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The Australian share market looked set to follow Wall Street to six-week highs after soft US economic data suggested interest rate increases were working, easing pressure on the Federal Reserve to keep hiking aggressively.
US stocks rallied for a third night as treasury yields pulled back. Oil and gold edged ahead. Iron ore and base metals declined. A retreat in the greenback lifted the Australian dollar towards 64 US cents.
Futures action suggested the S&P/ASX 200 will open 56 points or 0.82 per cent ahead at levels last seen in mid-September. The Australian benchmark was on track for its first three-session rally in two-and-a-half weeks.
Wall Street
US stocks rose for a third session as soft reports on consumer confidence and housing gave the Fed further reason to take its foot off the rates accelerator. Falling yields boosted rate-sensitive growth stocks.
The Nasdaq Composite led with a rise of 247 points or 2.25 per cent. The S&P 500 rallied 62 points or 1.63 per cent to its highest since September 21. The Dow Jones Industrial Average gained 337 points or 1.07 per cent.
Investors continued to embrace weak economic news as a sign this year’s aggressive rate increases were having an impact.
A measure of consumer confidence fell for the first time in three months. The Conference Board’s index dropped to 102.5 from 107.8 in September. A separate measure of expectations for the economy six months from now declined to 78.1.
“The expectations index is still lingering below a reading of 80 — a level associated with recession — suggesting recession risks appear to be rising,” Lynn Franco, senior director of economic indicators at the Conference Board, said.
House prices declined for a second month. The S&P CoreLogic Case-Schiller 20-city index fell 1.3 per cent.
“The market is just starting to get some indication that economic data moving forward is likely to slow,” Cliff Hodge, chief investment officer at Cornerstone Wealth, said. “The knock-on effects from there, perhaps, gives the Fed a bit more breathing room.”
The yield on ten-year US treasuries dropped almost 15 points to 4.01 per cent. The two-year yield dropped three basis points.
“We’re seeing yields come down for the first time in a while, so stocks are going up,” Art Hogan, chief market strategist at B.Reily Wealth, said.
The S&P 500 has bounced almost 8 per cent in two weeks, supported by a positive start to the current quarterly reporting season. Overnight, General Motors and Coca-Cola rose after beating earnings expectations. Xerox plunged after a big miss.
Australian outlook
The clouds continued to lift overnight as the S&P 500 broke through technical resistance, clearing the way for possible further gains. The S&P/ASX 200 is also on the march, with gains today looking likely to position the index for a charge at the 7000 level in the days ahead.
To maintain momentum today, the index will have to navigate a potentially mood-changing quarterly inflation report this morning. Headline inflation is expected to ease to 1.6 per cent from 1.8 per cent the previous quarter. The trimmed mean favoured by the RBA as a better indicator is expected to hold steady at 1.5 per cent. The report is due at 11.30 am AEDT.
A stronger-than-expected report might bring a 50 basis point rate increase back onto the table for next month’s RBA meeting. Equally, a soft report could encourage the central bank to consider pausing this year’s succession of monthly increases.
Traders will also keep any eye on the reaction in the US to earnings from index heavyweights Microsoft and Alphabet (Google) released after this morning’s closing bell. Both stocks sank in after-market trade after reporting, muddying the prospects for today’s ASX session.
The dollar surged 1.1 per cent to 63.97 US cents overnight. This year’s ferocious rise in the US dollar has been a major headwind for US equities, but supportive for Australian exporters.
Real estate led the US advance, jumping almost 4 per cent as falling yields promised relief on mortgage rates. Materials was next best with a bounce of 2.54 per cent.
The three sectors associated with Big Tech all gained at least 1.9 per cent. Energy was the only sector to finish in the red, easing less than 0.1 per cent.
Last night’s federal budget may offer trading opportunities here, but bear in mind many of the measures announced were telegraphed well in advance. Possible winners include building stocks (National Housing Accord, infrastructure spending), childcare operators (government support for parents), green energy (climate spending, support for green vehicles) and aged care operators (increased spending).
Challenger, JB Hi-Fi, Super Retail Group, EBOS, GUD, Data3, APM Human Services, Reliance Worldwide and Corporate Travel Management hold annual general meetings today.
Coles, Mirvac and Dicker Data are among companies releasing quarterly trading updates.
IPOs: the debut of Conrad Asia Energy has been pushed back until tomorrow.
Commodities
Iron ore continued to retreat amid reports demand in China did not pick up during a seasonally-strong time of the year. The steel sector normally sees an improvement across September-October. Demand was expected to decline from here as winter sets in.
“The peak season is coming to an end. The previously expected demand recovery did not meet expectations, let alone exceed expectations,” Huatai Futures analysts wrote.
The most traded ore contract on the Dalian Commodity Exchange declined 1.9 per cent to 669.50 yuan (US$91.64) a tonne. Prices in Singapore fell to an 11-month low.
The prospect of a slowdown in global growth kept copper under pressure. Citi predicted the “metal with the degree in economics” will fall to US$6,200 a tonne within the next three months as Europe enters recession and demand from the US and China slows.
Benchmark copper on the London Metal Exchange declined 0.7 per cent to US$7,634 a tonne. Aluminium bounced 2.6 per cent, nickel 0.2 per cent and tin 0.1 per cent. Lead shed 1.3 per cent. Zinc gave up 2.2 per cent.
BHP‘s US-traded depositary receipts overcame weakness in the UK to rise 1.35 per cent. Earlier, the miner’s UK listing eased 0.55 per cent. Similarly, Rio Tinto gained 1.77 per cent in the US after losing 0.76 per cent in the UK.
Buying interest in gold was supported by declines in the US dollar and treasury yields, traditional rivals for fund flows. Gold for December delivery settled US$3.90 or 0.2 per cent ahead at US$1,658 an ounce. The NYSE Arca Gold Bugs Index rallied 1.62 per cent.
Oil mounted a modest recovery from Monday’s overnight losses, boosted by the falling greenback. Brent crude settled 26 US cents or 0.3 per cent ahead at US$93.52 a barrel.
