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The Australian share market was poised to open more than 2.7 per cent higher after signs of cooling inflation ignited Wall Street’s strongest rally since 2020.
The Dow jumped nearly 1,200 points on speculation the top in interest rates may not be as far off as previously projected. The Nasdaq Composite surged 7.3 per cent and the S&P 500 5.5 per cent.
ASX futures suggest the S&P/ASX 200 should open a spectacular 192 points or 2.76 per cent higher this morning at a level last seen in mid-August.
The dollar jumped almost 3 per cent as the greenback wilted. Gold logged its highest close since late August. Oil and industrial metals also advanced. Iron ore was held back by a rise in Covid cases in China.
Wall Street
US stocks booked huge gains as a slowdown in inflation softened the outlook for interest rates. Treasury yields plunged, easing pressure on growth stocks whose valuations are marked against the cost of borrowing.
The S&P 500 soared 207 points or 5.53 per cent. The Dow Jones Industrial Average gained 1,198 points or 3.69 per cent. The Nasdaq Composite put on 761 points or 7.35 per cent.
Stocks took wing after measures of both headline and core inflation came in weaker than expected for October. The consumer price index increased just 0.4 per cent for the month, below the 0.6 per cent gain expected by economists. Annual price growth of 7.7 per cent was down from 8.2 per cent in September.
Core inflation, which excludes volatile food and energy prices, increased by 0.3 per cent for the month and 6.3 per cent for the year. The consensus expectation was for gains of 0.5 and 6.5 per cent.
“It’s pretty clear that inflation has definitely peaked and is rolling over. All the trend lines suggest that it will continue to moderate going forward,” Mark Zandi, chief economist at Moody’s Analytics, said.
Treasury yields plunged as traders reassessed the outlook for interest rates. The ten-year yield dropped 32 basis points to 3.823 per cent, the biggest single-day drop since 2009. The US dollar index fell 2.26 per cent.
“The market is on fire with the long-wished for inflation moderation finally starting to appear,” Chris Rupkey, chief economist at FWDBONDS, said.
“Inflation is still too high, but there is evidence that the Fed has turned the corner in its fight and that the pace of future interest rate increases will begin to slow,” he added
The odds on a smaller rate hike next month jumped from 52 per cent to 85 per cent, according to CME’s FedWatch tool. Goldman Sachs predicted the Fed would raise by 50 basis points next month and follow up with 25 bp increases in February and March.
Wall Street’s “fear gauge”, the VIX, dropped to a two-month low.
Big Tech had borne the brunt of this year’s sell-off in growth stocks and saw some of the night’s strongest gains. Amazon jumped 12.18 per cent. Apple gained 8.9 per cent, Microsoft 8.23 per cent, Tesla 7.39 per cent and Facebook owner Meta Platforms 10.25 per cent.
The Philadelphia Semiconductor Index surged 10.21 per cent. An index of housing stocks gained 10.3 per cent.
Australian outlook
Wall Street put on a night to remember after the monthly inflation report delivered the convincing pullback the market has been hankering for these last few months. The war on inflation is not over, but the turning point may finally be here.
The main indices in the US blew through technical resistance and the S&P/ASX 200 should do the same thing today. The Australian benchmark should punch back above its 200-day moving average and the psychological hurdle of 7000.
Needless to say, the rally lifted every US sector. The strongest gains were among sectors that have suffered most from rising rates. The three ‘Big Tech’ growth sectors (I.T., consumer discretionary, communication services) logged gains of between 6.32 and 8.33 per cent. Real estate spiked 7.75 per cent.
The twin pillars of the ASX, materials and financials, gained 5.55 and 5.13 per cent, respectively. Bringing up the rear with a relatively modest advance of 2.22 per cent was energy.
The performance of BHP and Rio Tinto in overseas trade reflected the dramatic change in market sentiment following the US CPI data. After dipping 0.19 per cent in UK trade, BHP surged 4.59 per cent in the US. Rio Tinto gained 0.57 per cent in the UK and 4.27 per cent in the US.
The dollar was catapulted higher by a collapse in the greenback. The Aussie jumped 2.95 per cent to 66.2 US cents.
There is nothing on the economic calendar today to spoil the party. Footwear retailer Accent Group picked a great day to hold its AGM.
A flurry of price-sensitive ASX announcements is likely as companies take advantage of the exuberance. The somnolent market for IPOs will likely also spring to life in the next week or two as the taps start flowing again.
Commodities
Gold surged to its highest since late August as the US dollar and treasury yields, rivals for investment fund flows, turned sharply lower.
“Inflation has finally started to drop like a rock in the U.S. and this is the best news that anyone can expect,” Naeem Aslam, chief market analyst at AVATrade, said.
“The U.S. inflation data has also brought a lot of good news for the gold price, which is now solidly above the 1,700 price level,” he added.
Gold for December delivery settled US$40 or 2.3 per cent higher at US$1,753.70 an ounce. The NYSE Arca Gold Bugs Index soared 6.75 per cent.
Oil broke a three-session losing run as the odds on a US recession receded with the prospect of a slowdown in rate hikes. Prices have come under pressure this week as Covid cases increased in China and lockdowns spread.
“Oil prices shook off China negativity after the [US] CPI cooled,” Phil Flynn, senior market analyst at The Price Futures Group, said. “Headwinds for oil, such as a stronger dollar and fears of Fed interest rate hikes being more aggressive, have eased,” he added.
Brent crude settled US$1.02 or 1.1 per cent ahead at US$93.67 a barrel.
Industrial metals reversed initial losses as the dollar turned from headwind to tailwind. Benchmark copper on the London Metal Exchange climbed almost 2 per cent to US$8,263 a tonne. Aluminium rallied 0.17 per cent, nickel 5.58 per cent, lead 0.82 per cent, zinc 0.82 per cent and tin 2.63 per cent.
Iron ore pulled back yesterday for the first time in eight sessions as China tightened restrictions in the manufacturing hub of Guangzhou. Infections topped 2,000 in the worst outbreak in the city so far.
The most-traded January ore contract on the Dalian Commodity Exchange dropped 1.4 per cent to 675.50 yuan (US$93.21) a tonne.
