ASX to rise as Dow, S&P advance

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Australian shares are poised to open higher, bolstered by further gains in New York.

ASX futures were up 50 points or 0.9% to 5823.

Shares on Wall Street closed higher with a late flourish. The Dow was paced up 553 points by American Express, Goldman Sachs and JPMorgan.

Financials also paced the S&P 500 higher, all 11 of the index's industry subgroups into positive territory.

"The state of play in markets is that hope trumps growth," said TD Securities in a closing North American note. "It's a mix of no news is good news and some news is pretty good."

The S&P 500 climbed to an 11-week high, holding above 3000 points and its average price for the past 200 days, technical levels considered key by chart watchers.

The Nasdaq indexes turned positive late in the session after Micron Technologies forecast earnings that were ahead of estimates, lifting chipmakers.

Rising tensions with China continued occupy part of investors' minds. Secretary of State Mike Pompeo said the US has certified that Hong Kong is no longer politically autonomous from China, a move that could have far-reaching consequences on its special trading status.

Today's agenda

Local: Private capital expenditure first quarter, April's preliminary trade balance; NZ ANZ business confidence May

TD on the pending capex data: "We anticipate capex to have taken a hit in Q1 with Machinery/Equipment and Building/Structures both declining respectively 5% and 3% on the qtr. The risk is for a sharper decline. In terms of the forward-looking data, the 2nd estimate of 2020-21 spending is likely to take a hit, -5% or more despite the positive read thru from the Q4 print."

Overseas data: Euro zone economic and consumer confidence for May; German CPI May; US first quarter annualised GDP, Durable goods orders April, Pending home sales April, Kansas City Fed index May

Market highlights

ASX futures up 50 points or 0.9% to 5823

From today's Financial Review

Labor flags super pledge for work deal: The ACTU faces pressure from the broader labour movement to safeguard the legislated 12 per cent superannuation guarantee.

'Catch-up rally': banks tower above the rest on ASX: The combined value of the big four swelled by almost $20 billion in just a few hours of feverish trading on Wednesday.

Dangerously naive': APRA warns the worst is ahead: The banking regulator has asked banks not to rush to rebuild capital buffers and to disclose to shareholders 'reliable and accurate' information amid mounting threats.

Kerr Neilson fears only two things during the pandemic: The fund manager knows his way through a crisis. This time he’s afraid of only two things: unlisted asset valuations and strongmen promises.

United States

In a note, Morgan Stanley said it had refreshed its list of 35 secular growth stocks. Among those on the list: Amazon, Atlassian, DraftKings, Facebook, Lululemon, Microsoft, Netflix, Nike, Spotify, Tesla, Vertex and Workday.

On Atlassian, Morgan Stanley's Keith Weiss said the company "remains a unique software asset", combining durable 30%+ topline growth, solid margins and strong execution.

The firm also released a list of 22 stocks it sees as being challenged by long-term secular risks including Alcoa, CenturyLink, The Cheesecake Factory, HP Enterprise, Juniper Networks, Molson Coors, and UPS.

Europe

Euro zone stocks were buoyed on Wednesday by a €750-billion plan to prop up EU economies hammered by the coronavirus crisis, but falls for healthcare and technology stocks weighed on broader European markets.

The euro zone equities index finished 1.1% higher after jumping as much as 1.6%, while the pan-European STOXX 600 closed up 0.2%.

Under the proposal, the European Commission would borrow the funds from the market and then disburse two-thirds in grants and the rest in loans, with much of the money going to Italy and Spain, the worst affected by the pandemic.

Spain's banking-heavy IBEX jumped 2.4%, with Banco Santander SA and BBVA rising 4.9% and 3.4% respectively.

Euro zone banks climbed 4.8%, with French lenders BNP Paribas and Societe Generale leading gains. Italy's banking index rose 2.6%.

"The size of the market reaction is relatively modest if you compare it to the plan itself, but that is because there were quite some expectations in the market," said Elwin de Groot, head of macro strategy at Rabobank.

"We really have to see this is a reaction to the size of the programme being bigger and the European Commission not being deterred from the opposition that is visible in some member states."

A Franco-German proposal for €500 billion in grants last week faced some resistance from more frugal northern nations, which wanted only loans.

