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Stocks look set to open modestly lower ahead of the February jobs report after Wall Street rallied on the prospect of low interest rates until at least 2024.

US stocks hit fresh records as the Federal Reserve upgraded its economic outlook, but indicated it was in no rush to raise rates. Bond yields retreated from 14-month highs, gold surged and the greenback slumped.  

ASX futures dipped ten points or 0.15 per cent as the dollar soared above 78 US cents. 

Wall Street

US stocks reversed early weakness after the Fed offered what one analyst described as a “Goldilocks” scenario: strong growth and low rates for the next few years.

The S&P 500 climbed 11 points or 0.29 per cent to a fresh closing high. The Dow Jones Industrial Average jumped 189 points or 0.58 per cent to finish above 33,000 for the first time at 33,015.

The Nasdaq Composite bounced 54 points or 0.4 per cent after being down as much as 1.5 per cent as a spike in yields undercut demand for growth stocks. The yield on ten-year US treasuries hit 1.689 per cent, its highest since January 2020, before fading to 1.642 per cent, a gain of less than three basis points.

As expected, the Fed raised its economic projections. The bank said it now expects GDP to grow 6.5 per cent this year, an increase from a 4.2 per cent projection in December. Unemployment is expected to fall quicker: 4.5 per cent by year-end from a current 6.2 per cent. Core inflation is expected to reach 2.2 per cent this year, then ease a notch, allowing the bank to keep rates on hold. The bank has said it needs to see inflation above 2 per cent for a period of time.

“A transitory rise in inflation above 2% as seems likely to occur this year would not meet this standard,” Chair Jerome Powell said.

While a minority of committee members saw a rate hike as early as next year, the bank’s “dot plot” of rate projections indicated the majority do not see rates increasing until 2024.

“With the 2023 median plot still hugging the floor, stocks and bonds are rising again,” Anu Gaggar, senior global investment analyst at Commonwealth Financial Network, told CNBC. “This is like a Goldilocks market – strong economic growth, moderately higher inflation, rebounding earnings, and very easy monetary conditions.”

Australian outlook

This morning’s futures suggest little enthusiasm for following Wall Street higher, but the outlook is muddied by the expiry this morning of various index and equity derivatives. The most actively traded index futures contract this morning was the distant June contract, rather than the March contract, which expires this session. In other words, this morning’s open may not be as dour as the numbers suggest.

Other possible explanations for the soft futures reading include a jump in the dollar, overnight weakness in the big miners and caution ahead of the February employment report.

A post-Fed plunge in the greenback lifted the Australian dollar 0.78 per cent to 78.06 US cents. That is a plus for exporters, but a headwind for companies with significant US earnings, such as CSL, Aristocrat Leisure and Macquarie Bank. An increase in yields, if mirrored here, would sap demand for traditional alternatives, such as utilities and healthcare.

BHP and Rio Tinto missed a rally in US-listed materials stocks as iron ore continued to ease from this year’s peak. BHP’s US-listed stock fell 0.39 per cent and its UK-listed stock 2.35 per cent. Rio Tinto shed 0.09 per cent in the US and 2.67 per cent in the UK. The spot price for iron ore landed in China dipped 45 cents or 0.3 per cent to US$165.85 a tonne.

The Australian Bureau of Statistics releases February jobs data at 11.30 am AEDT. The unemployment rate is expected to tick down to 6.3 per cent from 6.4 per cent as the economy adds around 31,500 jobs.

The two sectors that matter most on the ASX – materials and financials – both saw solid overnight gains in the US. Materials climbed 0.9 per cent and financials almost 0.7 per cent. Consumer discretionary and industrials were the best performers with gains of 1.4 and 1.1 per cent, respectively. Yield-sensitive utilities and health stocks dived 1.6 and 0.4 per cent.

The S&P/ASX 200 retreated 32 points or 0.47 per cent yesterday as traders trimmed their exposure ahead of the Fed meeting.

Commodities

Gold rebounded on the prospect of low interest rates through to the end of 2023. Gold for April delivery settled $3.80 or 0.2 per cent lower at US$1,727.10 an ounce ahead of the Fed policy statement, but was lately up $12.30 or 0.72 per cent in electronic trade at US$1,743.30. The NYSE Arca Gold Bugs Index advanced 2.4 per cent.

A fourth consecutive weekly increase in US stockpiles helped drag oil to a fourth straight loss. Brent crude settled 39 cents or 0.6 per cent lower at US$68 a barrel.

Copper climbed 1.2 per cent to US$4.12 a pound.

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