ASX to slip, Wall St rises

Australian shares appear set for a relatively flat open as Wall Street rallied to start its week.

ASX futures were down 7 points or 0.1% to 5899 near 5.45am AEST. The local currency edged higher.

In afternoon trade in New York, the Dow was up near 340 points or 1.2% with 28 of its 30 components higher paced by a 3.3% rise in American Express.

“We continue to believe stocks may be pricing in an overly optimistic recovery scenario in the near term and work is still needed for stocks to grow into their current valuations,” LPL Financial’s Ryan Detrick said. “However, we think the case for stocks to end the year higher from where we are now is a fairly strong one for several reasons.”

Mr Detrick pointed to signs that the US appears to have better control of the pandemic, the economy continues to recover and “momentum breeds momentum”.

“When the S&P 500 has been up five straight months, as it was in April through August, stocks historically have kept going higher. In fact, the last 26 times the index rose for five straight months, it was higher a year later 25 out of 26 times.

“We also know from history that bull markets tend to run for years, and the one that started March 23, 2020, is very young. That doesn’t mean we won’t have corrections along the way, as we did at similar points in the early 1980s and in 2009, but it tells us more gains may be coming.”

LPL lifted its year-end S&P 500 fair-value target to a range of 3450–3500. The index was at 3391 near 2pm on Monday local time in New York.

Today’s agenda

Local: RBA board meeting minutes at 11.30am

Overseas data: China August industrial production and retail sales; Euro zone ZEW expectations September; UK ILO unemployment rate July; US New York Empire manufacturing September, August import prices and industrial production

Market highlights

ASX futures down 7 points or 0.1% to 5899 near 5.45am AEST

  • AUD +0.1% to 72.94 US cents
  • On Wall St near 3.50pm: Dow +1.4% S&P 500 +1.3% Nasdaq +2%
  • In New York: BHP +1.3% Rio +0.2% Atlassian +1%
  • Tesla +11.1% Oracle +4.8% Microsoft +1.2% Apple +3%
  • In Europe: Stoxx 50 flat FTSE -0.1% CAC +0.4% DAX -0.1%
  • Spot gold +0.8% to $US1956.31/oz at 2.36pm New York time
  • Brent crude -0.3% to $US39.71 a barrel
  • US oil +0.3% to $US37.43 a barrel
  • Iron ore +1.4% to $US130.17 a tonne
  • 2-year yield: US 0.13% Australia 0.19%
  • 5-year yield: US 0.26% Australia 0.35%
  • 10-year yield: US 0.67% Australia 0.86% Germany -0.48%
  • US prices as of 2.44pm New York

From today’s Financial Review

Morrison steps on the gas: The Prime Minister will build a gas-fired power station to replace Liddell if need be, and underwrite the construction of gas pipelines to feed a new national trading hub.

Macquarie’s top three share picks for the year ahead: Macquarie’s researchers have selected shares that they say are best placed to reward investors in the next phase of the recovery, should a vaccine be delivered early next year.

United States

Trump still in the fight if polls are as wrong as in 2016: If swing-state polls are as wrong in 2020 as they were in 2016, then the election result will be much closer than recent polls suggest, with a 34.9 per cent chance of a Trump win.

Oracle said it would team up with China’s ByteDance to keep TikTok operating in the United States, beating Microsoft. Oracle said it was part of a proposal submitted by ByteDance to the US Treasury Department over the weekend in which Oracle would serve as TikTok’s “trusted technology provider”.

Nvidia Corp will buy UK-based chip designer Arm from Japan’s SoftBank Group Corp for as much as $US40 billion, the companies said.

Apple shares were higher a day before it will broadcast an event from its Cupertino, California campus where analysts expect it to show updated Apple Watches, iPads and other devices while reserving an iPhone launch for next month.

Europe

Europe’s STOXX 600 inched higher on Monday as surging travel and technology stocks helped counter losses in the energy sector.

The pan-European STOXX 600 index closed 0.2% higher after rising as much as 0.8% earlier in the session.

Much of those gains were lost as oil majors Total, BP and Royal Dutch Shell dropped on OPEC’s bleaker outlook for global oil demand.

