressure on Democrats to reach a compromise on a new coronavirus recovery package. On the weekend, Trump unilaterally signed executive orders that restore some benefits that lapsed last month after Congressional Democrats and the White House were unable to agree terms for a replacement US$1 trillion stimulus package. Treasury Secretary Steven Mnuchin said the White House was open to more talks. Senate Democratic Leader Chuck Schumer said he was ready to return to the negotiating table.
Bank and consumer stocks spearheaded yesterday’s Australian rally and performed solidly in the US. The US financial sector gained 0.6 per cent, consumer discretionary 0.7 per cent and consumer staples 0.5 per cent.
Energy was the pick of the sectors, jumping 3.1 per cent after the head of the world’s largest oil company painted an optimistic picture of demand. Brent crude settled 59 cents or 1.3 per cent higher at US$44.99 a barrel. Amin Nasser, CEO of Saudi Aramco, said demand for petrol and diesel in China was “almost back to pre-COVID-19 levels”. He said he was “very positive” about the outlook for the second half of the year.
Fresh tit-for-tat sanctions against US politicians by China helped gold rise for the sixth time in seven sessions. Gold for December delivery settled $11.70 or 0.6 per cent ahead at US$2,039.70 an ounce. Elevated tensions between the superpowers kept a bid under the precious metal despite last week’s late rebound in the US dollar.
Australia’s big miners were boosted by evidence of strong Chinese demand for raw materials. Chinese imports of copper hit a record last month as industrial output neared pre-pandemic levels. That news helped lift benchmark copper on the London Metal Exchange 1.4 per cent off a one-month low to US$6,393.75 a tonne. A mixed night on the LME saw aluminium gain 0.9 per cent, while nickel lost 0.7 per cent, lead 0.9 per cent, zinc 0.4 per cent and tin 0.1 per cent.
BHP’s US-listed stock put on 2.27 per cent and its UK-listed stock 1.13 per cent. Rio Tinto gained 1.08 per cent in the US and 0.5 per cent in the UK. Trade in the spot market for iron ore was suspended for a Singapore public holiday. Spot ore landed in China last traded at US$118.85 a dry ton.
The dollar started the new session 0.01 per cent lower at 71.48 US cents.
The day ahead brings July business confidence figures and full-year earnings from Shopping Centres Australasia and fund manager Challenger.
