ASX Today: Early strength as US stocks rebound

Aussie shares are poised to rise for the first time in four sessions after Wall Street broke its longest losing run since October and key commodities rallied.

The S&P/ASX 200 will open 33 points or 0.46 per cent higher this morning, according to futures moves. 

Growth stocks spearheaded the S&P 500’s first advance in six sessions. Iron ore and copper rose on hopes of increased demand as China loosens Covid restrictions.

Gold edged back above US$1,800 an ounce. Oil hit a fresh 2022 low. The dollar pushed back towards 68 US cents.

Wall Street

US stocks rebounded as an increase in claims for unemployment benefits sharpened hopes for a smaller interest rate hike when the Federal Reserve meets next week.

The S&P 500 bounced 30 points or 0.75 per cent. The Dow Jones Industrial Average gained 184 points or 0.55 per cent. The Nasdaq Composite added 123 points or 1.13 per cent.

The number of Americans collecting jobless benefits rose to the highest since February in what some commentators saw as an indication of a slowing economy. Continuing claims increased by 62,000 last week to 1.67 million. First-time claims for benefits inched up by 4,000 to 230,000.

Investors interpreted the news as market-positive because interest rates may not need to go as high to reduce consumption and bring down inflation.

“Again, we’re back to bad news being good news,” Quincy Krosby, chief global strategist at LPL Financial, said. “We had a strong selloff over the last few days and it doesn’t take much to create even the underpinnings for a modest rally.”

Stocks have struggled since a report last Friday showed the economy created more jobs than expected last month, putting upward pressure on wages. Hourly pay increased by 0.6 per cent for the month.

The report helped dash hopes for a “Santa rally” this year. The S&P 500 has fallen 3.6 per cent since the start of the month.

“Markets are looking like they’ve got a little window here for a relief rally before next week’s [consumer inflation] data, since we were oversold here,” Dennis Dick, market structure analyst and trader at Triple D Trading, told Reuters.

“You’re just starting to see a few people coming in buying the dip.”

The Federal Open Market Committee gathers next week for the last meeting of a year that has seen benchmark rates climb 375 basis points. The aggressive pace of this year’s hikes has some economists predicting a recession next year.

“The number of Americans receiving unemployment benefits is surging which pushes the odds of recession over the 50% threshold,” Chris Rupkey, chief economist at FWDBONDS, said.

“This is what a recession looks like in the early stages and it is hard to know what could bring the economy back from the brink with the Federal Reserve widely expected to tighten up the noose around the economy’s neck 50 bps further at the December meeting next week.”

“Rising unemployment means it would take a miracle to stop an economic downturn from coming,” he added.

Australian outlook

Relief on the horizon at the end of a challenging week when investors faced up to the growing risk of a slowdown next year. The S&P/ASX 200 has fallen around 1.7 per cent this week.

Today should bring a modest recovery, but not enough to avert the market’s first losing week in three. Still, the trend since early October has been strong, lifting the market in five of the last seven weeks.

Growth was back in favour overnight. Technology topped US index gains with a rise of 1.59 per cent. Also strong were consumer discretionary +1.05 per cent, health +0.9 per cent and materials +0.68 per cent.

Financials inched up 0.15 per cent. Energy and communication services (Google, Activision) were the only drags, both falling around 0.5 per cent.

An uptick in risk appetite lifted the dollar 0.7 per cent to 67.73 US cents.

China releases consumer and wholesale inflation data at 12.30 pm AEDT.

Washington H. Soul Pattinson holds its AGM today.

IPOs: Patriot Lithium (ASX code: PAT) lists at 12 pm. This explorer has two prospects in the US that it aims to develop into “high-grade, hard rock lithium projects”.

Commodities

Iron ore and copper rallied after China announced major changes to its strict Covid policies. Health authorities announced ten initiatives that marked the biggest shift since the pandemic began.

“Beijing announced wide-ranging relaxations to President Xi Jinping’s contentious zero-COVID restrictions, including for the first-time home quarantine. The State Council also said people should not have to show proof of a negative test before entering most public places,” Daniel Hynes, senior commodity strategist at ANZ, said.

Ore prices were also supported by a 4.1 per cent increase in Chinese ore imports last month amid optimism about government measures to stimulate the ailing property sector. The most-traded May iron ore contract on the Dalian Commodity Exchange lifted 1.4 per cent to 790 yuan (US$113.37) a tonne.

Citi analysts raised their ore price forecast to US$120 a tonne.

“In a bullish scenario, iron ore prices could rally towards $150 a tonne if China announces meaningful credit easing over the next 3-6 months and/or an accelerated reopening,” they wrote.

Copper rallied after Goldman Sachs said an under-supply could drive prices to a record-high US$11,000 a tonne next year. Prices hit US$10,845 back in March.

Benchmark copper on the London Metal Exchange climbed 0.94 per cent to US$8,536 a tonne. Aluminium gained 0.58 per cent, zinc 0.42 per cent and tin 1.31 per cent. Nickel gave up 4.08 per cent and lead 0.32 per cent.

BHP‘s US-traded depositary receipts rose 1.63 per cent. Earlier, the miner’s UK listing lifted 1.35 per cent. Rio Tinto improved 2.79 per cent in the US and 2.92 per cent in the UK.

Oil sank for a fifth straight session to a new 2022 low despite the prospect of US restocking as prices fell to a White House target level. West Texas Intermediate declined 0.8 per cent to US$71.46 a barrel.

White House officials cited the US$67-US$72 price band back in October as a possible entry point to start restocking the nation’s depleted Strategic Petroleum Reserve. Brent crude settled US$1.02 or 1.3 per cent lower at US$76.15 a barrel.

Gold rose for a third night, regaining the US$1,800 an ounce level amid reports of buying by China’s central bank.

“The Chinese central bank buying gold is one of the reasons why gold has risen,” Chintan Karnani, director of research at Insignia Consultants, told MarketWatch. “Chinese retail demand for gold is expected to rise sharply as the nation reopens freely.”

Gold for February delivery settled US$3.50 or 0.2 per cent ahead at US$1,801.50 an ounce. The NYSE Arca Gold Bugs Index dipped 0.22 per cent.