Risk appetite on the ASX faces an early test as investors weigh bullish index futures against negative developments with the coronavirus pandemic.
ASX SPI200 futures rallied 95 points or 1.6 per cent, signalling a positive start to today's action after solid gains on Wall Street on Friday.
However, the coronavirus worries that depressed buying interest last week appeared to deepen over the weekend. The World Health Organization reported a record daily increase in cases around the globe of 230,270. The US saw a record single day tally of 66,627 new cases as the epicentre of the crisis moved to Florida. President Donald Trump appeared in a face mask in public for the first time.
The S&P/ASX 200 shed 2.3 per cent last week as Melbourne re-entered Stage 3 lockdown and the Victoria-NSW border was closed to slow the spread of the virus. NSW Premier Gladys Berejiklian warned yesterday the state was "at a crossroads" amid growing evidence of community transmission.
The new week brings another headwind in the form of a new US quarterly corporate reporting season. Investors will have a chance to measure current valuations against second-quarter earnings that are expected to be the worst in more than a decade. Around a third of companies have withdrawn financial guidance because of COVID-19 uncertainties, creating an information vacuum that is about to be filled, for better or worse.
"Earnings will be very important, because they’ll provide a dose of reality,” Brad Cornell, professor emeritus of finance at UCLA, told MarketWatch. “They are going to tell us exactly whether a company is on a path that justifies this run-up.”
Positive developments towards treatments for COVID-19 helped Wall Street end the week on an upswing. The S&P 500 rose 33 points or 1.05 per cent after new data showed Gilead Sciences' remdesivir reduced deaths among severely sick patients, and another company said it could have a vaccine ready for approval by December. The Dow put on 369 points or 1.44 per cent. The Nasdaq added 70 points or 0.66 per cent.
Gilead shares climbed 2.2 per cent after it released analysis indicating its drug reduced the risk of death for severely ill patients by 62 per cent. The company said more trials were needed to confirm the findings. The CEO of BioNTech, which has progressed a vaccine candidate with Pfizer to late-stage trials, said vaccine should be ready to submit to regulators by December.
The US rally was led by companies whose outlooks depend on reopening the economy. The S&P 1500 airlines index jumped 6 per cent. Cruiseline Carnival surged 10.8 per cent. Disney gained 2,2 per cent, Hyatt Hotels 2 per cent and an index of casino and gaming companies 2.5 per cent.
The financial sector saw strong gains ahead of this week's earnings reports. The S&P 500 financials index gained 3.5 per cent. The Dow's best performers were JPMorgan Chase +5.5 per cent and Goldman Sachs +4.4 per cent.
The mood towards resource stocks improved as the global trading cycle reached the US. BHP's US-listed stock put on 1.13 per cent after a tepid 0.25 per cent rise in its UK-listed stock. Rio Tinto gained 1.62 per cent in the US and 0.09 per cent in the UK. The spot price for iron ore landed in China was flat at US$107.05 a dry ton.
Copper was the standout in the metals space, sealing its biggest weekly advance in two years. Benchmark copper on the London Metal Exchange climbed 1.9 per cent on Friday to US$6,418.55 a tonne for a weekly rise of more than 6.6 per cent. Aluminium gained 1.4 per cent, nickel 2.1 per cent, lead 0.7 per cent and zinc 1.9 per cent. Tin slid 0.2 per cent.
Oil rose with other risk assets. Brent crude settled 89 cents or 2.1 per cent higher at US$43.24 a barrel for a weekly gain of 1 per cent.
A fifth straight winning week for gold ended on a soft note. Gold for August delivery settled $1.90 or 0.1 per cent lower at US$1,801.90 an ounce. The precious metal gained around 0.7 per cent for the week, extending a run that has carried it to levels last seen in September 2011.
The dollar opened flat at 69.48 US cents.