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A rebound on Wall Street ahead of risk events this week points to early strength for Australian stocks following yesterday’s three-week low.
The S&P/ASX 200 is poised to open 49 points or 0.68 per cent higher, according to futures moves.
Overnight, US stocks reversed some of last week’s heavy losses before tonight’s consumer inflation report and tomorrow’s Federal Reserve interest rate decision.
Oil bounced 2.5 per cent. Iron ore, copper and gold retreated. The dollar was little changed, hovering below 68 US cents.
Wall Street
US stocks steadied ahead of the last rate hike of the year and an inflation report that will affect how high rates go next year.
The S&P 500 bounced 56 points or 1.43 per cent. The Dow Jones Industrial Average rose 529 points or 1.58 per cent. The Nasdaq Composite added 139 points or 1.26 per cent.
The major indices were coming off their worst week in more than two months. Stocks skidded last week amid fears the Fed’s rates outlook will be more hawkish than the market’s. Losses last week ranged from 2.77 up to 4 per cent.
“Today’s action is mostly a reflex bounce after last week’s poor performance,” Yung-Yu Ma, chief investment strategist at BMO Wealth Management, told CNBC. “There’s probably some cautious optimism ahead of [tonight’s consumer inflation] report, but also some underlying concern.”
Economists expect tonight’s November Consumer Price Index (CPI) data to continue the recent gentle down-trend in inflation. The consensus is for a drop in headline consumer inflation to an annual rate of 7.3 per cent from 7.7 per cent in October. Core inflation, which excludes volatile food and energy prices, is tipped to drop to 6.1 per cent from 6.3 per cent.
“That is one of the reasons why the market is feeling a little positive, because if you just take the overall CPI, if it gets down to another drop from 7.7%, there is a real trend there,” Rob Conzo, CEO and managing director of The Wealth Alliance, told Reuters.
“It may be a tick down and if it is that will be just one more little notch in the ‘yes’ column of a trend, the report doesn’t mean things are great it just means one little step forward in a year-long trend.”
Fear that the Fed’s aggressive rate increases may tip the US economy into recession have helped fuel the worst year for investors since the Great Financial Crisis. The S&P 500 is down roughly 17 per cent and on track for its first annual decline since 2018 and largest since 2008.
Boeing climbed 3.72 per cent on reports of a major order from Air India. Microsoft put on 2.89 per cent after buying a 4 per cent stake in the company that runs the London Stock Exchange. Electric truck-maker Rivian sank 6.16 per cent after a deal to make electric vans in Europe with Mercedes-Benz fell apart.
Australian outlook
A rebound session coming up following recent weakness. Some of the heat has come out of global stocks in the last week and a half, allowing room for recovery if this week’s risk events in the US play out broadly in line with expectations.
The ASX 200 touched a three-week low yesterday before paring its loss to 0.45 per cent. The Australian benchmark has fallen on five of the last seven sessions as US rates worries overshadowed China reopening news.
The improved mood on Wall Street overnight lifted all 11 sectors. Importantly, the major indices finished at session highs.
The night’s best returns came from energy +2.49 per cent, utilities +2.27 per cent and technology +2.17 per cent. Financials gained 1.26 per cent. Materials firmed 0.89 per cent.
Today’s domestic economic calendar is all about confidence: firstly, ANZ’s weekly gauge of consumer sentiment; secondly, a monthly consumer confidence measure from Westpac; and thirdly, NAB’s monthly take on business confidence.
IPOs: Richmond Vanadium Technology (ASX code: RVT) is scheduled to list at 12.30 pm AEDT. This explorer holds the Richmond Vanadium Project in north Queensland. Horizon Minerals is a major shareholder with a stake of 25 per cent.
The dollar was trading little changed this morning, down 0.07 per cent at 67.74 US cents.
Commodities
Oil bounced off a near 12-month low as the on-going closure of a major North American pipeline provided support. The Keystone pipeline was closed last week after a leak allowed 140,000 barrels to spill into Kansas. The pipeline normally carries 600,000 barrels of crude per day from Canada to Oklahoma.
Brent crude settled US$1.89 or 2.5 per cent higher at US$77.99 a barrel. West Texas Intermediate rallied 3 per cent to US$73.17.
Iron ore backed off a six-month high amid questions over whether recent price gains have outpaced the demand boost from China loosening Covid restrictions. The most-traded May ore on the Dalian Commodity Exchange declined 0.8 per cent in daytime trade to 802.50 yuan (US$115.08) a tonne.
“Iron ore futures rallying to close at $111.75/t on Friday is yet another poignant example of just how much heat and overly positive sentiment is currently built in to the current pricing structure,” Navigate Commodities Managing Director Atilla Widnell said. Ore prices above US$100 a tonne seemed “overvalued”, Widnell added.
BHP‘s US-traded depositary receipts eased 1.38 per cent. The firm’s UK listing shed 3.68 per cent. Rio Tinto declined 1.87 per cent in the US and 2.67 per cent in the UK.
Copper also retreated from its highest level since June as the greenback firmed ahead of a near-certain US rate rise. Benchmark copper on the London Metal Exchange fell 2.04 per cent to US$8,369 a tonne.
Aluminium lost 2.8 per cent, lead 0.7 per cent and tin 0.17 per cent. Nickel advanced 1.96 per cent and zinc 1.24 per cent.
Gold broke a four-session win run amid profit-taking ahead of central bank meetings in the US, Europe and the UK. All three banks are expected to raise rates, boosting returns from assets that compete with precious metals for investment flows.
Gold for February delivery settled US$18.40 or 1 per cent lower at US$1,792.30 an ounce. The NYSE Arca Gold Bugs Index dipped 0.32 per cent.
