Market Herald logo

Subscribe

Be the first with the news that moves the market

The last full trading week of 2021 looks set for a positive start after Wall Street logged its strongest weekly advance in months despite a surge in inflation.

The S&P 500 closed at a record. The Dow and Nasdaq also rose.

ASX futures climbed 14 points or 0.19 per cent. Gains were kept in check by declines in iron ore and copper. Oil and gold advanced.

The S&P/ASX 200 comes into the week off two straight losses. The week ahead brings trading updates from three of the four high-street banks. November employment figures are due on Thursday.

Wall Street

US stocks wrapped up a strong week with further gains after consumer prices climbed at their fastest pace in 39 years in line with expectations.

The S&P 500 rose 45 points or 0.95 per cent to its first record close since the emergence of the omicron Covid variant. The Dow Jones Industrial Average rallied 216 points or 0.6 per cent. The Nasdaq Composite gained 113 points or 0.73 per cent.

The S&P 500’s 3.8 per cent tally for the week was its strongest since February. The Nasdaq also saw its biggest weekly advance since February, adding 3.6 per cent. The Dow put on 4 per cent, its best return since March.

Consumer prices increased by 0.8 per cent last month, lifting the annual rate of inflation to 6.8 per cent. That was the hottest reading since 1982. The core consumer price index (CPI), excluding food and energy prices, rose 0.5 per cent to an annual pace of 4.9 per cent, as expected.

“People were expecting a very high number and they got it,” Rhys Williams, Chief Investment Officer of Opportunistic All Cap Equity Strategy at Spouting Rock Asset, told Investing.com. “That’s why there’s a muted market reaction to this inflation report.”

Analysts identified positives in the report for investors looking for signs of a peak in inflation. Increases in airfares, used cars and accommodation were lower than expected.

“The markets are always looking forward and perhaps today’s reading is indicative of a peak versus a sustained level,” Chuck Carlson, chief executive officer at Horizon Investment Services, told Reuters.

Markets expect the Federal Reserve to use this week’s policy meeting to announce it will accelerate the conclusion of its stimulatory asset-buying program. A majority of economists predict the central bank will raise its key rate next year to stop the economy over-heating. The Fed’s target for core CPI is 2 per cent.

All 11 sectors rallied, led by tech and consumer staples. An upbeat trading outlook lifted software giant Oracle 15.61 per cent. Chipmaker Broadcom jumped 8.27 per cent after announcing a share buyback.

Australian outlook

The market looks ready to resume its post-omicron recovery following a two-session breather. The S&P/ASX 200 eased 31 points on Friday to trim its advance for last week to 112 points or 1.5 per cent.

The market bounced strongly earlier in the week as global markets started to discount the economic threat from omicron. Wall Street’s return to record levels should give any investors still sitting on the sidelines confidence that the scare has passed.

This morning’s ASX futures reading was kept in check by negative signals from two sectors that make up almost 50 per cent of the domestic market. Heavyweight miners BHP and Rio Tinto traded mixed in overseas action following declines in iron ore and copper (more below). Financials was the weakest of the 11 US sectors.

Treasury yields declined on Friday, lifting rate-sensitive growth stocks and bond proxies, while capping gains in lenders. A similar pattern may play out here.

US technology climbed 2.07 per cent and consumer staples 2 per cent. Financials edged up 0.14 per cent.

In the cyclical space, energy gained 0.76 per cent, materials 0.66 per cent and industrials 0.39 per cent.

The domestic economic calendar lightens this week as activity slows into the holiday season. This week’s big-ticket release is Thursday’s November employment update. Economists expect the jobless rate fell from 5.2 per cent to 5 per cent as the post-lockdown economy added around 200,000 jobs.

Other potential highlights this week include monthly consumer sentiment (Wednesday) and a speech by RBA Governor Philip Lowe (Thursday). 

Wall Street this week is all about the Fed. The Open Market Committee meets tomorrow and updates the market on Wednesday night. The central bank is widely expected to accelerate the end of its asset-buying program and lay the groundwork for rate rises next year.

Back home, a week with several potentially market-moving annual general meetings includes three of the big four high-street banks and a delayed vote on the Afterpay takeover by Square. Afterpay and HUB24 hold meetings tomorrow. Westpac is Wednesday’s highlight. Thursday: ANZ, Orica, Elders. Friday: NAB, Nufarm and Incitec Pivot.  

IPOs: a scramble to list before the holiday season has 12 companies lined up this week. Today brings the delayed listing of The Hydration Pharmaceuticals Company at 12 pm AEDT. The company sells hydralytes in Australia and America for treating everything from dehydration to hangovers and diarrhoea. Black Mountain Energy, listing at 12.30 pm, intends to drill for “carbon neutral natural gas”.

The rest of the week currently looks like this: Armanda Metals, Infinity Mining (Wednesday); AVADA Group, Qualitas, Ronin Resources and XPON Technologies (Thursday); and IPD Group, SHAPE Australia, Winton Land and My Rewards International (Friday).

The dollar started the week with a modest back-step, easing 0.11 per cent this morning to 71.63 US cents.

Commodities

A pick-up in portside inventories in China weighed on iron ore amid lingering demand concerns. The spot price for ore landed at Tianjin fell US$4.10 or 3.8 per cent to US$102.60 a tonne.

“The iron ore port inventories build through recent weeks is a bearish signal and they are expected to continue to lift over the next 2-3 months as pig iron production is not likely to pick up until after the Winter Olympics,” Westpac senior economist Justin Smirk said.

BHP‘s US-listed stock tacked on 0.25 per cent after its UK-listed stock dipped 0.21 per cent. Rio Tinto gained 0.2 per cent in the US and shed 0.44 per cent in the UK.

Oil capped its best week in three months with further gains as demand worries triggered by omicron continued to subside. Brent crude settled 73 US cents or 1 per cent ahead on Friday at US$75.15 a barrel. For the week, Brent gained 7.5 per cent,

Gold attracted a bid as inflationary worries sapped rival stores of wealth. Metal for February delivery settled US$8.10 or 0.5 per cent higher at US$1,784.80 an ounce. The NYSE Arca Gold Bugs Index eased 1.06 per cent.

Copper and other industrial metals declined as investors sold hedges against inflation after US consumer prices increased by less than some analysts predicted. March copper fell 1.1 per cent on Comex to US$4.287 a pound.

“There are quite a few people who buy commodities as a hedge against inflation,” Julius Baer, analyst at Carsten Menke, said.

Benchmark copper on the London Metal Exchange dropped 0.4 per cent to US$9,506.90 a tonne. Aluminium and tin declined 0.4 per cent. Nickel gave up 0.6 per cent. Lead closed unchanged. Zinc improved 0.5 per cent.

More From The Market Herald

" ASX Close: Worst week since 2020 as traders rush exits

The share market skidded almost 2.3 per cent to its weakest close in seven months as falling US equity futures compounded overnight losse…

" ASX Update: Six-week low as risk appetite dries up

The share market slumped to a new 2022 low as US futures declined in the wake of last night’s late Wall Street flame-out.

" ASX Today: Wall Street flame-out signals further pain

Aussie stocks were poised to open sharply lower after an attempted Wall Street rebound gave way to further selling.
The Market Herald Video

" ASX Close: Market lifted by Chinese rate cuts, US futures

The share market bounced off its weakest level of 2022 as unemployment fell to a 13-year low and mining stocks rallied.