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A tech-led rally in the US points to a modest opening rise here after a decline in borrowing costs helped investors shrug off political theatre in Washington.
Australian futures edged up seven points or 0.1 per cent as US stocks eked out meagre gains.
Gold climbed as the House of Representatives prepared to vote on impeaching President Donald Trump for an unprecedented second time. Iron ore and oil retreated as the US dollar rose. The Australian dollar retreated further from last week’s two-and-a-half-year peak.
Wall Street
Technology stocks led an unconvincing advance in the US as a retreat in bond yields triggered a switch from cyclical sectors back into debt-dependent growth stocks.
The S&P 500 rose nine points or 0.23 per cent. The tech-heavy Nasdaq Composite gained 57 points or 0.43 per cent. The Dow Jones Industrial Average faded to a loss of eight points or 0.03 per cent.
Bond proxies such as utilities and real estate advanced after the ten-year treasury yield fell more than six basis points. Cyclicals, including energy and materials, declined. Intel was the night’s standout, surging 7 per cent on news CEO Bob Swan will stand down.
The night continued a run of lacklustre sessions this week ahead of several major risk events. President-elect Joe Biden is due to unveil a trillion-dollar stimulus plan tonight. A new quarterly earnings season starts tomorrow with PE ratios at their highest since 2000.
“The market rally has taken a break this week,” Mark Hackett, chief of investment research at Nationwide, told CNBC.
On Capitol Hill, the House was this morning voting on impeaching Trump for “incitement to insurrection” following last week’s invasion of Congress by his supporters. However, commentators said any vote to impeach was destined to fail in the Senate, where it would require a two-thirds majority to pass.
Expectations for economic revival have been dented by the slow pace of the national vaccination program as Covid continues to run rampant. The seven-day average indicates almost a quarter of a million Americans are infected each day. The death toll recently hit a new daily record close to 4,500.
“The market is starting to price in that there are some risks,” David Spika, president of GuideStone Capital Management, told Reuters. “Valuation is pretty extreme, optimism is way too high, we’ve got a disappointing rollout of further vaccine… The expectation is that we’ll have a significant increase in earnings and economic growth in 2021, but both are really dependent on the vaccine.”
Australian outlook
A largely forgettable week for investors looks likely to continue. The S&P/ASX 200 fell through Monday and Tuesday and is roughly 100 points in the red for the week despite a 7.5 point bounce yesterday.
Last night saw a reversal of this week’s big theme: the rotation from growth into cyclical sectors to reflect rising borrowing costs (a bigger negative for companies that need to borrow heavily to fund growth). Overnight, a drop in bond yields triggered a switch back to growth.
The US technology sector climbed 0.7 per cent. The night’s other big risers were utilities +1.9 per cent and real estate +1.4 per cent. Health and consumer staples also advanced. These sectors attract funds when bond yields fall, making riskier alternative investments more attractive.
Cyclical sectors declined. Materials dropped 1.1 per cent, industrials 0.9 per cent and energy 0.8 per cent. The financial sector, which benefits from higher interest rates, dipped 0.15 per cent.
The dollar dropped 0.52 per cent to 77.35 US cents.
Commodities
Gold found support as the House prepared to vote on impeaching Trump. Gold for February delivery settled $10.70 or 0.6 per cent at ahead US$1,854.90 an ounce. The NYSE Arca Gold Bugs Index fell 0.9 per cent.
“The marketplace remains a bit anxious ahead of the inauguration of Joe Biden as the next president, amid extremists’ threats of violence across the US,” Jim Wyckoff, senior analyst at Kitco.com, wrote.
Oil fell for the first time in seven sessions, easing from an 11-month peak as the US dollar rallied and a report showed US stockpiles declined less than expected. Brent crude settled 52 cents or 0.9 per cent lower at US$56.06 a barrel.
Iron ore majors BHP and Rio Tinto declined with the price of ore. BHP’s US-listed stock shed 1.25 per cent and its UK-listed stock 1.37 per cent. Rio Tinto gave up 2.68 per cent in the US and 2.19 per cent in the UK. The spot price for ore landed in China retreated $2.35 or 1.4 per cent to US$169 a tonne.
