Outlook for the day: Negative as weakness in key commodities and sectors overshadows a fresh high for the S&P 500.
ASX futures: down 39 points or 0.45%
Overnight themes:
The S&P 500 and Nasdaq Composite closed at records at the end of a narrow rally concentrated mostly in megacaps that stand to benefit from the boom in Artificial Intelligence.
The S&P 500 clung on for a gain of 0.07% despite closing near its session low at the end of a choppy session. The Nasdaq Composite firmed 0.18% after Google-owner Alphabet's strong trading update bolstered hopes for AI stocks. The Dow sank 316 points or 0.7% as heavy falls in IBM, Honeywell and UnitedHealth outweighed gains in Chevron and AI-related stocks.
Just three of eleven S&P sectors advanced as AI and energy gains offset broader market weakness. Alphabet edged up 0.88% after topping Q2 earnings and revenue expectations. Microsoft, Nvidia, Amazon all rose as Alphabet's result bolstered hopes that massive spending on AI will deliver returns.
“Given the size and influence of big tech and [artificial intelligence], I think the Alphabet results were a nice little tailwind for a market that’s constantly asking the question of whether all the AI spend is going to have have solid [return on investment] or whether this can continue,” Ross Mayfield, investment strategist at Baird, told CNBC. “At least at the beginning of earnings season here, Alphabet provided a nice data point that the answer is positive.”
The Alphabet result was a standout among some high-profile misses. Tesla dived 8.2% after reporting a second-straight contraction in quarterly revenues. IBM lost 7.62% as software sales disappointed. Honeywell sagged 6.18%.
The market was also reacting to a US-Japan trade deal and confirmation from European sources that the European Union was close to signing an agreement along similar lines. "Investors are feeling optimistic about trade negotiations, about the economy, the trend in inflation, as well as the better-than-expected Q2 earnings reports," Sam Stovall, chief investment strategist at CFRA Research, told Reuters.
Sector gains were concentrated in energy +0.71%, tech +0.67% and communication services (inc. Alphabet) +0.51%. The two sectors that matter most on the ASX - financials and materials - sat out the rally. Financials dipped 0.04%. Materials was the night's second-worst performer, losing 0.75%.
BHP and Rio Tinto retreated in overseas trade as iron ore fell for a second day. Benchmark ore on China's Dalian Commodity Exchange ended daytime trade 0.55% lower at US$113.40 a metric ton after Fortescue and Brazilian giant Vale both reported strong production and shipments yesterday. Also weighing on ore prices was news that China steel inventories increased 3.9% month-on-month. BHP dropped 2.22% in US trade and 1.14% in the UK. Rio declined 1.22% (US) and 0.25% (UK).
Progress in US trade talks helped industrial metals extend this week's rally, while undermining demand for traditional havens, including precious metals. Benchmark copper on the London Metal Exchange advanced 0.18% to US$9,948.50 per metric ton. Aluminium, nickel, zinc, tin and lead also rose, posting gains of between 0.29% and 0.79%. Gold for a second night as some of the risk premium attached to trade talks dissipated. Spot gold was lately down US$18.30 or 0.54% to US$3,369.52 an ounce. Earlier, US gold futures settled US$24.10 or 0.7% lower at US$3,373.50.
Oil rallied following reports that Russia will tighten a ban on gasoline exports by its producers for two months to stabilise domestic prices. The move came after wholesale gasoline prices in Russia increased for eight straight sessions, hitting a historic high on Thursday. Brent crude settled 67 US cents or 0.98% higher at US$69.18 a barrel after overcoming early weakness triggered by news that the White House will allow Chevron to resume production in Venezuela.
