ASX poised to open firmer as higher oil prices boost energy stocks

 In U.S.
Australian shares are set to open firmer on Thursday as shares rallied on Wall Street overnight as surging oil prices boosted energy stocks following President Donald Trump’s decision the previous day to quit a nuclear deal with Iran. SPI futures are up 24 points at 6113.

Gains were broad, with all but the utilities and telecom sectors advancing as investors who had moved to the sidelines in recent days ahead of Trump’s decision returned to the market.

“It’s classic ‘buy on the terrible news’,” said Ian Winer, director of trading at Wedbush Securities in Los Angeles. “People had gotten way too nervous about this.”

Oil hit its highest level in 3-1/2 years as investors worried that Trump’s decision to withdraw the United States from the international agreement aimed at preventing Iran from obtaining a nuclear bomb would increase risks of conflict in the Middle East and curtail global oil supplies.

The S&P energy index jumped 2.2 per cent, bringing its gain this quarter to 12.8 per cent, more than any other sectors.

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“The rise in oil is helping energy sector, which is expected to be a pretty big growth sector. A lot of analysts are expecting strong earnings as oil rebounds, and that hasn’t really played out so much early this year,” said Shawn Cruz, senior trading specialist at TD Ameritrade in Chicago. At 2:34 pm ET, the Dow Jones Industrial Average was up 0.73 per cent at 24,536.98 points, while the S&P 500 had gained 0.97 per cent to 2,698.28.

The Nasdaq Composite added 0.97 per cent to 7,337.66.

Today’s Agenda

Overseas data: The Bank of England monetary policy decision; US April consumer price index; China April inflation data.

Market Highlights

SPI futures up 24 points at 6113

AUD trading at US74.63 cents

On Wall St: DJIA +0.8%, S&P 500 +1%, Nasdaq +1%

In Europe: Stoxx 50 +0.3%, FTSE +1.3%, CAC +0.2%, DAX +0.2%

Spot gold -0.2% at $US1312.46 an ounce

Brent crude +3.2% at $US77.21 a barrel

West Texas Intermediate crude +3.3% at $71.31 a barrel

Iron ore -0.5% at $US66.46 a tonne 

From Today’s Financial Review

Hayne should probe super fees: Chanticleer says disclosures in the federal budget about excessive superannuation fund charges imposed on low income earners and younger members should be brought to the attention of commissioner Kenneth Hayne for further investigation.

M&A off to a bang. Investment bankers hope the strongest start to the year for local deal volumes in more than a decade feeds fee coffers in 2018, after last year brought a mixed performance. This year has begun strongly as announced inbound and domestic M&A surged to $US39.9 billion, the highest level since 2007, Dealogic says.

Chasing Pauline. The federal government could secure Senate support for its entire $140 billion income tax cut package from the crossbench, but needs to persuade Pauline Hanson, who is demanding cuts to immigration in return for her crucial support.

United States

US stocks advanced as energy shares rallied with oil on speculation supply may not keep up with demand. Ten-year Treasury yields topped 3 per cent.

West Texas oil climbed above $US71 per barrel after an unexpected drop in US stockpiles and as the market came to terms with President Donald Trump’s decision to withdraw from the Iran nuclear deal. Bank shares rallied as the 10-year yield spiked. Walmart  weighed on the major gauges after its deal to buy a controlling stake in India’s biggest online seller was met with scepticism. A measure of emerging-market currencies erased its 2018 gains.

Stocks extended gains in afternoon trading, with the risk-on tone in markets spreading after North Korea’s goodwill gesture of releasing US citizens as captives. Still, markets remained bound in a trading range amid the threat of increased geopolitical tension in the Middle East just as concern spreads over the implications of higher Treasury yields and recent dollar strength. A $US25 billion auction of 10-year US notes drew yields of 2.995 per cent, just short of carrying a 3 per cent coupon for the first time in almost seven years.

“This tug-of-war remains in the market, regardless of the positive headlines on North Korea, regardless of the positive headlines on earnings,” said Quincy Krosby, the chief market strategist at Prudential Financial. “This is a market that has to sort that out, and that 10-year yield flirting with 3 per cent again is a reflection of that tug-of-war.”

