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Aussie stocks were poised for a cautious start to the week following a mixed close in the US after blowout jobs figures dashed hopes of a slowdown in interest rate hikes.  

Surging bond yields helped drive the S&P 500 and Nasdaq Composite lower. The Dow overcame early weakness as the financial sector rallied.

Iron ore, oil and most industrial metals rose. Gold backed off a one-month high. The dollar was pushed briefly under 69 US cents.

ASX futures eased seven points or 0.1 per cent, signalling a weak open after the S&P/ASX 200 last week regained the 7000 level. The Australian benchmark climbed 0.58 per cent on Friday to 7015.6, its highest close in seven weeks.

The domestic reporting season hots up this week with updates from Commonwealth Bank, Telstra, AMP and the major insurers (more below).

Wall Street

US stocks opened lower after July employment data showed aggressive interest rate increases this year have yet to cool the economy. Rate-sensitive growth stocks fell as the odds on a 75 basis point rate hike next month jumped.

The S&P 500 trimmed its loss to seven points or 0.16 per cent as traders bought the dip. The Nasdaq Composite shed 63 points or 0.5 per cent. The Dow Jones Industrial Average swung to a gain of 77 points or 0.23 per cent.

The US economy added 528,000 jobs last month, more than twice the 258,000 predicted by economists polled by Dow Jones. The jobless rate fell to 3.5 per cent, the lowest since the 1960s. A 0.5 per cent improvement in average hourly earnings indicated inflationary pressures continued to run hot.

The report ended any debate about a recession, but sharply increased the likelihood of another bumper rate hike next month.

“It puts 75 basis points squarely on the table for the Fed in September,” Jim Baird, chief investment officer of Plante Moran Financial Advisors, told MarketWatch.

The odds on a 75bp increase to the federal funds rate target next month jumped to 66.5 per cent from 34 per cent on Thursday.

“The economy is clearly firing on all cylinders as this morning’s job report showed growth across all sectors. The release should quiet the bears in the room who have been crying recession in recent days,” Peter Essele, head of portfolio management at Commonwealth Financial Network, said.

Bank stocks were boosted by gains in treasury yields. Two-year treasury-yields rose to their highest in almost two months. JPMorgan Chase was the Dow’s best performer, rising 3.03 per cent.

Growth stocks, whose valuations get discounted in higher-rate environments, declined. Tesla skidded 6.63 per cent, Meta Platforms 2.03 per cent and Amazon 1.24 per cent.  

Attention will now switch to this week’s consumer price index report. Investors will hope a slowdown in inflation allows the Federal Reserve to raise less aggressively next month.

Australian outlook

A strong end to last week leaves the S&P/ASX 200 well positioned to ride out any early pressures this session. The Australian benchmark glided through technical resistance at 7000 on Friday, rising 40.7 points or 0.58 per cent to 7015.6.

The market has good momentum following three straight weeks of gains. Friday’s close was the strongest since June 9.

Banks and energy producers look likely to lead this session. US financials rallied 0.79 per cent as a rebound in lending rates offered opportunities for lenders to expand margins.

The US energy sector bounced 2.04 per cent as oil trimmed a losing week. Also positive were basic materials +0.36 per cent, real estate +0.32 per cent and industrials +0.21 per cent. Growth sectors declined.

The greenback’s positive response to the US jobs report knocked the Australian dollar down more than half a cent before a partial recovery. The Aussie was this morning at 69.1 US cents after trading as low as 68.7 US cents.

Reporting season kicks up a gear this week. Potential highlights include: Suncorp and Aurizon (today); Megaport, Coronado and REA Group (Tuesday); CBA (Wednesday); Telstra, AMP, QBE, ResMed, Mirvac and Avita Medical (Thursday); and IAG and Baby Bunting Group (Friday). Source: CommSec.

A light week for domestic economic data includes consumer and business confidence reports tomorrow and inflation expectations on Thursday.

Overseas, inflation updates are likely to set the tone in the US and China. Both countries release July consumer price indices on Wednesday. Economists expect price growth to slow in the US, pick up in China.

Lithium was back in vogue last week. Three of the index’s five best performers were miners. Lake Resources led with a weekly advance of 14.8 per cent, followed by Liontown +14 per cent and Core Lithium +11.3 per cent.

IPOs: another light week ahead with just two potential starters listed by the ASX. Bayrock Resources is pencilled in for Thursday, followed by Australia Sunny Glass Group on Friday. 

Commodities

Oil bounced at the end of a bruising week as robust US jobs data soothed concerns about a rapid cooldown in the global economy. Brent crude settled 80 US cents or 0.9 per cent higher at US$94.92 a barrel.

The rebound trimmed the global benchmark’s loss for the week to 8.7 per cent. Energy prices tumbled last week as a build-up in US stockpiles indicated demand had been dented by this year’s price surge.

“Traders are becoming much less concerned with the supply issues related to the Russia-Ukraine war and instead are beginning to watch demand metrics deteriorate amid a considerable uptick in recession calls. And with gasoline demand in the U.S. currently sitting 9% below last year’s levels and even lower than summer 2020, it is clear that prices above $100/barrel are not sustainable,” analysts at Sevens Report Research wrote.

Iron ore  rose amid reports of Chinese steel-makers restarting idled mills as steel margins improve and demand picks up. The spot price for ore landed in China rose US$2.61 or 2.5 per cent to US$109.11 a tonne. The most-traded contract on the Dalian Commodity Exchange climbed 2.6 per cent to US$107.18.

Most industrial metals rebounded as robust US jobs growth soothed demand worries. Benchmark copper rallied 1.8 per cent on the London Metal to US$7,862.50 a tonne. Aluminium gained 0.6 per cent, nickel 0.1 per cent, lead 2.6 per cent and zinc 0.5 per cent. Tin eased 0.6 per cent.

BHP‘s US-traded depositary receipts rose 2.39 per cent. The miner’s UK listing gained 1.86 per cent. Rio Tinto put on 2.31 per cent in the US and 2.02 per cent in the UK.

Gold retreated from its highest level in a month as surges in the US dollar and bond yields undermined demand for alternative stores of wealth. Metal for December delivery settled US$15.50 or 0.9 per cent lower at US$1,791.20 an ounce. The NYSE Arca Gold Bugs Index eased 0.83 per cent.

“Today’s labor market report is bad news for gold bulls, with next week’s CPI report the next key test,” Michael Hewson, chief market analyst at CMC Markets, said.

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