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Australian shares were poised to open tentatively higher after largely pre-empting a relief rally on Wall Street as US investors “bought the dip” following three days of declines.
ASX futures edged up 11 points or 0.15 per cent. The S&P/ASX 200 surged 63 points yesterday, its strongest gain in almost two weeks. Buyers stepped up as rising US equity futures signalled a looming rebound on Wall Street.
Overnight, the US’s main stock indices put on 1.6-2.4 per cent. European markets also rebounded. Oil, iron ore and copper advanced. Gold eased for a second session.
Wall Street
US stocks bounced back from their worst three-day decline since September as investors temporarily pushed aside omicron worries.
“The market seems to be reacting to a short term oversold position,” Timothy Lesko, principal at Granite Investment Advisors, said. “Omicron and its unknown effect is creating significant volatility. Bonds were overbought, stocks were oversold.”
The S&P 500 bounced 81 points or 1.78 per cent. The Dow Jones Industrial Average gained 561 points or 1.61 per cent. The Nasdaq Composite added 360 points or 2.4 per cent.
The market roared back after Senate Democrats announced plans to vote next month on President Joe Biden’s signature social spending bill despite internal opposition. Senate Majority Leader Chuck Schumer said legislators will consider the Build Back Better Act “very early in the new year”. Biden said there was “still a possibility” the bill will pass.
Stocks skidded on Monday after renegade senator Joe Manchin announced he would not support the US$1.7 trillion package. Manchin’s vote was needed to pass the bill. Goldman Sachs reacted by cutting its GDP forecast for the first quarter of 2022.
“We are going to vote on a revised version of the House-passed Build Back Better Act – and we will keep voting on it until we get something done,” Schumer said.
Investors bought some of the biggest losers over the last week. Cruise line Carnival jumped 8.78 per cent. The S&P 500 airlines index gained 4.96 per cent. The S&P 1500 casinos and gaming index flew up 6.98 per cent.
“What we’re seeing today is a little bit of a buy-the-dip trend,” Sahak Manuelian, head of equity trading at Wedbush Securities, told MarketWatch.
Cyclical sectors led and defensives underperformed. The small-cap Russell 2000 rose 2.53 per cent.
“It is clearly a risk-on day,” David Joy, chief market strategist at Ameriprise Financial, said. “This is clearly, at least for the day, investors saying, ‘You know what, we are going to be able to ride through this Omicron surge and come out the other side in pretty good shape’.”
Australian outlook
Wall Street delivered on yesterday afternoon’s promise of a strong night. The question for Australian investors is whether the ASX has much more to give after front-running the rally. Futures action suggests a little.
The S&P/ASX 200 surged 63 points or 0.86 per cent yesterday. The rally lifted the index back towards the upper range of the downtrend that has developed since the market peaked in mid-August. The index looks to have some room to advance before it hits technical resistance, but a repeat of yesterday’s performance is unlikely.
Trading volumes this week have been modest, but not abnormally low, suggesting institutional traders have yet to log off. Shrinking volumes have been more evident at the speculative end of the market. Volumes on the S&P/ASX Emerging Companies Index have been declining all month.
The energy sector led last night’s US advance, rising 2.89 per cent. Technology gained 2.6 per cent despite a rebound in market rates.
Financials rose 2.01 per cent, industrials 1.96 per cent and materials 1.31 per cent. The night’s only losers were utilities -0.17 per cent and consumer staples -0.11 per cent.
IPOs: another huge day coming up, with four companies set to hit the boards. Atturra at 10.30 am AEDT was formerly known as FTS Group. The company designs and maintains I.T. systems.
DMC Mining at 12 pm is a nickel-copper explorer with projects in WA. Falcon Metals at 2 pm looks for gold in Victoria’s Bendigo region. Infinity Mining at 3 pm explores for gold and rare earths in WA. The listing of Greentech Metals has been pushed back to Friday.
The dollar climbed 0.63 per cent to 71.54 US cents.
Commodities
Oil clawed back much of its two-day loss as the US dollar weakened and traders backed the OPEC oil cartel to manage supply if demand weakens. Brent crude settled US$2.46 or 3.4 per cent ahead at US$73.98 a barrel.
“Bottom line, oil did rip back off of key support in the mid-$60s yesterday and for now, the ‘OPEC+ put’ remains in play,” Tom Essaye, founder of Sevens Report Research, said.
Mining giants BHP and Rio Tinto bounced as iron ore‘s recovery passed 50 per cent in six weeks. Ore futures in Singapore and China both gained at least 4 per cent yesterday.
BHP‘s US-listed stock advanced 2.56 per cent after its UK-listed stock added 2.31 per cent. Rio Tinto tacked on 2.63 per cent in the US and 3.02 per cent in the UK.
Gold fell for a second night as traders favoured assets with better risk exposure. Metal for February delivery settled US$5.90 or 0.3 per cent lower at US$1,788.70 an ounce. The NYSE Arca Gold Bugs Index bounced 0.66 per cent.
A weaker dollar and supply concerns helped lift copper. March copper rallied 5.25 cents or 1.2 per cent to US$4.346 a pound on Comex.
“Fundamentals remain supportive with low inventory and backwardation in place,” a Singapore-based copper analyst told Reuters. “Demand, on the other hand, could receive support from scrap tightness and policy easing in China.”
