The share market’s three-session winning run faces early pressure as investors weigh fresh highs on Wall Street, a mixed night on commodity markets and a rising dollar.
ASX futures eased 11 points or 0.15 per cent ahead of data on business spending, and earning updates from Woolworths, Qantas and Appen.
The dollar continued its climb towards 73 US cents. Iron ore edged higher for a second day. Gold and copper retreated. Oil settled at a three-week high.
US stocks rose for a fifth night as rising lending rates lifted the financial sector and so-called “reopening” stocks.
The S&P 500 rallied ten points or 0.15 per cent to a record close. Strength in chipmakers lifted the Nasdaq Composite 22 points or 0.15 per cent, also ending at a record. The Dow Jones Industrial Average put on 39 points or 0.11 per cent.
The financial sector led the advance, rising 1.21 per cent as long-term treasury yields moved firmly back above 1.3 per cent. Higher interest rates increase margin opportunities for lenders. JPMorgan Chase gained 2.06 per cent, Wells Fargo 1.92 per cent and Bank of America 1.62 per cent.
US yields wilted last week as investors fretted that the spread of the Covid delta variant threatened to undermine this year’s economic recovery. The market mood improved after China announced zero new Covid cases and US data suggested infection rates were slowing.
“The cadence of incoming data has improved in the past few days, the most notable being the apexing of COVID-19 cases in a number of states,” Fundstrat’s Tom Lee said.
“We realize equity markets have been choppy and the wide variance of perspective means investors do not have an easy consensus. But our central case remains that we are shifting further into full risk-on, with an ‘everything rallies’ into” year-end, he added
Energy stocks, transport companies, small caps and other sectors that depend most on a strong economy advanced. The S&P Energy sector was the night’s second-best performer with a rise of 0.72 per cent. The Dow Jones Transportation Average put on 0.7 per cent. The Russell 2000 index of small caps added 0.37 per cent.
Investors showed minimal concern about the Jackson Hole economic symposium, which gets underway tonight. Federal Reserve Chair Jerome Powell is due to deliver a virtual address tomorrow.
“Positive news on vaccination approvals, and expectations that the Fed won’t shock markets at Jackson Hole, are helping to keep equity prices higher,” David Carter, chief investment officer at Lenox Wealth Advisors, told Reuters. Carter added his “expectation is that Fed won’t scare markets, and will announce only a cautious tapering.”
A hesitant start coming up after three days of gains. Banks did the heavy lifting in the US, but look less likely to provide momentum here as lockdowns keep a lid on Australian yields. The yield on ten-year Australian government bonds was last up less than a basis point, compared to a five-basis-point improvement in the US.
The steady advance of the dollar is another headwind. The Aussie climbed 0.37 per cent overnight to 72.75 US cents and is now almost two cents off last week’s nine-month low. A strong dollar is broadly negative for our export-driven economy.
Covid case numbers in NSW hit a fresh peak yesterday. Numbers in Victoria and the ACT remain stubbornly high.
The threat of a second recession in two years rose yesterday with weak construction figures. Private-capital expenditure data today at 11.30 am AEST are another key input into next week’s GDP report. A bad result today would put the cat among the pigeons. However, a negative Q2 GDP result would pressure the Reserve Bank to delay its bond “taper”, and might therefore not necessarily be seen as market-negative.
Earnings season has been choppy. Today brings updates from Woolworths, Qantas, Appen, Ardent Leisure, Link Administration, Polynovo, Whitehaven Coal, A2 Milk, Cromwell Property, IOOF, Blackmores and Ramsay Health Care (source: CommSec).
The S&P/ASX 200 has risen all week, but recouped less than half of last week’s loss, underlining the old adage about the market taking the stairs up and the elevator down. The index put on 0.4 per cent yesterday as the big miners rebounded.
BHP and Rio Tinto extended their recoveries on overseas markets as iron ore inched higher. The spot price for ore landed in China rose 85 US cents or 0.6 per cent to US$149.45 a tonne.
BHP’s US-listed stock rallied 0.92 per cent and its UK-listed stock 1.36 per cent. Rio Tinto gained 0.41 per cent in the US and 0.22 per cent in the UK.
A decline in US inventories helped oil extend this week’s winning run. Brent crude settled US$1.20 or 1.7 per cent ahead at US$72.25 a barrel, its highest finish since August 3.
Gold wilted in the face of improving risk appetite and rising bond yields. Metal for December delivery settled US$17.50 or 1 per cent lower at US$1,791 an ounce. The NYSE Arca Gold Bugs Index declined 1.61 per cent.
Copper retreated as caution set in ahead of the Jackson Hole symposium. Benchmark copper on the London Metal Exchange dipped 0.2 per cent to US$9,362.50 a tonne. Aluminium advanced 0.3 per cent, nickel 0.6 per cent, lead 0.7 per cent, zinc 0.2 per cent and tin 0.7 per cent.