Strong overseas leads and oil rebound to drive ASX higher

With the S&P/ASX 200 index (ASX:XJO) having weathered heavy losses earlier in the week and recovered from a 120 points slide yesterday, Thursday may just be it's time to shine.

Certainly the ASX SPI200 index is pointing in that direction with the last trade being at 5286 points, implying an increase of 49 points.

After the XJO was down nearly 2% yesterday morning, it only finished down one point at 5221 points, suggesting momentum is working in its favour.

Positive sentiment should also be driven by a strong rebound in overseas markets which have shifted from sharp falls across the board on Tuesday to significant gains overnight in the UK, mainland Europe and the US with the latter rallying 457 points.

Key commodities including oil and gold were also demonstrating substantial upward momentum, suggesting our miners that came under pressure yesterday could come back into favour.

Looking at the gyrations that were experienced in the Australian market, the aviation sector is in a state of disarray with Virgin Australia in voluntary liquidation, and Qantas Airways Ltd (ASX:QAN) also taking a bath yesterday, shedding more than 6%.

As we mentioned yesterday, poor performances across base metals and particularly a downturn in the iron ore price was likely to weigh on the big miners, and BHP (-3.6%) and Rio Tinto (-2.2%) were notable casualties.

Yesterday we flagged the release of retail sales data as being one of the most likely key impact events of the day, particularly given it covered a period when there were mass store closures.

However, the outcome could best be described as mixed, and the fairly muted response perhaps reflected a combination of ‘as expected’ data and the fact that there were bright spots for some retailers.

Grocery retailers benefited from panic buying, leading to an 8.2% jump in March, the strongest seasonally adjusted month on month rise in history.

Obviously, offsetting the good news were poor performances across the hospitality, clothing, footwear and department store market segments.

As a guide, the S&P/ASX 200 Consumer Discretionary Index (ASX:XDJ) only came off eight points to close at 1977 points.

24 hours

Similar to Australia, Asian markets performed in unpredictable fashion yesterday.

For example, the Nikkei 225 plunged from more than 19,100 points at the start of trading to hit a low of 18,858 points before recovering nearly all of that lost ground, only to still finish down 0.7% at 19,137 points.

Elsewhere, the Hang Seng gained 100 points or 0.4% to close at 23,893 points and the Shanghai Composite rallied 0.6%, closing at 2843 points.

The FTSE 100 recouped most of the losses experienced this week, gaining 2.3% or 130 points to close at 5770 points.

The DAX rallied 1.6% to close at 10,415 points, slightly outpacing the CAC 40 which closed up 1.2% at 4411 points.

There was a spectacular last half hour plunge in the Dow which took some of the shine off its 457 point gain, representing an increase of 2%.

The Dow’s performance could have been much more convincing given that the index slumped from about 23,590 points 15 minutes before the bell to close at 23,475 points.

The NASDAQ was the best performing index in the US, surging 2.8% to close at 8495 points.

The S&P 500 gained 2.3%, closing at 2799 points.

What were the key drivers

One of the main catalysts behind the recovery in the US was a rebound in the oil price, accompanied by news that President Trump was looking at measures that could be taken to support US oil producers.

There continues to be positive rhetoric around reopening the economy, and this also provided positive sentiment.

However, one of the most important contributing factors was the passing of a coronavirus relief package by the Senate valued at around $500 billion aimed at assisting small businesses.

On the commodities front, gold was also in favour, rallying nearly 3% to close at US$1737 per ounce.

Brent crude was the star performer, closing just shy of US$20 per barrel after hovering in the vicinity of US$15 per barrel in early trading.

Iron ore recovered slightly, increasing 0.8% to US$85.04 per tonne.

Among the base metals, copper eked out a small gain while nickel’s recent run came to a halt.

Zinc and lead were relatively flat.

The Australian dollar is fetching US$0.63.

The late sell-off in the US triggered a small spike in the CBOE Volatility Index, but it was still down 7.5% on the day, closing at 42 points.

There is little economic data being released in Australia today, but in the next 24 hours we will see the all-important US manufacturing PMI numbers which analysts are forecasting will come in below the ‘’healthy’’ 50 point mark.

Also in the US, new home sales data will be released with analysts expecting a significant decline.

Consequently, tonight’s session on Wall Street may not be quite as buoyant, and this may account for some of the gains being taken off the table at the end of trading today.