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The share market’s strong start to the month looked set to continue following Wall Street’s best night in nine months. ¬†

US stocks roared higher as positive vaccine news, progress on stimulus and stability in bond markets brought buyers back. A broad rally lifted the three major indices between 1.95 and 3 per cent.

ASX futures advanced 60 points or 0.9 per cent. The S&P/ASX 200 rebounded 116 points or 1.74 per cent yesterday from three weeks of steady decline.

Copper edged higher overnight. Oil wilted ahead of possible production increases. Iron ore retreated. Gold declined for a fifth session. The dollar climbed towards 78 US  cents.

Wall Street

After a week of extreme divergences, Wall Street’s main indices rose in unison. Value stocks were lifted by stimulus and vaccine news. Growth stocks rebounded as volatile bond yields appeared to settle down below last week’s peak.   

The S&P 500 put on 91 points or 2.38 per cent. All 11 sectors advanced, led by financials and technology. The advance was the index’s strongest since early June last year.

The Dow Jones Industrial Average rallied 603 points or 1.95 per cent. The Nasdaq Composite bounced back from last week’s 4.9 per cent plunge with a rally of 396 points or 3.01 per cent.

Re-opening plays advanced after President’s Joe Biden’s $1.9 trillion American Rescue Plan was approved by the House of Representatives on Saturday. The bill now moves to the Senate. Financials, airlines and cruise lines were among the movers. Disney gained 3.1 per cent. Planemaker Boeing jumped 5.8 per cent after United Airlines ordered 25 737 MAX aircraft.  

Johnson & Johnson added 0.5 per cent as it despatched the first shipments of its single-shot Covid vaccine. A Centers for Disease Control and Prevention advisory panel signed off on the vaccine on Sunday, the third to gain US regulatory approval.  

Growth stocks were boosted by a pause in a breakneck rally in bond yields. Yields on ten-year US treasuries were this morning trading below 1.44 per cent after running as high as 1.61 per cent last week.

“With a lot of the move in yields due to the improving growth outlook and reopening prospects, risk appetite is holding up,” Esty Dwek, Head of Global Strategy at Natixis Investment Managers Solutions, said. “In addition, the pace and scale of the move in yields is more important than the absolute level, suggesting that as long as the move is gradual, risk assets should be able to absorb them.”

He added, “For now, equity markets are showing a rotation within and not out of the asset class.”

Australian outlook

Is it safe to go back in the water? Certainly looks that way. Wall Street’s yield tantrum seems to have passed as suddenly as it flared up. A dip in the ten-year rate helped sentiment early in the session, but the rally kept going even as yields crept higher.

The S&P/ASX 200 bounced hard yesterday after the Reserve Bank signalled it will not surrender control of borrowing rates to the market. The central bank brought out the big guns, buying $4 billion worth of bonds and helping drive Australian yields down more than 30 basis points, according to Bloomberg. That helped lift the domestic share benchmark 116 points. There should be more in that rally today.

The RBA will be front and centre again when it releases its latest policy update this afternoon. While no changes are expected to the cash rate, the accompanying commentary will be closely scanned for the bank’s latest views on inflation.

US sectors were all green. Gains ranged from 0.2 per cent (real estate) to 3.2 per cent (technology). Cyclical sectors filled most of the top slots: financials +3.1 per cent, energy +2.6 per cent, industrials +2.5 per cent, materials +2.5 per cent.

The dollar was helped by the switch back to “risk on”, rising 0.26 per cent to 77.72 US cents.

Commodities

Oil retreated ahead of a meeting this week of the OPEC+ oil cartel where production caps are expected to be loosened. Brent crude settled 73 cents or 1.1 per cent lower at US$63.69 a barrel.

Gold‘s wretched run stretched into a fifth night as traders favoured assets with more exposure to the improving economic outlook. Metal for April delivery retreated $5.80 or 0.3 per cent to settle at US$1,723 an ounce. Copper edged up 0.5 per cent to US$4.113 a pound.

BHP’s US-listed stock gained 3.75 per cent and its UK-listed stock 1.92 per cent. Rio Tinto added 2.77 per cent in the US and 1.87 per cent in the UK. The spot price for iron ore landed in China improved $2.30 or 1.3 per cent to US$174.35 a tonne.

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