ASX Today: Strong start as commodities surge

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The share market looked poised to recoup three days of losses following a broadly positive reaction in the US to corporate earnings, inflation data and Federal Reserve plans to reduce support for the economy.

ASX futures rallied 50 points or 0.69 per cent as two of the three major US stock indices advanced. The S&P/ASX 200 has fallen 48 points in three losing sessions this week.

A plunge in the US dollar boosted commodity prices. Gold surged 2 per cent to a one-month high. Copper jumped more than 4 per cent in the US. A fierce rally in uranium stocks continued. Oil and iron ore retreated.

Wall Street

Big Tech led a rally in growth stocks as investors digested a “hot” inflation report, a mixed start to a new reporting season and signs the Fed is ready to taper its asset-buying program. Bond yields and the greenback retreated. Banks declined.

The tech-heavy Nasdaq Composite was the night’s big winner, rising 106 points or 0.73 per cent. The S&P 500 gained 13 points or 0.3 per cent. The “tech-lite” Dow Jones Industrial Average overcame early weakness to finish unchanged.

Long-term interest rates fell after consumer prices increased more than expected last month, increasing pressure on the Fed to reduce support for the economy. The consumer price index rose 0.4 per cent, up from a 0.3 per cent increase in August and above the 0.3 per cent expectation. The year-on-year increase was 5.4 per cent, up from 5.3 per cent in August.

The minutes from last month’s Federal Reserve meeting confirmed the central bank was likely to start unwinding its bond-purchasing program as soon as next month.

“Participants generally assessed that, provided that the economic recovery remained broadly on track, a gradual tapering process that concluded around the middle of next year would likely be appropriate,” the minutes said.

“Participants noted that if a decision to begin tapering purchases occurred at the next meeting, the process of tapering could commence with the monthly purchase calendars beginning in either mid-November or mid-December,” they added.

Financials were the biggest drag on the market following a downbeat reaction to Q3 earnings from JPMorgan Chase. The investment bank’s shares declined 2.38 per cent despite a profit beat.

Delta Air Lines sank 5.76 per cent after warning rising fuel prices will dent this quarter’s result. BlackRock climbed 3.89 per cent after increasing assets under management.

Microsoft, Alphabet and Amazon provided much of the night’s momentum. Growth stocks outperform when interest rates decline.

Australian outlook

Strength on commodity markets and a broadly positive US reaction to risk events point to a positive session here today, provided the mid-morning employment report contains no nasty surprises. There was a lot to digest last night and a lot of moving parts.

Long-term interest rates declined – a plus for growth sectors, such as tech, and for defensive sectors whose investment appeal increases as rates retreat. The night’s best performers in the US included utilities +1.14 per cent, technology +0.57 per cent and real estate +0.55 per cent.

The materials sector climbed 0.75 per cent as a falling greenback made commodities cheaper for holders of other currencies. The financial sector was the night’s only significant loser, falling 0.64 per cent.

The ASX 200 has been in gentle retreat all week, but falls have been minimal. The heavy selling of September seems to have passed. A decent session here today could lift the index into positive territory for the week.   

A wild card today is the September employment report at 11.30 am AEDT. Economists expect the unemployment rate to climb to 4.8 per cent from 4.5 per cent after the economy shed more than 100,000 jobs. But recent reports have been anything but predictable. In August, the jobless rate declined to a 13-year low even as almost 150,000 Australians lost work in lockdown.

China is scheduled to release consumer and producer inflation data an hour later.

AGM season continues with meetings for Silex, ARB corporation and Lovisa.

IPOs: two listings originally scheduled for today have been delayed. Aurum Resources is now slated to debut next Tuesday. A new date for Eastern Metals has yet to be announced.

The dollar was on track for its highest finish in a month after rising 0.54 per cent to 73.73 US cents.

Commodities

Uranium fever swept the ASX yesterday. The rally looks to have further to run following strong gains in exchange traded funds overnight. The Global X Uranium ETF (URA) surged 6.95 per cent in the US to its highest since 2014. The NorthShore Global Uranium Mining ETF (URNM) climbed 7.98 per cent.

Interest in the sector has reignited after both France and Japan outlined plans to include nuclear energy as part of their blueprints for reducing carbon emissions. This week, ten European Union countries asked the EU to classify nuclear power as green energy.

“There is a growing realization among people in the energy industry and those investing in it that the baseload (always available) feature of nuclear power — as well as the fact it delivers carbon free electricity — makes it an important component of the world’s carbon neutral goals,” Michael Alkin, founder of Sachem Cove Special Opportunity Fund, told Bloomberg.

Iron ore retreated after China reportedly asked steel mills in 28 northern cities to reduce production until mid-March. The order was part of the government’s plan to clear pollution ahead of the Winter Olympics. The spot price for ore landed in China declined US$4.90 or 3.8 per cent to US$123.60 a tonne.

BHP‘s US-listed stock fell 0.59 per cent and its UK-listed stock lost 1.49 per cent. Rio Tinto shed 0.35 per cent in the US and 1.5 per cent in the UK.

Gold  jumped to its highest close in around a month as the greenback and yields responded to rising inflation in the US. Gold for December delivery settled US$35.40 or 2 per cent higher at US$1,794.70 an ounce. The NYSE Arca Gold Bugs Index rose 3.4 per cent.

“Gold’s role as an inflation hedge has moved back to the forefront,” Colin Cieszynski, chief market strategist at SIA Wealth Management, told MarketWatch.

US crude eased for the first time in five sessions, pulling back from a seven-year high. West Texas Intermediate slipped 20 US cents or 0.3 per cent to settle at US$80.44 a barrel. Brent crude settled 24 US cents or 0.3 per cent weaker at US$83.18 a barrel.

Copper and zinc surged as favourable currency moves encouraged overseas buyers. US-traded copper jumped 4.4 per cent to US$4.516 a pound on Comex, the highest since July. Benchmark copper on the London Metal Exchange climbed 2.5 per cent to US$9,759.50 a tonne. Zinc jumped 5 per cent and lead 2.5 per cent. Tin and aluminium finished flat. Nickel declined 0.3 per cent.