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Wall Street’s best session in a fortnight points to further gains for Australian shares as the market looks to build on three straight weekly advances.
Gains in battered growth stocks helped Wall Street rebound on Friday. The major indices snapped a three-session losing run.
Iron ore rallied ahead of this week’s Lunar New Year holiday in China. Copper, aluminium, tin, gold and oil also advanced. The dollar started the week steady, trading near 69.6 US cents this morning.
The S&P/ASX 200 will open 34 points or 0.46 per cent higher today, according to futures action. The Australian benchmark rallied 0.23 per cent on Friday to its highest close since April.
Wall Street
US stocks ended the week on a strong note after Netflix added more subscribers than expected and investors continued to reward companies announcing layoffs.
The S&P 500 bounced 74 points or 1.89 per cent. The Dow Jones Industrial Average gained 331 points or 1 per cent. The Nasdaq Composite soared 288 points or 2.66 per cent.
Friday’s rally sealed a third straight winning week for the Nasdaq. The tech index gained 0.55 per cent.
The Dow and S&P 500 trimmed their first weekly losses of 2023. The Dow gave up 2.7 per cent and the S&P 500 lost 0.66 per cent.
“Today’s action is probably because we had three down days so it got into a little bit of an oversold position and they are just doing a little bit of bargain hunting today,” Ken Polcari, managing partner at Kace Capital Advisors, told Reuters.
Netflix was the session standout, rising 8.46 per cent after gaining 7.7 million new subscribers last quarter. Founder Reed Hastings announced he will move to executive chair.
Google’s parent company Alphabet surged 5.34 per cent after unveiling plans to cut 12,000 jobs. The layoffs follow similar announcements in recent weeks from Microsoft, Amazon and Intel.
The Dow was held back by a 2.54 per cent decline in Goldman Sachs following reports of a Federal Reserve investigation into monitoring and controls at the firm’s consumer business.
Friday’s rally drew strength from dovish comments by Fed policymaker Christopher Waller. Governor Waller backed a quarter-point rate hike next week and said interest rates were “pretty close” to being “sufficiently restrictive” to cool inflation. Stocks fell earlier in the week as a succession of Fed board members suggested rates would have to rise above 5 per cent this year.
Also weighing last week was evidence the economy was slowing quickly while central bank officials argued for more rate hikes. A report on Friday showed home sales declined 1.5 per cent last month. Sales have fallen for 11 months, the longest losing run since the gauge was established in 1999.
“Tumbling home prices are on a collision course with consumer confidence and it won’t be long now before the consumer cuts back their spending like they have before in every other economic recession in history because of the wealth-effect,” Chris Rupkey, chief economist at FWDBONDS, said.
“The Fed’s aggressive rate hikes may have gone too far already if home prices are the relevant indicator. Falling home prices are the one factor that can turn a short and shallow recession into a long and deep recession in a hurry. Bet on it.”
Australian outlook
The ASX looks set to climb closer to an all-time high following a rebound session in the US. The S&P/ASX 200 has had its best start to the year in more than a decade, according to CommSec. The market has risen for three straight weeks and is fast closing on its 2021 peak.
Friday’s 17-point rise extended the index’s gain for 2023 to 5.9 per cent and brought it within 2.4 per cent of a record.
Whether the rally continues during this holiday-shortened week will depend to some degree on the reaction to Wednesday’s inflation data. Recent economic reports have stoked hopes for a rates pause in the not-too-distant future. For that to happen when the Reserve Bank meets in two weeks, the bank needs evidence that inflation is cooling.
Economists expect ABS data to show both headline and core inflation eased to 1.6 per cent last quarter from 1.8 per cent the previous quarter. However, year-on-year growth in consumer prices is predicted to rise to a possible top of 7.5 per cent from 7.3 per cent in November.
Wall Street also has inflation data this week, but not until Friday night when the Australian trading week is done and dusted. US reports this week that could affect Australian trade include preliminary measures of manufacturing and services activity (Tuesday) and advance GDP data, durable goods orders and unemployment claims (Thursday).
Also on the domestic economic calendar this week: business confidence, consumer confidence and preliminary measures of factory and services-sector activity (Tuesday); and quarterly producer prices and import prices (Friday).