Aside from banks, other hard-hit sectors including travel and leisure and automakers rallied.

Renault jumped 17.5% after the French carmaker and Nissan Motor doubled down on a plan to cooperate on production to save costs and salvage their troubled alliance.

Asia

Hong Kong stocks fell on Wednesday due to fresh anti-government protests and rising tensions between China and the United States.

The Hang Seng index fell 0.4%, to 23,301.36, while the China Enterprises Index lost 0.3%, to 9567.43 points.

Hong Kong riot police fired pepper pellets to disperse protesters in the heart of the global financial centre, where Beijing's proposed national security laws have revived anti-government demonstrations.

The blue-chip CSI300 index fell 0.7% to 3845.61, while the Shanghai Composite Index dropped 0.3% to 2836.80 points.

Frank Benzimra, head of Asia equity strategy at Societe Generale, said he expects more fiscal and monetary efforts by Beijing to fight unemployment, which could benefit Chinese sectors including infrastructure.

Japan's stock benchmark Nikkei rose to a three-month high on Wednesday, with financial stocks leading gains, as speculative short-covering during afternoon trade helped the index recoup losses seen earlier in the day.

The Nikkei average gained 0.7% to 21,419.23, its highest closing level since February 28.

"Today's rally is largely a short-covering move by macro hedge funds. It's happening not only in Japan but also in the US market," said Masanari Takada, cross-assets strategist at Nomura Securities.

Currencies

NAB's Rodrigo Catril on the $A overnight: "The AUD is at the bottom of the G10 board. Late yesterday, the aussie traded to a multi-month high of 0.6680 tracking the improvement in sentiment on the back of the stimulus news from Europe.

"But then the AUD fell over a cent to 0.6568 following the White House announcement on Hong Kong and a report from the FT suggesting China is expected to promote the use of domestic coal by tightening import rules, starting with shipments from Australia."

Catril also wrote: "The buoyancy in the US equity market has played an infectious role on the AUD helping the pair recover a bit of ground over the past couple of hours. Over the past 24 hrs the AUD is down 0.74% and now trades at 0.6622. The NZD has followed a similar trading pattern to the AUD, reaching a fresh high of 0.6233 overnight, but it has since retreated back down to 0.6173, down 0.43% over the past 24 hours."

Capital Economics on Bank of Canada asset purchases: "We expect the Bank of Canada to announce additional corporate bond purchases next week. If it wanted to do even more, the bank would probably introduce a funding for lending program rather than take interest rates negative."

Capital Economics said it expects the BoC to say it will buy at least $C50 billion of corporate bonds, up from its initial plan to buy $C10 billion, which is less than 0.3% of corporate debt outstanding even before the outbreak.

Commodities

Copper and other base metals prices retreated on Wednesday, shaken by protests in Hong Kong and expected retaliation by Washington against China.

Three-month copper on the London Metal Exchange (LME) slipped 1.6% to $US5278 a tonne by 1600 GMT.

LME copper touched a 10-week peak last Thursday of $US5464 a tonne, having rebounded 25% since hitting a 45-month low on March 19.

Ole Hansen, head of commodity strategy at Saxo Bank in Copenhagen, said that LME copper appeared to be trapped in a range of about $US5150 to $US5350 a tonne.

Another reason for weaker LME prices was that arbitrage with China was no longer profitable, Alastair Munro of broker Marex Spectron said in a note. "The arb windows have closed, making it unattractive to buy LME."

The discount of cash copper to the three-month contract rose to $US34.75 a tonne by Tuesday's close, its highest since October last year, indicating healthy supplies of metal in LME warehouses. It was last quoted at $US33.50.

LME aluminium stocks climbed to 1,493,775 tonnes, the highest level since May 2017 and up 60% over the past 10 weeks, LME data showed on Wednesday.

But LME aluminium shrugged off news of a rising surplus, gaining 0.4% to $US1525 a tonne after touching a 10-week high of $US1534.

Australian sharemarket

The Australian sharemarket was unable to extend its 11-week high on Wednesday, despite a strong bid for the major banks by institutional investors who alone brought $18.2 billion to the local bourse.

The S&P/ASX 200 Index fell 5.1 points, or 0.1 per cent, to 5775. The big banks, though, headed in the other direction as they all reached their highest levels in more than two months.

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