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Aussie shares will shoot for their first gain in three sessions after news of a bipartisan infrastructure deal helped lift the S&P 500 to an all-time high.

ASX futures rallied 51 points or 0.71 per cent, signalling a strong start after two days of downward drift. The S&P/ASX 200 fell 23 points or 0.32 per cent yesterday as the threat of a Covid-19 lockdown in NSW dampened buying interest.

Overnight, oil hit a fresh two-and-a-half-year high. Iron ore, gold and copper retreated. The dollar pushed back towards 76 US cents.

Wall Street

A long-awaited breakthrough in infrastructure negotiations helped propel the S&P 500 to its first record since last week’s Federal Reserve rates-shock wobble. The index climbed 25 points or 0.58 per cent.

The Dow Jones Industrial Average jumped 323 points or 0.95 per cent with industrial giants Caterpillar and Boeing leading the advance. The Nasdaq Composite put on 98 points or 0.69 per cent.

President Joe Biden’s big-spending infrastructure plans had bogged down in partisan politics until last night’s breakthrough. The White House announced overnight it had struck a deal for a US$1.2 trillion bill that includes spending on roads, bridges, clean electricity, water and broadband. The price tag was much smaller than the US$2.3 trillion package floated earlier this year.

“We have a deal,” Biden told reporters. “I think it’s really important we’ve all agreed that none of us got all that we wanted.”

Cyclical stocks that stand to benefit from higher spending and stronger economic growth rallied. Heavy machinery manufacturer Caterpillar rose 2.6 per cent. Deere & Co added 0.83 per cent, Vulcan Materials 3.27 per cent and Vale 1.23 per cent. Aircraft manufacturer Boeing put on 2.87 per cent.

The financial sector rallied 1.21 per cent ahead of the results of Federal Reserve stress tests. Analysts expect the results will allow banks and other lenders to release billions of capital in the form of dividends and buybacks that was previously preserved as a buffer against a Covid downturn that ultimately had limited impact.

Claims for unemployment benefits declined from the previous week, but not by as much as analysts anticipated. First-time claims dropped to 411,000 from 418,000. Economists expected a lower tally around 380,000. A separate report confirmed the economy expanded by 6.4 per cent last quarter, as indicated by preliminary figures.

Australian outlook

The ASX has taken a day or two to absorb the implications of the Bondi Covid cluster and – barring shocking figures today – looks ready to move on. The S&P/ASX 200 has dropped roughly 67 points in two sessions, despite broadly positive overseas leads. Fresh highs in the US look set to change the trend. However, the index would need to put on more than 90 points this session to avoid its first weekly loss in six weeks.

The US financial sector led the overnight rally, rising 1.21 per cent. There were exclusive domestic factors at play (Fed stress tests), so not too much should be read into that.

The energy sector was next best, adding 0.85 per cent as crude continued to make multi-year highs (more below). Industrials – the obvious winner from the White House’s infrastructure deal – gained 0.77 per cent.

The defensive real estate and utilities sectors declined 0.45 and 0.1 per cent, respectively.

Today’s IPO schedule includes Arcadia Minerals, Torque Metals and WAM Strategic Value Ltd, according to latest ASX data.

The dollar climbed 0.16 per cent overnight to 75.85 US cents.

Commodities

Oil touched its highest level since October 2018 as evidence of strong demand offset fears OPEC+ will agree at next week’s meeting to increase output. Brent crude for August delivery settled 37 cents or 0.5 per cent ahead at US$75.56 a barrel.

Mining giants BHP and Rio Tinto shrugged off a dip in iron ore. The spot price for ore landed in China turned lower yesterday for the first time in three sessions, falling $1.70 or 0.8 per cent to US$214.90 a tonne.

BHP’s US-listed stock improved 1.63 per cent and its UK-listed stock gained 1.56 per cent. Rio Tinto tacked on 1.31 per cent in the US and 1.25 per cent in the UK.

Gold gave back the previous session’s gains as traders favoured risk assets over havens. Gold for August delivery settled $6.70 or 0.4 per cent lower at US$1,776.70 an ounce. The NYSE Arca Gold Bugs Index was little changed, down less than 0.1 per cent.

“The current global optimism has caused traders and other mid-term investors to rotate away from defensive values and safe havens to riskier assets, which represents a strong bearish market driver for gold,” Pierre Veyret, technical analyst at ActivTrades, wrote.

Copper logged its first loss of the week as traders weighed mixed signals on US rates and the release of Chinese reserves. US -traded copper on Comex dropped almost 0.5 per cent to US$4.31 a pound.

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