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The share market was poised for a positive start to the week after strong US economic data and corporate earnings soothed slowdown fears.  

ASX futures rallied 57 points or 0.88 per cent as Wall Street’s main indices closed firmly higher.

Oil climbed back above US$100 a barrel. Copper fell to a 20-month low before bouncing. Iron ore slumped below US$100 a tonne. Gold logged a fifth straight weekly decline.

Wall Street

US stocks broke a five-session losing run as the nascent Q2 corporate earnings season took a turn for the better and retail sales and consumer sentiment data beat expectations. Fed officials continued to downplay the likelihood of a 100 basis point rate hike next week.  

The S&P 500 surged 73 points or 1.92 per cent. The Dow Jones Industrial Average climbed 658 points or 2.15 per cent. The Nasdaq Composite added 201 points or 1.79 per cent.

The financial sector soared 3.51 per cent on strong trading updates from Citigroup and Wells Fargo. Citigroup jumped 13.23 per cent as the bank benefitted from rising interest rates and strong trading. Wells Fargo popped 6.17 per cent as net interest income growth helped offset greater provisions for bad debts and impairments for its equity holdings.

The results helped settle nerves over the second-quarter reporting season following weak forward guidance from JPMorgan Chase and Morgan Stanley on Thursday. The market will hear this week from Goldman Sachs, Bank of America, Tesla, IBM, AmEx, Travelers, Netflix, Twitter and Johnson & Johnson.

Fed officials continued to massage expectations for next week’s policy meeting. Atlanta Fed President Raphael Bostic said raising rates too quickly could harm the economy.

“Moving too dramatically can undermine a lot of those things that are working well,” Bostic said.

“The market is getting a little bit more convinced that the Fed is probably not going to be delivering a full point rate increase at the end of the month and that we’re getting close to seeing peak Fed tightening get priced into the market,” Edward Moya,  senior analyst at OANDA, said.

Falling expectations for a 100bp rate hike allowed the market to embrace upbeat economic data. Retail sales increased a stronger-than-expected 1 per cent last month, the fastest pace in three months. Consumer sentiment came in slightly ahead of consensus.   

Also helping sentiment were strong sales at Amazon’s annual Prime Day sales event. The retailer shifted 300 million items. Amazon’s share price firmed 2.64 per cent.  

“Prime Day results make us incrementally more confident in the strength of the consumer, their willingness to spend post pull forward in COVID demand, and as a result AMZN’s forward topline growth,” Morgan Stanley said.

Friday’s rally trimmed a losing week for the major indices. The Dow lost 0.2 per cent, the S&P 500 almost 0.9 per cent and the Nasdaq 1.6 per cent.

Australian outlook

The S&P/ASX 200 looked set for a bright start to the week after an uptick in sentiment in the US. There was an element of “relief rally” about Friday’s action, following five days of declines. The major US indices have yet to break the downward trends that have dictated direction this year.

However, strong rebounds in Citigroup and Wells Fargo suggested investors were willing to embrace the positives in the kind of mixed trading results the market is likely to see over the next few weeks. The results underlined the tailwind from margin expansion lenders experience under higher rates, partly offsetting the increased risk of bad debts.

US financials jumped 3.51 per cent, setting up the ASX’s big four for strong opens. The Australian financial sector hit a 16-month low last month and has plenty of room for recovery.

All 11 US sectors advanced. A well-received update from UnitedHealth boosted the healthcare sector 2.45 per cent. Energy bounced 1.9 per cent, tech 1.76 per cent and materials 1.62 per cent. Utilities and consumer staples trailled.

Coal miners were last week’s best ASX performers as flooding closed train lines, halting deliveries to Newcastle and driving prices sharply higher. New Hope jumped 16.1 per cent. Whitehaven gained 11.5 per cent. Coronado firmed 10.3 per cent.

CommSec expects the domestic market to recoup most of its FY2022 losses in the year ahead. The broker predicts the ASX 200 will rise 7-9 per cent this fiscal year. That would reverse much of last year’s 10 per cent decline without retesting the 2021 record high.

The outlook for interest rates dominates the economic calendar this week. The minutes from this month’s RBA meeting will be released tomorrow. Deputy Governor Michele Bullock is scheduled to address a business lunch in Brisbane on the same day. Governor Philip Lowe is due to address a business forum in Melbourne on Wednesday.

The rest of the economic calendar looks like this: weekly consumer confidence (Tuesday), skilled vacancies (Wednesday), business confidence (Thursday). and preliminary gauges of manufacturing and services activity (Friday). 

The quarterly reporting season cranks up a gear this week with trading updates from BHP (Tuesday), Beach Energy (Wednesday) and Woodside Energy (Thursday), plus a host of smaller firms. Iluka Resources holds its AGM in Perth on Friday.

IPOs: Sarytogan Graphite lists today at 12 pm AEST. The company will explore for graphite in central Kazakhstan. There is just one other listing pencilled in this week: Chalkos Metals on Wednesday.

The dollar firmed 0.15 per cent this morning to 67.9 US cents.

Commodities

Oil trimmed a losing week amid doubts over whether US President Joe Biden’s visit to Saudi Arabia would bring an increase in production. Saudi Arabia has carefully managed prices higher this year through the OPEC+ oil cartel, largely ignoring calls from the West to ramp up output.

Brent crude settled US$2.06 or 2.1 per cent ahead at US$101.16 a barrel. Brent sagged 5.5 per cent for the week amid fears of demand destruction as western economies slow.

Iron ore skidded below US$100 a tonne after Chinese data underlined the scale of the economic slowdown under dynamic Covid lockdowns. A report on Friday showed the Chinese economy grew an anaemic 0.4 per cent last quarter, well short of expectations.

The most-traded ore contract on the Dalian Commodity Exchange plunged 10 per cent to US$95.32. The spot price for ore landed in China declined US$1.89 or 1.8 per cent to US$103.07 a tonne. For the week, the spot price deteriorated 9.4 per cent.

Copper dropped below US$7,000 a tonne for the first time since November 2020, before recovering. Benchmark copper on the London Metal Exchange fell as low as US$6,955 before bouncing 0.3 per cent to US$7,178.25 a tonne.

“There are still concerns about the property market in China and it’s unclear how the situation will develop in the coming months. A lack of recovery could sustain the bearish sentiment,” Xiao Fu, head of commodity market strategy at Bank of China International, told Reuters.

Aluminium inched up 0.1 per cent, lead 6 per cent, zinc 0.9 per cent and tin 2.3 per cent. Nickel eased 0.1 per cent.

Gold dipped under US$1,700 an ounce before a partial recovery. Gold for August delivery settled US$2.20 or 0.1 per cent lower at US$1,703.60 an ounce after trading as low as US$1,696.60. The NYSE Arca Gold Bugs Index fell 0.54 per cent.

Australian mining giants BHP and Rio Tinto rallied in overseas trade. BHP‘s US-traded depositary receipts firmed 2.14 per cent. The miner’s UK listing added 1.79 per cent. Rio Tinto gained 1.34 per cent in the US and 0.26 per cent in the UK.

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