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Repairwork from the ASX’s January sell-off looked set to continue after Wall Street rose for a third night as volatility on financial markets subsided.
ASX futures firmed 55 points or 0.8 per cent, signalling the strongest open since Australia Day.
Wall Street’s main indices broke decisively higher in afternoon trade following a see-saw morning. Gold and copper advanced. Oil was mixed. The dollar rallied back above 71 US cents.
Wall Street
The start of a new month restored calm to Wall Street following an explosion of extreme intraday swings in the second half of January. The market built on two days of strong gains ahead of Friday’s employment data and earnings updates from Amazon, Alphabet (Google) and Meta Platforms (Facebook).
The S&P 500 rose 31 points or 0.68 per cent to a third straight advance. The Dow Jones Industrial Average put on 272 points or 0.77 per cent. The Nasdaq Composite gained 106 points or 0.75 per cent.
The VIX or volatility index fell 9.4 per cent to its lowest since January 20 as the main indices shook off early weakness. The market fell after factory data showed inflationary pressures within the manufacturing sector surged last month. The index of prices paid climbed to 76.1 per cent from 68.2 per cent in December.
Manufacturing activity fell to a 14-month low. New orders were the weakest in a year and a half. Stocks hit session lows as treasury yields climbed in response to the report.
“We’re starting February on a traditionally weak note in that it is the second worst month of the year on average for the S&P, posting a minor decline on average and rising only 53% of the time,” Sam Stovall, chief investment strategist at CFRA, said.
“That makes it second worst only to September’s deeper average decline. To make matters worse, February has fallen even more whenever it follows a down January.”
The Federal Reserve rolled out several speakers to soothe concerns about the rates outlook. St Louis Fed President James Bullard talked down the likelihood of a 50 basis points increase next month. San Francisco Fed President Mary Daly said increases would be “gradual and not disruptive”.
Exxon Mobil spearheaded a rise in energy stocks after strong crude prices helped the producer beat revenue expectations. Shares in the firm climbed 6.49 per cent.
Wall Street was coming off its weakest month since March 2020. The S&P 500 shed 5.3 per cent in January as nervous investors prepared for life without central bank stimulus support and record-low rates. The Nasdaq Composite fell almost 9 per cent. Market pricing suggests the Federal Reserve will increase rates at least five times this year.
“This will be the year when Fed will pull back support… the markets will not be on steroids anymore and may go through a phase of detox,” Anu Gaggar, global investment strategist at Commonwealth Financial Network, said.
Australian outlook
Financial markets are slowly returning to something akin to “normal” after last month’s rates tantrum. For investors, “boring” is good and last night’s US action was the dullest in some weeks before a late acceleration.
The S&P/ASX 200 is well off its correction lows and looks set for further healing this session. Wall Street was strong overnight where it matters for the ASX: materials +1.66 per cent, financials +1.42 per cent. If those two heavily-weighted sectors both fire today, the ASX 200 is going higher.
Also strong in the US were energy +3.55 per cent and industrials +1.41 per cent. The defensive utilities and real estate sectors declined.
The improved mood helped lift the dollar 0.83 per cent to 71.27 US cents.
The ASX 200 climbed 34 points or 0.5 per cent yesterday after the RBA effectively ruled out rate increases until much later in the year at the earliest. Reserve Bank Governor Philip Lowe will have a chance to expand on that when he addresses the National Press Club at 12.30 pm AEDT today. The speech and Q&A afterwards will allow Lowe to explain the central bank’s stance on rates, inflation and the economy.
Amcor is scheduled to release half-year earnings this morning.
The pipeline for initial public offerings has dried up: the ASX has no further listings scheduled this week.
Commodities
Oil marked time ahead of tonight’s OPEC+ meeting. Brent crude settled 10 US cents or 0.1 per cent lower at US$89.16 a barrel. The US benchmark edged up five cents or 0.1 per cent to US$88.20.
The oil cartel is expected to stick to its schedule of increasing production steadily month by month. However, there may be pressure from members to hike output to take advantage of prices at seven-year highs.
“While there is a consensus expectation that the group will maintain status quo and extend gradual production increases through March, any comments around their longer-term view can trigger large swings in the market,” Robbie Fraser, global research & analytics manager at Schneider Electric, said.
“Ultimately OPEC+ could again be challenged by individual members cheating quotas — something that is typically a major issue that the group has largely avoided during this round of cuts,” he added.
Gold regained US$1,800 an ounce, rising for a second session as the US dollar weakened. Metal for April delivery settled US$5.10 or 0.3 per cent ahead at US$1,801.50. The NYSE Arca Gold Bugs Index firmed 0.38 per cent.
BHP and Rio Tinto rose in overseas action while Chinese iron ore markets were closed for the Lunar New Year. BHP‘s US-traded depositary receipts firmed 2.19 per cent. Rio Tinto put on 3.94 per cent in the US and 3.18 per cent in the UK. The spot price for ore landed in China last traded at US$141.75 a tonne.
Copper rallied after European factory activity expanded and the US dollar declined, improving prices for holders of other currencies. March copper climbed 2.5 per cent on Comex to US$4.434 a pound.
Benchmark copper on the London Metal Exchange tacked on 2.28 per cent to US$9,723 a tonne. Aluminium added 0.5 per cent, nickel 2.25 per cent and zinc 0.28 per cent. Lead dipped 0.45 per cent and tin 0.97 per cent.
