Join our daily newsletter At The Bell to receive exclusive market insights
The share market has a third day of gains in its sights after US stocks closed sharply higher as the Federal Reserve indicated it will reduce support for the economy “soon”, but not yet.
ASX futures firmed 14 points or 0.19 per cent. The S&P/ASX 200 rallied 23 points or 0.32 per cent yesterday as mining stocks recovered from multi-month lows.
Iron ore and industrial metals rebounded amid signs China’s troubled Evergrande may avoid defaulting on bond payments due today. Oil jumped 2.5 per cent. Gold declined in the wake of the Fed policy update.
Wall Street
US stocks were ahead before the afternoon Fed policy statement and retained most of their gains through a late burst of volatility. The Dow and S&P 500 held on for their best returns in two months.
The Dow Jones Industrial Average added 338 points or 1 per cent. The S&P 500 put on 41 points or 0.95 per cent for its first gain in five sessions. The Nasdaq Composite gained 150 points or 1.02 per cent.
Investors took in their stride signs the Fed may start to reduce its monthly purchases of bonds in November and finish by mid next year. While the bank did not give a timeline, the post-meeting statement said, “If progress continues broadly as expected, the Committee judges that a moderation in the pace of asset purchases may soon be warranted.”
Chair Jerome Powell told reporters the economy had met the central bank’s target for inflation, and “many” committee members felt the target for employment had also been met, clearing the way to tighten monetary policy.
Powell said the committee could “easily move ahead” with the taper at its next meeting in November. He would like to see a “decent” employment report to support the launch, but believed the requirements for starting to reduce support were “all but met”.
He could see the taper concluding around the middle of next year. The central bank has been buying US$120 billion of treasuries and mortgage-backed securities each month since the start of the pandemic crisis.
“While a taper announcement, maybe, is coming in November, that they didn’t do so today just reflects a still uber dovish committee,” Peter Boockvar, chief investment officer at Bleakley Advisory Group, told CNBC.
Markets were soothed by signs a rise in official rates next year is not a done deal. Nine of the 18 members of the Open Market Committee indicated they expect an increase next year, up from seven three months ago.
Sentiment on global markets improved markedly yesterday following reports China’s troubled Evergrande property group will make payments today on mainland bond coupons. China’s central bank pumped extra liquidity into the financial system to help soothe market jitters.
Australian outlook
The mood on financial markets has improved significantly over the last 24 hours. Traders seized on positive signals out of China yesterday, even as questions remained over whether Evergrande can meet all of its debt obligations today. Markets were encouraged by action from the People’s Bank of China to contain any fallout.
The ASX 200 remains deep in the red for the week following its worst fall since February. The index has clawed back roughly a third of Monday’s losses in two sessions, but has plenty of work to do to avoid a third straight losing week.
Energy stocks spearheaded US gains overnight. The US sector jumped 3.17 per cent as crude was lifted by tightening US inventories.
The financial sector was next-best, climbing 1.58 per cent as investors anticipated higher rates as soon as next year. Tech stocks gained 1.4 per cent, materials 1.01 per cent and industrials 0.96 per cent. Defensive utilities was the only clear loser as communication services finished flat.
Preliminary reports on manufacturing and services sector activity are due at 9 am AEST.
IPOs: Revolver Resources lists at 11 am AEST. This copper explorer has projects in Queensland. Iris Metals follows at noon. This Victorian explorer has tenements close to other explorers north of Kalgoorlie, including Genesis Minerals, Metalicity, Carnavale and GTI. The Forrestania Resources IPO originally scheduled for today has been pushed back, new date to be announced.
The dollar firmed 0.18 per cent to 72.41 US cents.
Commodities
Iron ore bounced strongly yesterday after Evergrande announced it had a deal with domestic bondholders over today’s interest payment. The spot price for ore landed in China surged US$13.55 or 14.4 per cent to US$107.55 a tonne.
Industrial metals also bounced sharply. Benchmark copper on the London Metal Exchange rose 3.6 per cent to US$9,301.75 a tonne. Aluminium gained 3.4 per cent, nickel 2.1 per cent, zinc 1.7 per cent and tin 4.5 per cent.
BHP‘s US-listed stock rallied 0.84 per cent and its UK-listed stock 2.15 per cent. Rio Tinto gained 1.87 per cent in the US and 2.85 per cent in the UK.
Oil jumped on news US inventories contracted for a seventh week. Brent crude settled US$1.83 or 2.5 per cent ahead at US$76.19 a barrel.
Gold sank in the wake of the Fed’s rates outlook. Gold for December delivery settled 60 US cents or 0.03 per cent higher at US$1,786 an ounce before the Fed update, but was lately down US$9.80 or 0.55 per cent at US$1,768.40. The NYSE Arca Gold Bugs Index closed flat.
