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Aussie shares are set to open higher following gains in the US amid signs inflation is moderating faster than expected, easing pressure to raise rates.
US stocks surged following the smallest increase in consumer prices in almost a year. The major indices surrendered much of their gains by the close as caution re-emerged ahead of tonight’s Federal Reserve rates decision.
A plunge in the greenback lifted the Australian dollar almost 1.5 per cent. Gold climbed to its highest since late June. Copper briefly jumped 3 per cent in the US. Oil prices also rose.
The S&P/ASX 200 is poised to open 16 points or 0.22 per cent ahead, according to futures moves. The Australian benchmark rallied yesterday for only the second time in six sessions, gaining 0.31 per cent.
Wall Street
A cooldown in inflation lifted US stocks to three-month highs before the prospect of another rate hike tonight encouraged traders to book profits. The major indices finished well off intraday peaks amid questions over the top for this rates cycle.
The Dow Jones Industrial Average slashed a 707-point opening charge to 104 points or 0.3 per cent by the close. A 2.77 per cent opening rally in the S&P 500 faded to 29 points or 0.73 per cent. The Nasdaq Composite more than halved its advance to 113 points or 1.01 per cent.
Stocks popped after the consumer price index rose just 0.1 per cent in November from the previous month. Annual headline inflation fell to 7.1 per cent from 7.7 per cent in October. Economists had expected readings of 0.3 per cent and 7.3 per cent, respectively. Core inflation also came in weaker than expected.
Headline inflation peaked at 9.1 per cent in June, a four-decade high. Prices cooled last month as the cost of petrol and used cars declined. The sharp November fall suggested inflationary pressures were unwinding faster than expected, reducing the need for aggressive rate increases.
“This is good news for Fed officials when they sit down today for the final meeting of 2022. 2022 is almost over, and with any luck, so will be the inflation outbreak that sent financial markets in a tailspin this year with bond yields soaring and stock markets tumbling,” Chris Rupkey, chief economist at FWDBONDS, said.
While a half-point hike tonight was already seen as a sure thing, the odds on a quarter-point hike in February firmed above 50 per cent. Futures trading also suggested a reduced chance that official rates will rise above 5 per cent next year.
“The report was a game-changer because this is the first time people are talking about the idea that we could really see inflation come down to 3% next year, and what we are seeing is a major adjustment in people’s Fed-rate-hike expectations,” Ed Moya, senior market analyst at Oanda, said.
The US dollar index plunged 1.06 per cent. Bonds rallied, driving yields lower. Precious metals surged to multi-month highs. Oil and other dollar-denominated commodities rose.
Growth stocks, property companies and other rate-sensitive sectors led the advance. The S&P 500 Growth Index and S&P 500 Real Estate Index both rose to their highest in more than two months.
The initial rally lost heat amid uncertainty over the rates outlook at tonight’s Fed meeting. Traders worry the Fed’s “dot-point” projections will indicate the top of this rates cycle – the terminal rate – is further off than markets have factored in.
“We still don’t know for sure if the Fed’s going to raise by 50 basis points, if they’re going to raise their terminal rate. So, we have quickly shifted gears into a mode of ‘wait and see’ for the Fed meeting,” Art Hogan, chief market strategist at B. Riley Wealth, told CNBC.
Australian outlook
A volatile night in the US has the S&P/ASX 200 positioned for a cautiously positive start after much of the initial sizzle in the US faded. US stocks bolted out of the gate, but could not sustain that stiff early pace under the weight of tonight’s Fed meeting. The Dow turned negative twice overnight before steadying into the close.
The Australian benchmark should see solid gains today, supported by a surge in resource prices. The plunging greenback lit a fire under the Aussie and dollar-denominated commodities. The Australian dollar traded at a three-month high of 68.94 US cents before trimming its rise to 1.48 per cent at 68.51 US cents.
BHP and Rio Tinto rose in overseas trade (more below). The US materials sector put on 1.35 per cent.
The best returns in the US came from the heavily-geared real estate sector +2.04 per cent, energy +1.77 per cent and communication services (Google, Facebook) +1.7 per cent.
Tech stocks gained 1.14 per cent, financials 0.3 per cent and industrials 0.36 per cent. The defensive consumer staples sector was the only loser, easing 0.17 per cent.
Back home, a big week of bank AGMs gets underway today with Westpac holding its meeting. ANZ follows tomorrow, then NAB on Friday. Investment manager Magellan and mining explosives firm Orica also hold meetings today.
Reserve Bank Governor Philip Lowe is due to address the AusPayNet annual summit in Sydney at 9.30 am AEDT. He is due to take questions from the audience.
Commodities
Gold and silver scaled multi-month highs as a plunging US dollar encouraged investors to seek out alternative stores of wealth. Gold for February delivery settled US$41.50 or 2.3 per cent ahead at US$1,833.80 an ounce.
Prices climbed as high as US$1,834.20, a level last seen in late June. Silver rallied 87.7 US cents or 3.8 per cent to US$24.48, the highest since April. The NYSE Arca Gold Bugs Index put on 2.59 per cent.
Copper jumped 3 per cent in US trade before paring its advance. March copper on Comex was lately ahead 1.1 per cent at US$3.844 per pound after trading as high as US$3.929.
Besides the fall in the greenback, prices were boosted by signs of a pick-up in Chinese property development. Data this week showed new home sales rose last week after recent government support for developers.
“The uptrend in real estate sector lifted sentiment, but the market is sensitive and the price gain can easily be reversed amid higher COVID cases and macro pressure,” a Chinese futures trader told Reuters.
Oil rose to its highest in more than a week ahead of a demand boost from cold weather in the US. A major North American pipeline remained closed.
Brent crude settled US$2.69 or 3.45 per cent ahead at US$80.68 a barrel.
Iron ore eased yesterday amid signs Covid infections were rapidly rising in China as the country waters down restrictions. Journalists reported lengthy queues for tests at fever clinics.
“The worsening health and current economic news is now pushing back somewhat against the exuberance evident in the past few weeks on the evidence of China beating the retreat on its hitherto zero-COVID stance,” Ray Attrill, NAB’s head of FX strategy, said.
The most-traded ore for May delivery on the Dalian Commodity Exchange declined 0.2 per cent in daytime trade to 808.50 yuan (US$115.90) a tonne.
BHP‘s US-traded depositary receipts gained 0.41 per cent. Earlier, the miner’s UK listing firmed 1.12 per cent. Rio Tinto advanced 0.72 per cent in the US and 1.2 per cent in the UK.
