Stocks look set to open cautiously higher after a rate cut lifted Wall Street to a new record.
Australian index futures rallied six points or 0.1 per cent to 6676 as the S&P 500 claimed a third consecutive all-time high. The US Federal Reserve dropped its benchmark funds rate by 25 basis points to 1.5 – 1.75 per cent, as widely expected. Wall Street gains were capped by a warning from Fed Chair Jerome Powell that the rate-cutting cycle is on hold until inflation picks up.
The S&P 500 kicked higher in the final hour of trade to a gain of ten points or 0.33 per cent. The Dow rose 115 points or 0.43 per cent to shrink the gap on its July record high. The Nasdaq added 27 points or 0.33 per cent.
This morning’s rate cut came as no surprise, but the initial market reaction was disappointment after the Fed dropped a key phrase from its policy statement that signalled future cuts. Powell later told reporters the current rate setting was appropriate after three cuts this years and will remain until inflation reaches 2 per cent. He said it would take a “material reassessment of our outlook” to change rates.
Earlier, data showed the pace of economic growth slowed a fraction last quarter, but not as much as economists expected. US gross domestic product grew at an annualised rate of 1.9 per cent over the third quarter, easing from a pace of 2 per cent during the previous three months. Economists had expected a weaker rate of 1.6 per cent. Consumer spending remained strong despite the effects of the trade war with China. A separate report on private payroll numbers came in largely as expected.
Industrial conglomerate General Electric surged 11.7 per cent as the corporate earnings season continued. Apple and Facebook were due to report this morning shortly after the closing bell.
US demands that China buy huge quantities of American farm produce has become a sticking point in trade negotiations, according to Reuters. Sources say China is baulking at President Donald Trump’s request that they buy up to $US50 billion of agricultural goods.
BHP and Rio Tinto both fell more than 1 per cent here yesterday and saw similar declines on overseas markets. BHP’s US-listed stock shed 0.72 per cent and its UK-listed stock 1.47 per cent. Rio Tinto gave up 1.57 per cent in the US and 2.21 per cent in the UK. The declines followed another soft session on iron ore markets. The spot price at Tianjin eased 40 cents or 0.5 per cent to $US85.10 a dry ton.
Gold weathered a brief wobble in the aftermath of the rate decision. Gold for December delivery settled $6 or 0.4 per cent higher at $US1,496.70 an ounce and was lately sitting at $1,498 after a temporary plunge below $US1,490.
Oil dropped to its lowest level in a week after US crude supplies increased more than expected. Brent crude fell 98 cents or 1.6 per cent to $US60.61 a barrel. A report from the US Energy Information Administration showed US crude supplies rose by 5.7 million barrels last week, more than double expectations.
Industrial metals retreated following yesterday’s claim by a US trade official that a deal with China may not be completed in time for a planned sign-off next month. Benchmark copper, nickel, tin and aluminium on the London Metal Exchange dropped 0.3 per cent, lead 2.5 per cent and zinc 0.6 per cent.
The dollar surged half a cent to 68.97 US cents as currency traders dumped the greenback on the changed rates outlook.
A big week for economic data continues this morning with domestic building approvals, import prices and private sector credit, as well as Chinese manufacturing and services reports. The AGM season is in full flow and companies are scrambling to get their quarterlies out on the last day of the month. Wall Street has a stack of second-tier economic reports coming tonight, as well as quarterlies from Apple, Facebook, Baker Hughes and CBS.