Dollar, commodities surge, US dips

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

ASX SPI200 index futures fell thirty six points or perhaps 0.5 a cent. US stocks finished mixed. Iron ore soared five per cent to a fresh multi-year high. Crude oil cracked US$fifty 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 of claims for jobless benefits underlined strains on the economy. The S&P 500 pared initial losses to finish five points or 0.13 per dollar in the red.

The Dow Jones Industrial Average traded either side of 30,000 for a great deal of the session before completing 70 points or perhaps 0.23 per cent 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 and waned. Treasury Secretary Steven Mnuchin said talks had made “a lot of progress”. Democrat House Speaker Nancy Pelosi agreed there had been “great progress”. But Republican Senate Majority Leader Mitch McConnell’s office indicated Senate Republicans will not support the latest proposal. The Senate whip John Thune predicted a deal would have to hold off until next year.

“If we don’t get stimulus by the conclusion of the season, you can certainly have a risk-off action 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 very last week, topping 800,000 for the first time after October. The total was significantly even worse than the 730,000 expected by economists polled by Dow Jones.

“Given the recent behaviour of initial claims, we will likely see additional increases in continuing claims going forward,” Thomas Simons, cash market economist at Jefferies, wrote. “Evidence has been building indicating that claims reach an inflection point in early November due to rising COVID case numbers and forced the imposition of societal distancing policies that truly harm the service segment of the economy.”

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

To begin with, the positives. Iron ore soared $7.50 or five per cent to US$158.25 a tonne, an eight-year peak, based on CommSec. Brent crude settled $1.39 or 2.8 per dollar higher at US$50.25 a barrel, the first close of its above US$fifty since the first days of the pandemic sector plunge.

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

These days to the negatives. Those stellar gains in commodity prices fed straight into the dollar. The Aussie surged 1.2 per cent to 75.35 US cents. The regional currency is traded by a lot of forex players like a standard commodity proxy.

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

So the playbook for the day looks something such as this: good leads for miners, oilers and importers ; damaging leads for other exporters and companies that create considerable revenue in US dollars. The latter include Macquarie Group, News Corp, Brambles, Amcor, Ansell, Appen, Altium, Aristocrat, James Hardie, ResMed, Cochlear, and CSL .

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 inventory put 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 and looks vulnerable if Tropical Storm Damien passes with no incident.

“The market is actually within disequilibrium at this time – investors are trading manufacturing metals like iron ore as a speculative play on the best way China’s economy will perform,” Atilla Widnell of Navigate Commodities told Bloomberg. “There isn’t a way iron ore can easily be for US$150 based on demand and supply fundamentals.”

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

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

Copper as well as 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 and tin 0.2 per cent. Direct shed 1 per cent.

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