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A V-shaped week delivered a second day of gains as Australian stocks surfed strong Wall Street leads back towards record levels.

The S&P/ASX 200 had its highest close in a month within reach after rising 72 points or 1 per cent by mid-session.

At this morning’s peak, the domestic benchmark drew within ten points of last month’s all-time closing high. The rally cemented a remarkable turnaround since Tuesday’s six-week low.

What’s driving the market

Confidence flooded back into equity markets over the last 36 hours as bond yields recovered from five-month lows. Overnight, the yield on ten-year US treasuries climbed almost seven basis points close to 1.3 per cent. Here, the ten-year Australian yield rallied four basis points.

A steady decline in yields since March triggered alarm bells over the outlook for economic growth as the delta variant fuelled a resurgence in Covid cases. Wall Street reached tipping point over the weekend, plunging on Monday to its heaviest loss in nine months.

US stocks recouped the last of those losses overnight as a steady feed of upbeat corporate earnings steadied nerves. The S&P 500 and Dow both put on a little over 0.8 per cent.

Strong earnings have swept away Delta concerns in the US with 85% of companies reporting so far beating expectations. The base case in the US is that the rise in delta infections will not see restrictions tightened and although vaccination rates differ by state, 79.5% of the over 65 years population is now fully vaccinated,” NAB Director, Economics, Tapas Strickland, said.

Covid developments back home were less positive. New South Wales reported 124 new local cases, the highest single-day tally yet of the current outbreak. State Premier Gladys Berejiklian warned she expected case numbers to go even higher, due to the number of infectious people in the community.

Queensland announced it would close its border to all of NSW from tomorrow. Victoria reported 26 new local cases and South Australia two cases. Queensland and WA reported no new cases.

Business conditions reached record levels last quarter before lockdowns began to bite. NAB’s quarterly survey showed conditions improved by 12 points to a record 32 points. Confidence eased fractionally from 19 points to 17, but remained well above long-term averages.

The trade surplus blew out to a record $13.3 billion, thanks to increased exports outweighing an increase in imports.

Going up

The energy sector extended yesterday’s rebound from seven-week lows, rising more than 2.5 per cent following a 4.2 per cent jump in crude prices overnight. Buying interest was stoked by US data indicating strong demand for gasoline.

“Crude oil gained amid broader market gains, while signs of stronger demand boosted sentiment. Concerns of weaker economic growth saw Brent crude under pressure early in the session. But the release of inventory data in the US showed these concerns are unfounded,” Daniel Hynes, commodities strategist at Hynes Commodities, said.

A record quarter lifted Santos 2.97 per cent. Highlights included a 7 per cent increase in domestic gas sales and record sales revenue of US$1.1 billion. The company narrowed its full-year production outlook to the upper range of previous guidance.   

Woodside Petroleum climbed 2.79 per cent, Oil Search 1.86 per cent and Beach Energy 3.51 per cent.

Miners delivered the morning’s biggest gains following a string of upbeat quarterlies. Lithium miner Orocobre surged 11.64 per cent on news production increased by 31 per cent over the same time last year and revenues increased 22 per cent to US$21.6 million.

Prospective merger partner Galaxy jumped 10.25 per cent. The company reported record quarterly production of lithium concentrate at its Mount Cattlin mine and a 17 per cent reduction in costs. Rival Pilbara Minerals jumped 8.79 per cent.

An 89 per cent improvement in mineral sands sales from the first half of last year boosted Iluka shares by 7.01 per cent. Rare earths miner Lynas jumped 7.65 per cent after winning a $14.8 million government grant to commercialise its in-house REE carbonate refining process.

The bulk metal giants shrugged off a drop in iron ore after Chinese authorities ordered steelmakers to rein in production. BHP climbed 2.97 per cent, Rio Tinto 2.1 per cent and Fortescue Metals 0.77 per cent.

Northern Star advanced 3.33 per cent on news Evolution will buy its Kundana operation for $400 million. Proceeds from the sale will be invested in growth projects. The miner also reported quarterly gold sales within guidance. Evolution shares entered a trading halt while the company taps institutional shareholders to fund the acquisition.

Adbri and Senex Energy rallied on news of a long-term gas supply deal. Under the seven-year deal, Senex will supply natural gas for Adbri’s South Australian manufacturing operations at market rates. Adbri shares gained 2.05 per cent. Senex shares added 1.9 per cent.

Newcrest inched up 0.38 per cent after beating the top end of guidance for full-year gold production at its flagship Cadia mine. Gains were contained by a warning gold and copper production will temporarily decline while a mill motor is replaced.

Going down

Bond proxies declined as a rebound in yields lured funds back to the bond market. Goodman Group fell 0.67 per cent, Spark Infrastructure 0.57 per cent, Sonic Healthcare 1.05 per cent and CSL 0.4 per cent.

Inflated expectations saw Z1P Co fall 6.33 per cent despite more than doubling revenues last quarter. The BNPL player increased revenues by 104 per cent year-on-year to $129.9 million. Last month delivered a new high in revenues.

Other markets

A strong morning on Asian markets saw the Asia Dow rise 0.9 per cent and Hong Kong’s Hang Seng 1.62 per cent. China’s Shanghai Composite was more restrained, edging up 0.07 per cent. Trade in Japan was suspended for a public holiday.

S&P 500 futures improved five points or 0.11 per cent.

Oil pared strong overnight gains. Brent crude slipped 27 US cents or 0.37 per cent to US$71.96 a barrel.

Gold dropped US$2.10 or 0.12 per cent to US$1,801.20 an ounce.

The dollar edged up 0.07 per cent to 73.56 US cents.

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