Australian shares have edged slightly higher, after bargain-hunting investors shrugged off coronavirus worries to drive a strong Wall Street recovery.
Market snapshot at 8:05am (AEDT):
- ASX SPI futures flat at 6,856, ASX 200 (Monday’s close) -1.3pc at 6,923
- AUD: 66.9 US cents, 51.48 British pence, 60.48 Euro cents, 72.71 Japanese yen, $NZ1.035
- US: Dow Jones +0.5pc at 28,400, S&P 500 +0.7pc at 3,249, Nasdaq +1.3pc at 9,273
- Europe: FTSE 100 +0.6pc at 7,326, DAX +0.5pc at 13,045, CAC +0.5pc at 5,833, Euro Stoxx 50 +0.6pc at 3,662
- Commodities: Brent crude -4.2pc at $US54.24/barrel, spot gold -0.9pc at $US1,576.32/ounce, iron ore -5.4pc at $US80.38/tonne
By 11:35am AEDT, the ASX 200 index had risen by 0.2 per cent to 6,937 points.
It came after the local bourse experienced its second-worst trading day since the year began.
The worst performing stocks included Origin Energy (+3.1pc), Oil Search (-1.9pc) and Cooper Energy (-1.8pc) as utilities and energy stocks were hit hard by tumbling oil prices.
Consumer stocks were among the best performers including Harvey Norman (+6.7pc), JB Hi-Fi (+3.8pc) and Webjet (+3.5pc).
Meanwhile, the Australian dollar was steady at 66.9 US cents, which is near an 11-year low.
Rate cut a small possibility
The Reserve Bank will meet to discuss monetary policy, and most economists predict interest rates will remain on hold today at the record low 0.75 per cent.
However, there is a small chance the RBA may cut rates to keep the domestic economy steady amid the bushfire crisis, while the coronavirus batters the economy of Australia’s largest trading partner, China.
“Pricing for today’s meeting currently stands at 19.7 per cent on 30-day cash futures pricing,” Commonwealth Bank’s chief currency strategist Richard Grace said.
“While we are not calling for an RBA rate cut until April, there is risk of a rate cut at today’s meeting.”
Buying the dip
Global markets fell sharply last week over worries about the rapidly spreading coronavirus and its impact on the world economy.
However, those concerns were not evident on US markets overnight.
The Dow Jones index closed 144 points (or 0.5pc) higher at 28,400 points. But the industrial-skewed index has some way to go before recovering from its 600-point drop last Friday.
The benchmark S&P 500 and tech-heavy Nasdaq indices lifted by 0.7 and 1.3 per cent respectively.
“Traders are looking for value where they can,” said Karl Schamotta, chief market strategist at Cambridge Global Payments in Toronto.
“A large part of what we’re seeing in the market today is bargain-hunting in anticipation of a return to stimulus from the Chinese Government.”
Helping the mood on US markets was a decision by China’s central bank to inject 1.2 trillion yuan ($260 billion) of liquidity into its market via reverse repurchasing agreements.
But the Shanghai Composite nonetheless plunged by 7.7 per cent (or $628 billion) yesterday — its first day of trading since China closed equity, currency and bond markets on January 23 for the Lunar New Year, a holiday that was extended because of coronavirus.
Wall Street also recovered thanks to surging technology share prices and a surprise rebound in US factory activity.
Manufacturing expanded in January after five straight months of contraction, according to figures from the Institute of Supply Management, indicating that a slump in business investment may have bottomed out.
The ISM said its index of national factory activity increased to a reading of 50.9 last month, the highest level since July. A reading above 50 indicates expansion in the manufacturing sector.
A rebound in business investment is critical to keeping the longest US economic expansion in history, now in its 11th year, on track amid signs of fatigue in consumer spending
Spot gold slipped 0.8 per cent to $US1,576.16 an ounce, following a strong performance in January.
“Gold prices slipped as a stronger US dollar and higher equity markets saw investor appetite wane,” ANZ analyst Rahul Khare said.
“There are fears that physical demand is also being impacted by the virus, with retail coin and jewellery demand most certainly taking.”
Iron ore prices also slumped 8.3 per cent to $US80.38 per tonne.
“Fears remains that [Chinese] construction activity will be severely impacted as provinces extend holidays and travel restrictions remain in place,” Mr Khare said.
In addition, oil prices fell sharply to a 13-month low as the coronavirus outbreak curtailed Chinese demand, which may spark potential supply cuts by the Organisation of the Petroleum Exporting Countries (OPEC) and its allies.
Brent crude lost 4 per cent to $US54.35 per barrel.
Oil has also dipped into bear-market territory, having dropped by more than 20 per cent from recent highs.
Independent refineries in China’s Shandong province, which collectively import about a fifth of the nation’s crude, cut output by 30 to 50 per cent in a little more than a week, executives and analysts told Reuters.