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The July market recovery looked set to roll into a new month following a third day of gains in the US as strong earnings helped investors look past another 40-year high in inflation.

ASX futures rallied 46 points or 0.67 per cent, signalling a positive start to the Australian trading week. The S&P/ASX 200 is on a roll after climbing 0.8 per cent on Friday to a seven-week high. Friday’s advance wrapped up a 5.7 per cent gain for July as the index bounced back from three months of falls.

The dollar pushed back towards 70 US cents this morning. Oil and metals rose on Friday.

Wall Street

US stocks finished their best month since November 2020 with further gains following well-received trading updates from market heavyweights Apple and Amazon. A gloomy consumer sentiment reading and a surge in consumer prices failed to derail the rally.

The S&P 500 advanced 58 points or 1.42 per cent. The Dow Jones Industrial Average gained 316 points or 0.97 per cent. The Nasdaq Composite put on 228 points or 1.88 per cent.

The S&P 500 climbed 9.1 per cent for the month as investors reassessed how high interest rates were likely to rise amid hopes inflationary pressures were nearing a peak. The Dow gained 6.7 per cent. The Nasdaq Composite surged 12.4 per cent.

“Starting from a position of depressed sentiment and bearish positioning was an asset, but the bigger picture was a subtle shift in inflation and inflation expectations, and thus the market’s expectation for the Fed’s path,” Ross Mayfield, investment strategy analyst at Baird, said.

“Of late, corporate earnings resilience has only added to the bull case and likely put a near-term floor under equity markets.”

The Nasdaq led on Friday as tech giants Apple and Amazon continued a run of better-than-feared profit reports. Apple rose 3.28 per cent after demand for iPhones proved unexpectedly resilient. Upbeat forward guidance helped Amazon put on 10.36 per cent.

Oil companies Chevron and Exxon Mobil also beat analysts’ expectations, climbing 8.9 and 4.63 per cent, respectively. Intel sank 8.56 per cent after cutting guidance.  

“The market is taking a lot of comfort in the mixed earnings season because the concern was that it was not going to be mixed, that it would be more uniformly negative,” Yung-Yu Ma, chief investment strategist at BMO Wealth Management, said.

June personal consumption figures rose more than expected. The PCE index increased 1 per cent, raising the rate of annual inflation to 6.8 per cent, the highest since January 1982.

“This inflation metric is for June and we know much has changed since then, especially gas prices so investors should put this inflation report into historical context,” Jeffrey Roach, chief economist at LPL Financial, said. “Looking ahead, July inflation rates will ease a bit from the previous month as food and energy costs should wane in July.”

A final measure of consumer sentiment for July showed Americans were slightly less gloomy than in June. The University of Michigan index edged up to 51.5 from a record-low 50 the previous month.

Australian outlook

The S&P/ASX 200 looks ready to test 7000 for the first time in seven weeks. The Australian benchmark rallied to within 27 points of that level on Friday and should come close again this session unless traders baulk at soft Chinese factory data released over the weekend or tomorrow’s rate hike.

China’s official manufacturing purchasing managers’ index unexpectedly fell to 49 last month from 50.2 in June. Readings below 50 indicated contracting activity. Analysts polled by Reuters had predicted a further improvement to 50.4.

The setback came as China wrestled with fresh Covid outbreaks. Growth in services-sector activity slowed to 53.8 from 54.7 in June. The composite PMI declined to 52.5 from 54.1.

“The level of economic prosperity in China has fallen, the foundation for recovery still needs consolidation,” National Bureau of Statistics senior statistician Zhao Qinghe said.

US sector gains on Friday were largely dictated by corporate earnings. Energy jumped 4.51 per cent as Chevron and Exxon Mobil released strong reports. Amazon’s results helped lift the consumer discretionary sector 4.27 per cent.

US financials advanced 1.4 per cent, materials 1.32 per cent and tech 1.55 per cent. The only sectors to decline were defensive. Consumer staples shed 0.72 per cent and healthcare 0.35 per cent.

The week ahead brings a Reserve Bank meeting where the main question is whether the central bank raises by 50 basis points or more. A majority of economists expect the bank to increase the cash rate target tomorrow afternoon by 50bp to 1.85 per cent, the highest rate since 2016.

However, a larger increase is possible after last week’s 21-year high in inflation. The ASX’s RBA Rate Indicator shows interbank futures indicate a 65 per chance of a 65bp increase to 2 per cent.

The economic calendar for the rest of the week looks like this: job ads, manufacturing, inflation gauge (today); building approvals (Tuesday); retail sales (Wednesday); trade balance (Thursday); and services-sector activity and the RBA’s quarterly monetary policy statement (Friday).

The full-year reporting season gets off to a slow start before cranking up as we get deeper into the month. Among the first to report are Credit Corp Group and Centuria Office REIT on Tuesday; BWP Trust, Pinnacle Investment Management and Genworth Mortgage Insurance (HY) on Wednesday; Centuria Industrial REIT and Block (Afterpay’s US parent) on Thursday; and WPP AUNZ (HY) on Friday.

The US reporting season is well into the second half, with most of the big guns out of the way. Notable names left to report this week include Tesla, AMD, Caterpillar, PayPal, Pinterest, Glencore, Block and Atlassian.

The US economic calendar does not appear to hold too many landmines this week. A manufacturing report tonight is expected to show growth moderating. Job openings data on Tuesday night and Friday’s July jobs report are other potential market-movers.

IPOs: the dramatic contraction in new listings this year has reached a climax. The ASX has no new listings pencilled in for the week ahead. This follows a week when there were just two new listings.

The dollar climbed 0.81 per cent to 69.741 US cents.

Commodities

Copper gained a three-week high during a strong session on the London Metal Exchange as the US dollar weakened. Benchmark copper climbed 2.1 per cent to US$7,931.25 a tonne. US-traded copper bounced 10 cents or almost 2.9 per cent to US$3.5735.

Nickel surged 7.8 per cent on the LME to US$23,579 after Russian producer Nornickel announced a 6 per cent quarter-on-quarter fall in output.

Aluminium improved 1.6 per cent in London, lead 1.8 per cent, zinc 4.5 per cent and tin 3.1 per cent.

Gold ended a strong week on the upswing. Metal for December delivery settled US$12.60 or 0.7 per cent ahead at US$1,781.80 an ounce.

The yellow  metal put on 3.2 per cent for the week to reduce its monthly loss to 1.4 per cent. The NYSE Arca Gold Bugs Index firmed 0.79 per cent.

Oil rallied ahead of this week’s OPEC+ monthly meeting following reports the oil cartel will leave production targets unchanged. Brent crude settled US$2.87 or 2.7 per cent higher at US$110.01 a barrel.

Brent prices bounced 6.6 per cent last week, trimming their decline for the month to 4.2 per cent.

Iron ore prices were mixed as traders eyed a Politburo meeting for stimulus measures. Some markets declined amid reported disappointment over a lack of concrete measures.

“There’s no clear message that the central government will coordinate any property sector rescue, which is a bit disappointing,” ANZ said in a note. 

Singapore ore futures fell as much as 5.4 per cent before paring their fall to 3.5 per cent, according to Bloomberg. Dalian futures fell 1.5 per cent.

CommSec quoted a sharp increase in the spot price for ore landed in China. The spot price surged US$7.93 or 7.4 per cent to US$115.48 a tonne, according to the broker.

BHP‘s US-traded depositary receipts rallied 1.89 per cent. The miner’s UK listing improved 1.35 per cent. Rio Tinto advanced 1.92 per cent in the US and 1.78 per cent in the UK.

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