Growth sectors spearheaded Friday’s US gains. Communication services (Netflix, Google) jumped 3.96 per cent, tech 2.72 per cent and consumer discretionary (Amazon) 2.46 per cent.
The materials sector put on 2.05 per cent, financials 1.65 per cent and industrials 1.4 per cent. Defensive sectors such as health and utilities trailled with gains of less than 0.6 per cent.
Interim reports are due here this week from Australian Foundation Investment (today), AMCIL and Camplify (Tuesday) and Duke Exploration and Champion Iron (Friday) (source: First Advisers).
The quarterly reporting season hots up this week on both sides of the Pacific. The week ahead here includes updates from Sandfire and Evolution Mining (Tuesday) and Newcrest and Woodside Energy (Wednesday). Wall Street has trading updates from Microsoft (Tuesday), IBM, Tesla (Wednesday) and Intel, Visa and Mastercard (Thursday).
The week-long Lunar New Year holiday in China now underway is likely to cast a long shadow, particularly over commodity markets. Trade on the Shanghai stock market is suspended all week.
Here, Thursday’s Australia Day public holiday will affect participation both before and especially after, with some traders likely to take a long weekend.
The dollar started the week little changed, edging up 0.02 per cent this morning to 69.62 US cents.
Lithium miners were the best and worst performers on the index last week in a possible sign investors are becoming more discriminating about the hottest sector in recent years. Pilbara Minerals jumped 14 per cent for the week following a well-received quarterly on Friday. Liontown Resources tanked 11.9 per cent after warning costs had blown out at its Kathleen Valley site.
Further evidence that investors are becoming more discerning? Sayona Mining gained 10.9 per cent for the week. Core Lithium shed 7 per cent.
IPOs: new listings have dried up again. At this stage, the only debutant this week is High-Tech Metals at 1.30 pm AEDT today (ASX code: HTM). The company was formed to acquire the Werner Lake cobalt project in Canada.
Mirrabooka Investments trades ex-dividend on Tuesday.
Commodities
Bulk and industrial metals rallied on the last session before the week-long Lunar New Year holiday in China. Health authorities in Beijing said the reopening Covid wave seemed to have subsided, soothing worries about the spread of the virus as millions of Chinese travel for the holiday.
The most-traded iron ore on China’s Dalian Commodity Exchange ended day-time trade 1.8 per cent ahead at 865.0 yuan (US$127.51) a tonne. Prices lost around 1.6 per cent for the week following early pressure after China’s state planner warned of a crackdown on speculators.
BHP‘s US-traded depositary receipts firmed 0.84 per cent, mirroring an earlier gain of 0.87 per cent in UK trade. Rio Tinto advanced 1.37 per cent in the US and 1.01 per cent in the UK.
Copper added to its 11 per cent rise for the month amid optimism about Chinese demand after the government’s pivot back to growth-friendly policy. Benchmark copper on the London Metal Exchange climbed 0.2 per cent to US$9,324 a tonne.
Aluminium rose 0.89 per cent and tin 2.56 per cent on the LME. Nickel dropped 1.96 per cent, lead 2.5 per cent and zinc 1.07 per cent.
Oil rose for a second week, supported by China reopening and sanctions on Russian energy. Brent crude settled US$1.47 or 1.7 per cent ahead on Friday at US$87.63 a barrel. The advance extended Brent’s tally for the week to 2.8 per cent.
The rally in crude may slow this week without Chinese buyers, according to Barbara Lambrecht, commodity analyst at Commerzbank.
“As China embarks on a week of New Year festivities, there will also be no positive impetus from this direction, meaning that prices are likely to trend sideways,” she said.
Gold ended a fifth straight winning week near a nine-month high. Gold for February delivery settled US$4.30 or 0.2 per cent higher at US$1,928.20 an ounce. The NYSE Arca Gold Bugs Index rose 1.5 per cent.
Battery metal miners rallied strongly at the end of the week. The Global X Lithium & Battery Tech ETF rebounded 3.17 per cent to a five-week high, reversing four days of losses on the New York Stock Exchange. The VanEck Rare Earth/Strategic Metals ETF per cent climbed 3.27 per cent.
