Strong gains on Wall Street point to a rebound in Australian shares after US investors welcomed signs the job market was slowing, easing pressure on the Federal Reserve to keep raising rates aggressively.

US stocks overcame early weakness to advance for the first time in three sessions.

Oil shrugged off an OPEC+ decision to increase output. Iron ore, gold and copper also advanced. BHP jumped more than 5 per cent in US trade. The dollar gained around 1.3 per cent.

ASX futures rallied 77 points or 1.07 per cent, signalling a strong end to a choppy week. The S&P/ASX 200 yesterday dipped into the red for the week as rates worries depressed buying interest.

Wall Street

A “bad news is good news” session saw Wall Street’s main indices roar higher as investors shrugged off soft jobs data, a hawkish outlook from the Fed’s number two official and a profit warning from market heavyweight Microsoft.

The S&P 500 overcame early losses to advance 76 points or 1.84 per cent. The Dow Jones Industrial Average climbed 435 points or 1.33 per cent. The Nasdaq Composite added 322 points or 2.69 per cent.

Stocks initially fell when Fed Vice Chair Lael Brainard said she saw little reason to pause the current rate hike cycle in September. Brainard backed increases of 50 basis points at the next two meetings and doused growing market expectations the central bank might hold off in September if inflation slows enough.

“Right now it’s very hard to see the case for a pause,” Brainard told CNBC.

“If we don’t see the kind of deceleration in monthly inflation prints, if we don’t see some of that really hot demand starting to cool a little bit, then it might well be appropriate to have another meeting where we proceed at the same pace,” she said.

Stocks recovered as weak private payrolls growth sharpened hopes rate rises were starting to bite. Private payrolls increased by just 128,000 jobs last month, well short of the 299,000 forecast by economists. April figures were revised lower to growth of 202,000 from an initial reading of 247,000.

A rebound in Microsoft following a profit warning suggested investors have largely discounted the effect of a slowdown on earnings. The tech giant’s shares slumped after it cut its Q4 forecast, then rallied to a closing gain of 0.79 per cent.

“Bearish sentiment remains overdone, and a lot of the upcoming profit warnings should mostly be already priced in. Stocks should start to eventually push higher this summer as economic activity moderates,” Edward Moya, senior analyst at Oanda, said.

Meta Platforms rebounded 5.42 per cent a day after the resignation of chief operating officer Sheryl Sandberg. Nividia jumped 6.94 per cent, Tesla 4.68 per cent and Amazon 3.15 per cent.

The main indices have recovered strongly from this year’s nadirs. The Nasdaq Composite has bounced 11.6 per cent from its 52-week low. The Dow is up 8.5 per cent and the S&P 500 9.6 per cent.

Australian outlook

The S&P/ASX 200 has a third straight winning week in its sights following a constructive session in the US. The Australian benchmark has developed a nice short-term uptrend since last month’s 15-week low. Equity markets remain volatile, but the bias appears to have switched to upward after the freefalls of late April/early May.

JPMorgan analysis suggests retail investors in the US have largely deleveraged, reducing selling pressure. The balance of retail fund flows switched in April from buying to selling for the first time since the early days of the pandemic.

As ZeroHedge floridly puts it: “Retail – which was puking stocks for much of the past few months – has now (almost) completely deleveraged and won’t be a forced seller from this point onward.”

What was particularly encouraging about last night’s action was the market’s willingness to look past a string of negatives – a rates warning, a slowing economy, a major profit downgrade. Wall Street is well off last month’s lows and trending higher.

Consumer stocks spearheaded the rally, with strong support from mining and tech stocks. The consumer discretionary sector put on 3.03 per cent, materials 2.68 per cent and tech 2.44 per cent.

The only sector to miss the upswing was energy, down 0.3 per cent despite an overnight uplift in crude.

The dollar exploded overnight as the greenback wilted under the soft jobs data. The Aussie climbed 1.32 per cent to 72.65 US cents.

The Australian Industry Group releases construction data for last month at 8.30 am AEST.

Commodities

Oil rallied as a sharp drop in US inventories helped traders look past an OPEC+ decision to increase output in July and August. The oil cartel announced it will increase its production target by 648,000 barrels per day, up from the standard monthly increase of 432,000 barrels.

Crude prices increased amid scepticism about the cartel’s ability to ramp up production. Also helping was news US crude inventories declined by 5.1 million barrels last week.

“Fortunately for the bull camp, OPEC+ has consistently underproduced relative to the OPEC+ production agreement,” analysts at Zaner wrote.

Brent crude settled US$1.32 or 1.1 per cent higher at US$117.61 a barrel. The US benchmark rose 1.4 per cent to US$116.87.

Iron ore prices jumped as the loosening of Covid restrictions in China brought buyers back to market. The spot price for ore landed in China soared US$6.80 or 5.1 per cent to US$142.20 a tonne.

Mining giants BHP and Rio Tinto surged with ore prices. BHP‘s US-traded depositary receipts climbed 5.62 per cent. Rio Tinto gained 3.54 per cent in US action. Trade in the UK was suspended for Platinum Jubilee celebrations.

Gold climbed to its highest finish in around a month as the US dollar and treasury yields retreated. Metal for August delivery settled 1.2 per cent ahead at US$1,871.40 an ounce. The NYSE Arca Gold Bugs Index jumped 4.89 per cent.

Copper surged 4.8 per cent in US trade to US$4.55 a pound. The London Metal Exchange was closed for a UK public holiday.