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The ASX was set to open near 13-month highs following a third straight record close in the US.

SPI200 index futures inched up six points or 0.1 per cent, signalling a swift reversal of Friday’s four-point setback on the S&P/ASX 200. Futures gains were kept in check by declines in oil and metals.

Wall Street

Buyers stepped in late on Friday’s US session ahead of the start this week of a new corporate profit season. The S&P 500 climbed 32 points or 0.77 per cent to a third consecutive record. Most of the gains came in the last hour as traders shrugged off evidence of simmering inflationary pressures.

The Dow Jones Industrial Average also claimed a new closing  high, rising 297 points or 0.89 per cent. The Nasdaq Composite added 71 points or 0.51 per cent.

Growth stocks outperformed value counterparts as bond markets largely ignored a jump in wholesale prices. The producer price index, which measures wholesale price inflation, spiked 1 per cent last month, more than twice the increase economists expected. Year on year, the PPI increased 4.2 per cent, the largest rise in nine years.  

The yield on ten-year US treasuries climbed as high as 1.675 per cent before fading to a two-week low. The retreat to 1.63 per cent encouraged traders to buy rate-sensitive growth stocks. The Russell 1000 index of growth stocks gained 0.9 per cent, versus a 0.5 per cent rise in the value index.

“Contrary to headlines, rising interest rates, healthy levels of inflation, and an eventual Fed rate hike are not necessarily market negatives,” Larry Adam, chief investment officer at Raymond James, wrote. “In fact, the annualized performance for the S&P 500 has been above average under each of these dynamics as long as economic growth remains robust — which we believe will occur.”

Apple and Amazon gained at least 2 per cent. Amazon was boosted by news warehouse workers in Alabama voted against unionising. Cruise company Carnival advanced 2.6 per cent on broker upgrades.

Volatility has fallen steadily as the market became more comfortable with the prospect of rising borrowing costs. The VIX or Volatility Index fell to a 13-month low on Friday. The Australian measure touched its lowest level since June 2018.

Australian outlook

The local market built up a strong head of steam last week. The S&P/ASX 200 climbed 2.4 per cent in four sessions to its highest level since February 2020. The All Ordinaries went even better, rising 2.8 per cent to within 38 points of last year’s all-time high. A decent week and both indices may see fresh peaks.  

The biggest threat to the exuberant market mood appears to be the stuttering national vaccination program. Share prices reflect expectations that Covid-19 has been contained and the nation is moving towards herd immunity. However, the glacial pace of the rollout may force some economists to reassess their outlooks. Over the weekend, the federal government abandoned its timetable for the program.

A new US reporting season gets underway this week. Analysts expect Q1 earnings to show a huge snapback from last year’s pandemic-affected results. Growth of around 25 per cent is expected across the S&P 500, according to Refinitiv. The season kicks into gear on Wednesday with reports from JPMorgan Chase, Wells Fargo and Goldman Sachs.

Recent strength in the Australian market has encouraged a rush of initial public offerings (IPOs). The week ahead brings five floats, according to exchange data: Delorean Corporation (today); Island Pharmaceuticals (Tuesday); 92 Energy, Iceni Gold (Wednesday); and Black Canyon (Thursday). 

This week’s big-ticket item on the economic calendar is Thursday’s March employment report. JobKeeper wrapped up last month, but the effects are not expected to show in the data for a month or two. Economists predict the jobless rate will decline one or two basis points from the February rate of 5.8 per cent as the economy added around 35,000 jobs. The week ahead also brings business confidence data tomorrow, and consumer sentiment figures on Wednesday. 

A busy overseas schedule includes a slew of Chinese data: trade figures tomorrow, and GDP, manufacturing, retail sales and unemployment on Friday. Wall Street also has a busy week, starting this morning with a ’60 Minutes’ appearance by Federal Reserve Chair Jerome Powell. Inflation figures are due tomorrow night. Powell speaks again on Wednesday night. Thursday brings retail sales and jobless claims.

The dollar rose 0.06 per cent this morning to 76.23 US cents.

Commodities

The US energy sector fell 0.5 per cent as rising Covid cases in India, Brazil and parts of Europe weighed on oil. Brent crude settled 25 cents or 0.4 per cent weaker at US$62.95 a barrel.

“When infections rise in such populous countries such as India and Brazil, that can only mean more trouble for oil demand as to counter the infection surge, restrictions will limit road fuel consumption,” Louise Dickson, oil markets analyst at Rystad Energy, told MarketWatch.

Gold trimmed a positive week as the US dollar strengthened and bond yields temporarily rose. Metal for June delivery settled $13.40 or 0.8 per cent lower at US$1,744.80 an ounce. The decline shaved gold’s gain for the week to 1 per cent.

Mining giants BHP and Rio Tinto retreated in overseas action. BHP’s US-listed stock fell 0.7 per cent and its UK-listed stock 0.88 per cent. Rio Tinto shed 1 per cent in the US and 1.6 per cent in the UK. The spot price for iron ore landed in China edged up 20 cents or 0.1 per cent to US$172.35 a tonne.

A rise in Chinese inflation weighed on demand for industrial metals. Benchmark copper on the London Metal Exchange fell 0.9 per cent to US$8,935.25 a tonne amid concern accelerating Chinese factory gate prices might force the government to tighten monetary policy. Aluminium declined 0.9 per cent, nickel 1.2 per cent, lead 0.2 per cent and zinc 0.9 per cent. Tin rose 0.4 per cent.

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