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Dollar, commodities surge, US dips

Aussie shares look set to open lower as surging commodity prices are actually tempered by a two-and-a-half-year high in the dollar along with a modest drop on Wall Street.

ASX SPI200 index futures fell 36 points or even 0.5 a cent. US stocks finished mixed. Iron ore soared 5 per cent to a fresh multi-year high. Crude oil cracked US$50 a barrel for the first time since March. The dollar climbed to the highest level of its since June 2018.

Wall Street
US stocks struggled as a result of the opening bell amid mixed signals on stimulus talks. A jump in claims for jobless benefits underlined strains on the economy. The S&P 500 pared initial losses to finish 5 points or 0.13 per dollar of the red.

The Dow Jones Industrial Average traded both sides of 30,000 for much of the session prior to finishing 70 points or 0.23 every dollar weaker at 29,999. Strength in’ stay at home’ stocks lifted the Nasdaq Composite 67 points or 0.54 every cent.

Hopes for a stimulus deal waxed as well as waned. Treasury Secretary Steven Mnuchin said talks had made “a plenty of progress”. Democrat House Speaker Nancy Pelosi agreed there had been “great progress”. Still Republican Senate Majority Leader Mitch McConnell’s office indicated Senate Republicans won’t support the latest proposal. The Senate whip John Thune predicted a deal would need to hold off until next year.

“If we do not get stimulus by the end of the season, you can definitely have a risk off move in the market,” Frank Rybinski, chief macro strategist at Aegon Asset Management, told CNBC.

First-time claims for unemployment benefits climbed from 716,000 to 853,000 last week, topping 800,000 for the very first time since October. The total was much even worse in comparison to the 730,000 expected by economists polled by Dow Jones.

“Given the latest behaviour of initial claims, we’ll probably see additional increases in ongoing claims going forward,” Thomas Simons, cash market economist at Jefferies, wrote. “Evidence has been building indicating that claims hit an inflection point in early November thanks to rising COVID case numbers and forced the imposition of social distancing policies that actually hurt the service sector of the economy.”

Australian outlook
A real mixed bag for regional investors this morning. Lots of plenty and positives plenty of negatives. Is like a sharp split forward between winners and losers.

First, the positives. Iron ore soared $7.50 or 5 per cent to US$158.25 a tonne, an eight-year peak, according to CommSec. Brent crude settled $1.39 or perhaps 2.8 per dollar higher at US$50.25 a barrel, its first close above US$fifty since the early days of the pandemic market plunge.

Energy stocks outperformed in the US, rising 2.9 a cent. Financials as well as tech stocks also rose, 2 more pluses for our industry. Wall Street completed well off its low – another plus.

Now to the negatives. Those stellar benefits in commodity prices fed directly into the dollar. The Aussie surged 1.2 per cent to 75.35 US cents. The area currency is traded by many forex players as a classic commodity proxy.

Some other negatives? The rise in iron ore was triggered by a cyclone off the Pilbara coast. Any damage or perhaps stoppages at local producers would dent share rates. Wall Street finished broadly lower. Oddly, the US supplies sector fell 0.7 a cent. 7 straight gains has left the ASX looking vulnerable to further profit taking. The S&P/ASX 200 is up 2.5 per dollar for the month despite yesterday’s 0.7 per cent setback.

So the playbook for the day appears something like this: positive leads for miners, importers and oilers ; damaging leads for different exporters as well as companies that generate significant revenue in US dollars. The latter include Macquarie Group, News Corp, Brambles, Amcor, Ansell, Appen, Altium, Aristocrat, James Hardie, ResMed, Cochlear, and CSL .

Commodities
Barring news which is bad from Tropical Cyclone Damien, iron ore majors BHP, rio Tinto as well as Fortescue look set for fresh multi year/record highs. BHP’s US-listed stock placed on 2.78 per cent and its UK-listed stock 3.17 a cent. Rio Tinto rose 2.22 per cent in the US and 2.91 per cent in the UK.

Iron ore rose for a 12th straight session. The price has today gone parabolic & looks weak if Tropical Storm Damien passes without incident.

“The market place is within disequilibrium right now – investors are actually trading manufacturing metals as iron ore as a speculative play on exactly how China’s economy is going to perform,” Atilla Widnell of Navigate Commodities told Bloomberg. “There is no way iron ore can be at US$150 based on demand as well as supply fundamentals.”

Gold dipped for a second day ahead of what’s expected as a green light from the US regulator for Pfizer’s Covid-19 vaccine. Gold for February delivery settled $1.10 or less than 0.1 per dollar weaker at US$1,837.40 an ounce. The NYSE Arca Gold Bugs Index edged up 0.32 a cent.

“Vaccine news is actually bearish for gold,” Chintan Karnani, chief market analyst at Insignia Consultants, told MarketWatch.

Copper and nickel set the pace during a solid night for manufacturing metals on the London Metal Exchange. Benchmark copper rose 2 per cent to U$7,860.75 tonne. Nickel received 4.4 per cent, aluminium 1.3 per cent, zinc 0.3 per cent as well as tin 0.2 a cent. Lead shed 1 a cent.

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