Elsewhere, stocks in Europe climbed as the MSCI Asia Pacific Index fell. Indonesia’s rupiah weakened to a two-year low on worries about capital outflows from emerging markets. Turkey’s lira gained after President Recep Tayyip Erdogan called a meeting to discuss issues including the exchange rate, fuelling speculation that authorities may take measures to stem a market rout. Argentina’s peso fell toward a record low as the government begins meetings with the International Monetary Fund to discuss a possible credit line.

Worries lingered that rising oil prices would perk up inflation. The US 10-year Treasury yield rose to a two-week high and above the key 3 per cent level on expectations of higher interest rates.

In stock trading, Google-owner Alphabet rose 2.9 per cent, providing more lift than any other stock to the S&P 500. It was followed by Facebook, rising 1.93 per cent.

Walmart fell 3 per cent after the retailer took a majority stake in Indian e-commerce firm Flipkart for about $US16 billion.

Walt Disney dipped 2.13 per cent, despite reporting a quarterly profit above Wall Street estimates.

Advancing issues outnumbered declining ones on the NYSE by a 1.81-to-1 ratio; on Nasdaq, a 1.71-to-1 ratio favoured advancers.

The S&P 500 posted 39 new 52-week highs and 10 new lows; the Nasdaq Composite recorded 158 new highs and 49 new lows.

Europe

European shares were supported on Wednesday by strength in oil stocks after US President Donald Trump pulled the United States out of Iran’s nuclear agreement, boosting crude prices.

While some well-received earnings updates also provided support to the overall market, shares in companies with exposure to Iran fell, with plane maker Airbus and car makers Renault and PSA all falling.

The pan-European STOXX 600 index ended the day up 0.6 per cent at fresh three-month highs, while higher crude prices helped the commodities-heavy FTSE 100 outperform, up 1.3 per cent.

The oil and gas index was the biggest sectoral gainer, surging up 2.9 per cent to a three-year high as crude rallied after Trump’s move on Iran raised the risk of conflict in the Middle East and cast uncertainty over global supplies.

“Whilst other signatories remain onboard, Trump s decision potentially turns the geopolitical instability dial up a notch, especially in the Middle East,” Accendo Markets analysts said in a note.

Shares in oil majors Total, Royal Dutch Shell and Eni were all trading up between 1.9 and 3.9 per cent. The oil sector had its best day in a month.

But higher oil prices weighed on airline stocks, with Ryanair, Air France and Lufthansa down 0.8 to 2.2 per cent. The travel sector was the worst-performing, down 1 per cent as Europe’s largest travel and tourism group TUI Group also declined 1.6 per cent after an uninspiring earnings update.

Among result beats, Siemens shares rose 3.9 per cent after the German industrial giant raised its full-year profit guidance, offsetting worries over exposure to Iran.

Analysts at Jefferies reiterated their buy rating on the stock, saying the quarterly performance of Siemens was strong apart from the results of its power and gas (PG) business.

“This was a very mixed picture from Siemens with PG taking the shine off what were actually very good results … with the core automation businesses doing especially well,” they wrote.

Equities in Europe have outperformed Wall Street, supported by a weakening euro against a surging dollar, while the earnings season has also been supportive.

According to Thomson Reuters data, earnings beats on the MSCI EMU index outnumbered misses by nearly 6 to 3 so far, with first quarter growth seen at 3.2 per cent in local currency.

In M&A news, Vodafone agreed to pay $US21.8 billion to buy Liberty Global’s assets in Germany and a number of other countries to take on rivals with a broader offer of superfast cable TV, broadband and mobile.

“We see the move (if completed) as positive strategically in terms of creating a stronger, converged operator,” said UBS analysts, adding that the absence of an equity issuance to fund the deal was a positive.

Asia

Asian stocks were mixed after President Trump scrapped the nuclear deal with Iran. Equity benchmarks in Japan and South Korea dipped, while Hong Kong shares rose. Indonesia’s rupiah fell to a fresh 29-month low amid concerns about capital outflows from emerging markets.

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