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Australian shares were set to open sharply higher after positive earnings reports lifted Wall Street to fresh highs.
ASX futures rallied 71 points or 0.97 per cent, signalling a strong rebound from yesterday’s slide. The S&P/ASX 200 skidded 46.5 points or 0.63 per cent yesterday after the Reserve Bank cleared the way to higher rates.
US stocks closed at all-time highs ahead of tonight’s Federal Reserve policy announcement. Commodity markets were mixed. Iron ore tumbled to an 18-month low. LNG bounced almost 7 per cent. Oil and precious metals were subdued.
Wall Street
Corporate earnings continued to support higher prices as the Q3 season delivered more hits than misses. All three major benchmarks set fresh intraday highs and closed at records.
The S&P 500 rose 17 points or 0.37 per cent. The Dow Jones Industrial Average gained 139 points or 0.39 per cent. The Nasdaq Composite added 54 points or 0.34 per cent.
Vaccine-maker Pfizer climbed 4.22 per cent after reporting it will shift US$36 billion in Covid-19 shots this year. Shares in car rental firm Avis Budget more than doubled on a record quarterly profit as demand rebounded during the northern summer.
Sportswear retailer Under Armour jumped 16.33 per cent, Estee Lauder 4.18 per cent and mining and chemicals company DuPont de Nemours 8.83 per cent. Tesla declined 3 per cent after Elon Musk tweeted that the electric car maker had yet to sign a contract with the Hertz rental firm.
Corporate earnings have shown an average increase of more than 40 per cent over the same period last year, according to Refinitiv data. More than 80 per cent of companies that have reported have beaten earnings guidance.
“From a fundamental perspective, there is a strong underpinning for the performance of the broad equity market complex,” Bill Northey, senior investment director at U.S. Bank Wealth Management, told Reuters.
Macro factors will return to the spotlight tonight when the Fed updates its monetary policy. The bank is widely expected to announce plans to scale back the US$120 billion a month bond-buying program introduced to support the economy during the pandemic.
“Today the economy is in a much better footing and with inflation at current levels we don’t need such amount of accommodative policies and a taper in turn will send a signal to the market that the economy is better off,” Michael Sheldon, chief investment officer at RDM Financial Group, said.
Investors will also look for guidance on rates. While the Fed has said there is no direct link between the windback of the asset-buying program and rate hikes, the market has been pricing in increases as soon as next year.
“The key question going into this meeting will be to what extent the Fed pushes back against market pricing, which now suggests the Fed will begin raising rates by the middle of 2022,” Bill Diviney, senior economist at ABN Amro, told MarketWatch.
Australian outlook
A serene night on Wall Street sets up a strong likelihood of a rebound session on the ASX. The S&P/ASX 200 has declined for three of the last four sessions and has plenty of room to play catch-up. The index finished yesterday near a two-and-a-half-week low, while Wall Street cruised to a new high.
A sharp retreat in the dollar overnight should boost exporters. The Aussie dived 1.2 per cent to 74.3 US cents as the greenback firmed ahead of tonight’s Fed policy update.
Materials was the pick of the US sectors, rising 1.1 per cent. However, a sharp drop in iron ore yesterday will be a headwind (more below). BHP and Rio Tinto missed the US rally, falling to 11-month lows.
Growth stocks and bond proxies prospered in the US as treasury yields declined. Real estate put on 0.93 per cent, tech 0.82 per cent and consumer staples 0.69 per cent. Energy stocks fell 1 per cent.
A busy session for economic data brings October construction data at 8.30 am AEDT, followed by September building approvals at 11.30 am and Chinese services-sector activity at 12.45 pm.
AGM season rolls on with meetings today for shareholders in Domino’s Pizza, Worley and Cedar Woods Properties.
IPOs: another double-header today. Austral Resources at 12 pm is a copper producer based in the Queensland Gulf country. C29 Metals at 1 pm is a copper explorer with projects in NSW, SA and WA.
Commodities
BHP and Rio Tinto fell to 11-month lows in overseas trade after iron ore sank below US$100 a tonne. The spot price for ore landed at Tianjin sank US$6.85 or 6.6 per cent to US$96.45 a tonne. Prices traded near US$230 as recently as May and above US$220 in July.
Ore prices have collapsed under Chinese steel production curbs introduced to curb pollution ahead of next year’s Winter Olympics. Handan City in Heibei province ordered steel mills to lower production by between a fifth and 100 per cent for this week. Stocks at Chinese ports have been building as demand weakened.
“Pessimism spread in the whole market today,” a north mill buyer told Argus Media.
BHP‘s US-listed stock dropped 2.57 per cent and its UK-listed stock 2.95 per cent. Rio Tinto shed 2.29 per cent in the US and 2.19 per cent in the UK.
The tremors in iron ore infected industrial metals. Benchmark copper on the London Metal Exchange dropped 2.2 per cent to US$9,770.50 a tonne. Aluminium fell 1.1 per cent, nickel 0.6 per cent, lead 0.5 per cent, zinc 0.7 per cent and tin 1.6 per cent.
“The dramatic drop in iron ore and the upcoming Fed meeting causes a few people to stay side-lined so volumes are pretty thin across base metals,” commodities broker Anna Stablum of Marex Spectron told Reuters. “Sentiment onshore is not great.”
LNG rebounded sharply from Monday’s 4 per cent loss. Natural gas futures in the US bounced 6.9 per cent to US$5.542 per million British thermal units.
Gold retreated as the greenback strengthened ahead of tonight’s Federal Reserve policy statement. Metal for December delivery settled US$6.40 or 0.4 per cent weaker at US$1,789.40 an ounce. The NYSE Arca Gold Bugs Index gave up 0.43 per cent.
Oil marked time ahead of Thursday’s OPEC+ meeting. Brent crude settled one US cent higher at US$84.72 a barrel. The US benchmark eased 14 US cents or 0.2 per cent to US$83.91.
