Aussie shares were set to open higher for the first time in three sessions following a positive finish in the US as investors weighed a jobs miss and a recession indicator.
ASX futures rallied 19 points or 0.25 percent. The S&P/ASX 200 broke its longest winning run of the year with back-to-back losses at the end of last week.
Iron ore prices surged to eight-month highs on Friday, lifting BHP and Rio Tinto in overseas trade. Crude oil, gold and copper retreated.
Wall Street
US stocks ended a choppy session with a late up-swing as energy prices retreated and investors bet softer-than-expected employment data was still strong enough to maintain the economic recovery.
The S&P 500 climbed 15 points or 0.34 percent on the first session of the new quarter. The Dow Jones Industrial Average swung to a gain of 140 points or 0.4 percent after being down more than 100 points. TheNasdaq Composite added 41 points or 0.29 percent.
Investors took their time to warm to news the economy created 431,000 new jobs last month. The result was below the Dow Jones estimate of 490,000, but not by enough to ring alarm bells. The jobless rate fell to a two-year low at 3.6 percent.
A recession signal from the bond market indicated the report was unlikely to stop the Federal Reserve raising rates sharply this year. The two-year treasury yield traded above the ten-year yield, an inversion of the usual relationship. The last inversion occurred in 2019, shortly before the pandemic pushed the global economy into recession.
When an inversion of the yield curve occurs “there has been a better than two-thirds chance of a recession at some point in the next year and a greater than 98% chance of a recession at some point in the next two years,” investment group Bespoke said.
CME’s FedWatch tool indicated the odds on a 50-basis points increase in rates at next month’s meeting stood at 73.3 percent. Chicago Fed President Charles Evans said there was no major risk in 50-basis-point increases to get rates back to neutral from record-low settings.
Bank stocks wobbled as the yield inversion depressed lending margins. Citigroup shed 2 percent, Bank of America 0.78 percent and JPMorgan Chase 0.74 percent.
Defensive stocks led after other economic reports also came in weaker than economists expected. Construction spending and manufacturing data both missed targets.
Australian outlook
The March rally looks set to resume despite an unconvincing late rally in the US. A surge in iron ore should keep the market-leading miners moving higher (more below).
A breakneck March rally on the S&P/ASX 200 finally showed signs of fatigue at the end of last week, but damage was minimal. The benchmark eased 21 points or around 0.3 percent across Thursday and Friday, a mere blip in the 500+ point rally since March 8.
This market has strong momentum and could test all-time highs this month (historically, the strongest month of the year in the US). For that to happen, the heavyweight mining and financial sectors need to maintain their momentum.
Lithium and other battery-material providers were last week’s biggest winners on the ASX. Novonix put on 16.1 percent, AVZ Minerals 14 percent, Allkem 12.6 percent and Mineral Resources 12.1 percent.
The USmaterialssector rallied 1.13 percent on Friday, with BHP and Rio Tinto both recording gains. The NYSE Arca Gold Bugs Index of US gold miners firmed 3.11 percent during a general trend into defensive assets. Energy stocks shook off a modest downturn in crude, rising 0.85 percent.
Real estate, utilities and consumer staples were the best performers with gains of 1.25 – 2 percent. Financials, industrials and tech stocks weakened.
The outlook for rates both here and overseas dominates the economic calendar this week. The Reserve Bank meets tomorrow. While no change to policy settings is expected, investors would welcome any indication of when Australia will join other banks in raising rates. Markets are currently pricing in a 200-basis point increase by year-end.
Also this week: March job ads (11.30 am today); monthly construction data, weekly consumer confidence (Tuesday); and trade and services sector updates (Thursday).
Wall Street has the minutes from the last Federal Reserve meeting on tap on Wednesday night. Also this week: services PMI (Tuesday); and unemployment claims (Thursday).
The domestic corporate calendar will be light until quarterlies start to flow later in the month. The week ahead includes AGMs for Scentre Group on Thursday and OZ Minerals on Friday. Dividend payments will continue to hit bank accounts.
IPOs: tentative signs this week of a thaw in the freeze on new listings. The ASX records seven potential debutants in the week ahead. Recent form suggests not all will get off the starting blocks, but even half getting away would be an improvement.
Top End Energy is listed to launch at 1 pm AEST. The company pitches itself as a low-carbon explorer targeting natural gas, hydrogen and helium in the Top End of Australia.
The rest of the week’s IPOs currently look like this: Microba Life Sciences (Tuesday); Sarytogan Graphite (Wednesday); Lord Resources (Thursday); and Noble Helium, Osmond Resources and Finder Energy (Friday).
The dollar climbed 0.21 percent this morning to 74.94 US cents.
Commodities
Iron ore surged on Friday as steel mills restocked and weak Chinese factory data sharpened expectations for government stimulus. The spot price for ore landed in China soared US$9.14 or 6.1 percent to US$159.98 a tonne.
The most-traded contract on the Dalian Commodity Exchange rose 3.5 percent to 926 yuan. Data last week showed China’s factory activity slowed at the fastest pace since the height of the pandemic amid Covid lockdowns.
“The Chinese economy appears to have stumbled in March, as the spike in domestic COVID cases adds a downside risk to near-term domestic activity, along with rising uncertainty on the external sector amid global geopolitical risks,” JPMorgan economists wrote.
BHP‘s US-traded depositary receipts gained 2.65 percent. The miner’s UK listing added 2.27 percent. Rio Tinto tacked on 2.84 percent in the US and 2.37 percent in the UK.
Oil ended its worst week in almost two years with another down leg. Brent crude settled 32 US cents or 0.3 percent lower at US$104.39 a barrel.
The global benchmark shed 11.1 percent last week after the White House authorised the release of a million barrels of oil per day from US stockpiles for the next six months. However, prices were still up 6.9 percent for the month and 39 percent for the quarter.
Gold faded to a weekly loss as treasury yields climbed after the US jobs report. Metal for June delivery settled US$30.30 or 1.6 percent lower at US$1,923.70 an ounce. The decline sealed a weekly loss of 1 percent.
Nickelrallied after the London Metal Exchange suspended delivery of some Russian-produced metals into the exchange’s warehouses. Benchmark nickel on the LME climbed 3.5 percent to US$33,217 a tonne. Zinc gained 4.1 percent, tin 4.5 percent and lead 1.2 percent. Copper eased 0.2 percent and aluminium 1.3 percent.
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