Markets had rallied earlier on news that AstraZeneca had resumed clinical trials of its COVID-19 vaccine after being suspended last week.

The British drugmaker’s shares slipped amid losses for the healthcare sector, but battered travel and leisure stocks led the gains in Europe, with British Airways-owner IAG jumping 4.4%, and easyJet and Lufthansa rising nearly 2%.

Europe’s tech sector rose 0.9%, with chipmakers STMicroelectronics, AMS and ASM International up between 0.9% and 3.7%.

US chipmaker Nvidia Corp said it would buy UK-based chip designer Arm from Japan’s SoftBank Group for as much as $US40 billion in a deal set to reshape the global semiconductor landscape.

Still euro zone stocks were up just 0.1% and UK’s FTSE 100 down 0.1%, with gains for both the euro and sterling hurting the exporters.

“It appears to be becoming much more difficult to separate the optimism around the chatter about progress on a vaccine, with the economic reality that tighter restrictions are likely to curtail the current rebound in economic activity across the bloc,” CMC Market’s Michael Hewson wrote in a note.

Asia

At the close of trade, the Hang Seng index was up 136.97 points or 0.6% at 24,640.28. The Hang Seng China Enterprises index rose 0.6% to 9806.64.

The sub-index of the Hang Seng tracking energy shares , while the IT sector rose 1.7%, the financial sector was flat and the property sector rose 0.4%.

The top gainer on the Hang Seng was China Unicom Hong Kong, which gained 5.4%, while the biggest loser was Geely Automobile Holdings, which fell 1.5%.

China stocks finished higher on Monday with Shanghai’s Nasdaq-style STAR Market leading gains after securities regulator approved the first batch of exchange-traded funds (ETFs), which are expected to draw fresh funds towards the market.

The Shanghai Composite index closed up 0.6% at 3278.81 points, while the blue-chip CSI300 index ended up 0.5%.

Currencies

Capital Economics said while Japan’s incoming Prime Minister Yoshihide Suga may push for further monetary easing and a weaker yen, “we think that, if anything, the risks to the yen lie to the upside”.

The Bank of Japan is scheduled to meet later this week.

One reason for Capital Economics’ view is that it sees the BoJ as “reluctant to embark on another major round of policy easing. It has already reached further into the unconventional toolbox than any other central bank and appears worried that more easing, especially cutting rates further below zero, could be counterproductive because it would do further damage to Japan’s financial sector”.

In addition “even if the BoJ were to ease, it would be playing catch up with policymakers elsewhere. Other major central banks have already loosened policy significantly over the past year, and we expect further steps from, among others, the Fed, the ECB, and the BoE over the next year”.

Commodities

“Commodity prices remain subject to heightened levels of uncertainty as reopening efforts to the pandemic continue to evolve,” according to a report by the Institute of International Finance.

The IIF said it expects Brent oil prices to average $US42/b in 2020 and $US46/b in 2021, and natural gas prices to increase modestly.

The rally in metal prices in July and August was supported by the US dollar’s decline, production decreases, and recovery in China, the institute said: “We see base metal prices declining only by 2% in 2020 and increasing by 4% in 2021.”

The IIF said a key support for metal prices has been lower capital spending. “This has contributed to a sharp fall in production, exacerbated by the impact of the pandemic itself.

“Peru has seen an especially steep decline in mining production, -25% y/y in the first seven months of 2020, contributing to the steepest Q2 output loss in the region. In addition, even with strict lockdown measures in place, it has battled one of the world’s highest sustained COVID-19 case rates since May.

“Brazil’s iron ore production declined by about 10% in the same period. Zinc prices have been supported by supply constraints in Alaska due to limits on shipments.

“Chile’s copper production has declined slightly in recent months due to the pandemic. However, mining production in most of the Americas had already been stagnating prior to the crisis. As a result, the base metals commodity price index has recovered most of its losses from the first and second quarters of 2020.”

Australian sharemarket

Australian shares advanced at the start of the week helped by a push into the mining sector, as technology stocks sank again.

The S&P/ASX 200 index rose 0.7 per cent, or 40 points, to 5899.50.

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