A fierce rebound in the Nasdaq Composite points to a positive start for the ASX and welcome relief for tech investors after weeks of down-pressure.
US growth stocks surged as bond yields declined. The Nasdaq Composite charged out of correction territory, rising 3.7 per cent to its biggest gain in four months.
ASX futures rallied 18 points or 0.27 per cent, hinting at a third straight day of gains for the first time in more than a month. The market has struggled for traction in recent weeks as rising borrowing costs highlighted inflation and valuation concerns, particularly in the high-flying tech sector.
A drop of almost seven basis points in the ten-year year US bond yield to 1.53 per cent from a 13-month high above 1.6 per cent triggered a flurry of bargain-hunting. The Nasdaq Composite jumped 465 points or 3.69 per cent.
“After lagging badly for the last few weeks, growth/momentum stocks are exploding higher as investors grow a bit more comfortable around rates,” Adam Crisafulli, founder of Vital Knowledge, wrote.
The S&P 500 climbed 54 points or 1.42 per cent. The Dow Jones Industrial Average, weighted towards traditional cyclical stocks, gained 30 points or 0.1 per cent.
The tech-heavy Nasdaq had fallen 11 per cent in three weeks as rising borrowing rates weighed on valuations for growth stocks. Overnight, Tesla bounced 19.6 per cent, Apple 4.1 per cent, Facebook 4.1 per cent, Amazon 3.8 per cent and Microsoft 2.8 per cent. The Russell 1000 Growth Index jumped 3.5 per cent, outpacing a 0.1 per cent up-tick in the Value Index.
Yields, which move inversely to bond prices, retreated after bonds hit oversold levels. Michael Sheldon, CIO at RDM Financial, said interest rates had risen “too fast in too little time”.
Monday’s spike in yields was driven by the inflationary implications of President Joe Biden’s US$1.9 trillion coronavirus relief package. The ‘American Rescue Plan’ was narrowly approved by the Senate on the weekend and was this morning due for debate in the House of Representatives. The revised bill is expected to be approved and signed into law this week.
The clouds appear to be lifting after several weeks of bond-driven market turmoil. The S&P/ASX 200 has a shot at a third straight win for the first time since the first week of February. Australian yields retreated yesterday and will likely follow the US lower this session.
The tech sector hit a six-month low yesterday and should rebound this session. Technical traders will be licking their lips over a potential reversal candlestick in yesterday’s chart. Some of the pandemic’s best performers have come a long way back from their peaks. The US tech sector gained 3.4 per cent.
However, there are potential headwinds ahead. The US financial sector slid almost 0.9 per cent. Banks welcome higher rates for the opportunity to increase margins. Energy stocks slid 1.9 per cent.
A potential larger problem is a plunge in the price of iron ore amid tighter weather-related emissions controls in China. The spot price for ore landed in China slumped $10.55 or 6.1 per cent to US$163.60 a tonne yesterday. Spot markets were paralysed by a temporary ban on the heavy trucks used to transport ore in Tangshan, where much of China’s steel is produced.
“It is almost impossible to deliver raw materials from Tangshan ports now due to the limited allowance of trucks,” a source told S&P Global Platts. The Tangshan government has not said when the temporary restrictions will be lifted.
A wildcard today is a speech by Reserve Bank Governor Philip Lowe. The head of the central bank is due to address a business summit on “The Recovery, Investment and Monetary Policy” from 9 am AEDT. Forex and equity traders will parse the speech for clues to policy changes in the wake of the jump in yields.
The dollar rebounded as the greenback responded to the fall in yields. The Aussie climbed 0.81 per cent to 77.18 US cents.
Gold rebounded to its first rise in five sessions as the US dollar and bond yields declined. Metal for April delivery settled $38.90 or 2.3 per cent ahead at US$1,716.90 an ounce. The NYSE Arca Gold Bugs Index bounced 2.7 per cent.
Mining giants BHP and Rio Tinto suffered limited damage from the dive in iron ore. BHP’s US-listed stock eased 0.2 per cent and its UK-listed stock 2.44 per cent. Rio Tinto fell 1.79 per cent in the US and 3.66 per cent in the UK.
Oil declined for a second session ahead of the weekly US inventory update. Brent crude settled 72 cents or 1.1 per cent lower at US$67.52 a barrel.
Copper eased 2.1 per cent to US$4.0085 a pound.