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Australian shares looked set to give back some of this week’s gains after a relief rally in the US lost momentum even as additional data pointed to a slowdown in inflation.
Wall Street’s main indices finished mixed as investors booked profits at three-month highs.
ASX futures retreated 20 points or 0.29 per cent, signalling early pressure following the S&P/ASX 200’s best session in more than three weeks. The Australian benchmark surged 78 points or 1.12 per cent yesterday.
Overnight, oil traded back above US$100 a barrel after the International Energy Agency raised its global demand forecast. Copper hit a six-week high. Iron ore rose. Gold retreated. The dollar traded above 71 US cents for the first time since June.
Wall Street
US stocks opened strongly for a second night after wholesale prices declined last month, sharpening hopes inflation has peaked. The rally in equities gently deflated as Fed officials dismissed talk of a pause in rate hikes.
The S&P 500 eased to a loss of three points or 0.07 per cent. A strong quarterly from Disney helped the Dow Jones Industrial Average hold on to a gain of 27 points or 0.08 per cent after earlier rising more than 340 points. The Nasdaq Composite shed 75 points or 0.58 per cent as high-growth companies retreated.
Investors looking for evidence inflation has topped out saw another piece in the puzzle fall into place. Wholesale inflation, as measured by the producer price index (PPI), declined last month for the first time in more than two years.
The PPI fell 0.5 per cent after rising 1 per cent in June. Economists had expected an increase of 0.2 per cent, according to Dow Jones.
Last night’s report followed news on Wednesday that consumer prices flattened last month, bringing year-on-year growth in the consumer price index (CPI) down to 8.5 per cent from 9.1 per cent in June.
“It was a better CPI print yesterday than expected and a better PPI print this morning than forecasted by analysts. So it fit that theme, that peak inflation has occurred as energy continues to decline,” George Catrambone, head of Americas trading at DWS Group, told Reuters. “But I would be concerned about a head fake.”
Stocks haemorrhaged gains as central bank officials made it clear they will continue to raise rates. Minneapolis Federal Reserve President Neel Kashkari said this week’s reports were welcome but the Fed was “far, far away from declaring victory” on inflation. He expected rates to reach 3.9 per cent by year-end from their current range of 2.25-2.5 per cent.
Chicago Fed President Charles Evens said inflation was still “unacceptably” high. San Francisco Fed President Mary Daly also said it was too early to “declare victory” over inflation.
Lingering concerns about a hard landing for the economy were exacerbated by a second straight weekly increase in claims for jobless benefits. First-time claims increased by 14,000 last week to 262,000.
Australian outlook
The S&P/ASX 200 looks likely to trim a fourth straight winning week after this week’s inflation relief rally on Wall Street ran out of gas. The Australian benchmark jumped more than 1.1 per cent yesterday to get a wobbly week on track for a happy conclusion. The rally lifted the index 55 points into positive territory for the week.
Some selling pressure seems likely this session, but probably not enough to break the market’s run of weekly advances. Market sentiment remains constructive.
Energy was the pick of the US sectors, jumping 3.19 per cent as Brent crude tested US$100 a barrel for the first time in more than a week.
The two sectors with the largest weighting on the ASX were also positive. Financials gained 1.02 per cent. Basic materials firmed 0.28 per cent.
The biggest drags in the US were healthcare -0.71 per cent, consumer discretionary -0.66 per cent and real estate -0.55 per cent. Tech shed 0.48 per cent.
The domestic economic calendar is empty today. Reporting season continues with updates from insurer IAG and retailer Baby Bunting Group.
On-going pressure on the greenback allowed the dollar to extend Wednesday night’s rally. The Aussie traded as high as 71.37 US cents before trimming its rise to 0.35 per cent at 71.06 US cents.
Commodities
Oil retested US$100 after the International Energy Agency raised its global demand forecast. The agency said falling Russian imports and high gas prices had forced industrial consumers to turn to oil as an alternative energy source. The report came the same day as the OPEC+ oil cartel downgraded its demand outlook.
“Incredibly, the IEA posted a rather rosy demand scenario, while the OPEC Monthly Report was relative gloom and doom… the producer group shooting themselves in the foot a bit, with the IEA saving the day,” Robert Yawger, executive director for oil futures at Mizuho Securities, said.
Brent crude settled US$2.20 or 2.3 per cent ahead at US$99.60 a barrel after trading as high as US$100.17. The US benchmark rose 2.6 per cent to US$94.34.
Iron ore rose amid reports of restocking by Chinese steel mills. Chinese steel producers have restarted idled blast furnaces, encouraged by a recovery in demand and an improvement in margins, Reuters reported.
The spot price for ore landed in China firmed US$1.74 or 1.6 per cent to US$111.01 a tonne.
BHP‘s US-traded depositary receipts rallied 0.76 per cent. The miner’s UK listing gained 1 per cent. Rio Tinto advanced 1.59 per cent in the US and 0.72 per cent in the UK.
Pressure on the greenback lifted copper and other industrial metals priced in US dollars. Benchmark copper on the London Metal Exchange climbed 1 per cent to US$8,165.50 a tonne, its highest close in six weeks.
“The peak inflation thesis is pushing base metals up,” Gianclaudio Torlizzi, partner at consultants T-Commodity, told Reuters.
Aluminium improved 1.1 per cent, nickel 5.2 per cent, lead 0.9 per cent, zinc 2.1 per cent and tin 3.4 per cent.
Gold turned lower as traders favoured risk assets over havens. Gold for December delivery settled US$6.50 or 0.4 per cent lower at US$1,807.20 an ounce. The NYSE Arca Gold Bugs Index dropped 1.44 per cent.
