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Shares looked set to open little changed as inflation concerns continued to die down, boosting Wall Street.
ASX futures advanced three points or 0.04 per cent as US stocks closed modestly higher on diminished volume ahead of the Memorial Day long weekend. The S&P/ASX 200 fell 23 points yesterday to its first loss in five sessions.
Overnight, gold settled above US$1,900. Copper was boosted by a strike in Chile. Oil inched higher. Iron ore was unchanged.
Wall Street
Reopening stocks led the advance as US stocks continued to heal from their latest inflation tantrum. The S&P 500 rose eight points or 0.19 per cent to within 1 per cent of a record.
The Dow Jones Industrial Average edged up 11 points or 0.03 per cent. The Nasdaq Composite put on 81 points or 0.59 per cent.
Four days of declining bond yields relieved pressure on growth stocks whose future earnings get discounted by analysts when yields strengthen. Tesla climbed 2.39 per cent, Alphabet 0.74 per cent and Amazon 0.19 per cent. Overnight, the ten-year US treasury yield traded below 1.56 per cent before rising to 1.58 per cent.
“The main thing I am looking at always is still the bond yields, that seems to be the driver. If we are still below 1.6%, that looks pretty good to me,” Joe Saluzzi, co-manager of trading at Themis Trading, told Reuters. “Until I see those bond yields pick up significantly, I think you are kind of buying right now,” he added.
Federal Reserve officials have lined up this week to talk down the threat from inflation. The central bank’s official line is that it expects a brief burst of inflation this year as the economy accelerates, followed by a gradual easing.
Overnight, Fed Vice Chair Randal Quarles said, “The best analysis we currently have is that the rise in inflation to well above our target will be temporary… If we’re wrong, we know how to bring inflation down.”
Companies whose earnings are tied to a strengthening economy performed well as US Covid cases ease and vaccination rates increase. Covid infection rates have fallen to their lowest in 11 months. Half of all Americans have received at least one shot.
The S&P 1500 airlines index climbed 1.77 per cent. Cruise companies Carnival and Royal Caribbean gained at least 2.8 per cent. Royal Caribbean has put on more than 10 per cent this week as the outlook improved.
Cryptocurrencies continued to recover from last week’s lows. Bitcoin, which crashed 31 per cent last Wednesday to US$30,445, traded above US$40,000 overnight. The digital token was last up 2.82 per cent at US$38,702. Ethereum climbed more than 9 per cent.
Trading volumes declined ahead of a long weekend. Wall Street closes on Monday for Memorial Day. Trade in the S&P 500 ETF was less than half the 30-0day average, according to CNBC.
Australian outlook
Bond traders appear to have come around to the Fed/RBA view that this year’s surge in inflation will be temporary. Why does that matter? The simplistic version would be something like: bond yields reflect the cost of borrowing, and increased costs are bad for corporate earnings. Yields are also important for how analysts value future earnings and arrive at valuations for companies.
The Australian ten-year yield fell to a three-week low yesterday and was this morning down more than a basis point at 1.625 per cent.
ASX buying interest was depressed yesterday by a jump in Melbourne’s Covid cluster. All eyes will be on this morning’s numbers after Acting Premier James Merlino said yesterday the next 24 hours would be “critical”. That sounded like code for “tougher restrictions coming unless we get this under control”.
Trading volumes have tailed off in the US this week ahead of a three-day weekend. Since a lot of the active funds on the ASX are American, we may see a similar decline here for the next few sessions.
Energy was the best of the US sectors, rising 0.93 per cent. Consumer discretionary gained 0.9 per cent, industrials 0.34 per cent, financials 0.33 per cent and materials 0.05 per cent. Health and consumer staples declined.
Quarterly private capital expenditure figures – another input for GDP calculations – are due at 11.30 am AEST. The delayed Flynn Gold IPO was rescheduled for today.
The dollar eased 0.11 per cent overnight to 77.41 US cents.
Commodities
BHP shares shrugged off news workers at its Escondida and Spence copper mines in Chile were expected to walk off the job tonight after the union rejected a contract offer. BHP’s US stock rose 0.76 per cent. Its UK stock gained 0.6 per cent.
The strike news helped lift benchmark copper on the London Metal Exchange 0.6 per cent to US$9,961.25 a tonne. Escondida is the world’s largest copper mine, according to Reuters. Aluminium rallied 1.3 per cent, nickel 1.5 per cent and lead 0.8 per cent. Zinc declined 0.6 per cent and tin 1.8 per cent.
Rio Tinto put on 0.86 per cent in the US and 0.15 per cent in the UK. The spot price for iron ore landed in China was flat yesterday at US$191.65 a tonne.
Gold settled above US$1,900 an ounce for the first time since early January. Metal for June delivery edged up $3.20 or 0.2 per cent to US$1,901.20 an ounce. The NYSE Arca Gold Bugs Index dipped 0.1 per cent.
A decline in US inventories helped oil advance. Brent crude settled 24 cents or 0.4 per cent ahead at US$68.73 a barrel. The US Energy Information Administration reported US inventories dropped by 1.7 million barrels last week.
