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Wall Street’s best session in 11 years and a Reserve Bank rate meeting this afternoon point to a strong start to Australian trade.
The SPI200 jumped 69 points or 1.1 per cent as US stocks roared higher and commodity markets logged strong gains. The rallies followed signs that central banks and governments are preparing to intervene to shield the global economy from the ravages of the coronavirus epidemic.
Investors waiting to “buy the dip” finally dived in in the US overnight after expectations of a rate cut there hit 100 per cent. The S&P 500 rebounded 136 points or 4.6 per cent following a rare, unscheduled press release from Federal Reserve Chair Jerome Powell at the end of last week, underlining the central bank’s willingness to cushion the economy from the Covid-19 outbreak.
The Dow staged its largest rally since 2009, surging 1,294 points or 5.09 per cent. The points tally was the blue-chip average’s biggest ever. The Nasdaq gained 385 points or 4.49 per cent.
Powell’s intervention came at the end of Wall Street’s worst week since the financial crisis. Stocks entered a technical correction in six short, ugly sessions that included the Dow’s largest single-session points loss. Expectations of central bank action increased after data released over the weekend showed Chinese manufacturing activity plunged to a record low last month as factories closed and workers stayed home.
The head of Japan’s central bank said he will use asset purchases and short-term lending to boost liquidity during the crisis. The Organization for Economic Cooperation and Development called for swift government action to boost the global economy. The G7 group of developed nations scheduled talks tonight to plan a coordinated response.
Australian stocks appeared to pre-empt the overnight rally during a volatile session yesterday when the ASX 200 swung from a 196-point loss to a final deficit of just 50 points. The index hit a nine-and-a-half-month low as it registered a seventh straight loss.
The mood on financial markets started to improve yesterday amid rising expectations that central banks will act to prevent a global recession. The Reserve Bank meets today and is widely expected to announce a cut to the cash rate at 2.30pm EST. As the coronavirus savaged financial markets, the odds on a rate cut of 25 basis points to 0.5 per cent rose from less than 10 per cent at the start of last week to 100 per cent yesterday, according to interbank futures.
All 11 US sectors rose, but the buying retained a defensive bias, with utilities, consumer staples and real estate joining technology among the leaders. The best performers on the Dow were Apple, up 9.3 per cent, Walmart, up 7.6 per cent, and UnitedHealth Group, up 7.1 per cent.
Gains among stocks exposed to Chinese demand were more measured. BHP’s US-listed stock added 2.17 per cent and its UK-listed stock 2.16 per cent. Rio Tinto bounced 3.9 per cent in the US and 3.1 per cent in the UK.
Commodity markets saw strong advances as traders anticipated central bank action. The spot price for iron ore landed in China rebounded $4.95 or 5.9 per cent to US$88.85 a dry ton.
Oil saw its best session of the year ahead of this week’s OPEC meeting, where production cuts are expected to be once again on the table. Brent crude settled $2.23 or 4.5 per cent ahead at US$51.90 a barrel, reversing a portion of last week’s 14 per cent loss.
Copper – the “metal with the degree in economics” – fought back from last week’s technical correction. Benchmark copper on the London Metal Exchange rose 1.2 per cent to US$5,700 a tonne in final open outcry trading. Aluminium recouped 1.4 per cent, nickel 3.7 per cent, zinc 0.1 per cent and tin 2.1 per cent. Lead eased 0.1 per cent.
Gold rebounded from its largest drop in more than six years. Gold for April delivery settled $25.60 or 1.6 per cent ahead at US$1,592.30 an ounce.
The dollar climbed 0.23 per cent to 65.24 US cents.
A busy day ahead for potential market-moving events includes January building approvals, Q2 current account figures and this afternoon’s all-important RBA rate announcement. The G7 is expected to hold a conference call tonight to discuss measures to deal with the virus outbreak.
