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Australian stocks have their sights on fresh 2023 highs after Wall Street was lifted by a 15-month low in inflation ahead of this week’s Federal Reserve interest rate decision.

The S&P/ASX 200 will open 12 points or 0.16 per cent ahead this morning, according to futures action. The Australian benchmark rallied 0.34 per cent on Friday to a fresh nine-month closing high.

The Nasdaq sealed a fourth straight weekly advance with a rise of almost 1 per cent on Friday. The Dow and S&P 500 recorded their third weekly gains in four.

Oil retreated ahead of an OPEC+ committee meeting this week. Gold trimmed a sixth straight winning week. Iron ore edged higher as trade resumed after the Lunar New Year break. The dollar fell back to 71 US cents.

Wall Street

US stocks ended a winning week with further gains on Friday as investors assessed inflation data and mixed corporate earnings. The main indices pared gains in the final hour.

The Nasdaq Composite led with a rise of 109 points or 0.95 per cent. The S&P 500 advanced 10 points or 0.25 per cent. The Dow Jones Industrial Average edged up 29 points or 0.08 per cent to a sixth straight gain.

Investors welcomed further evidence of cooling inflation. Consumer prices increased a modest 0.1 per cent in December, according to Commerce Department data. The annual rate of price increases slowed to a 15-month low of 5 per cent from 5.5 per cent in November.

Core inflation rose 0.3 per cent, in line with expectations. The annual increase was a 14-month low of 4.4 per cent, down from 4.7 per cent in November.  

The report sharpened hopes the Fed will this week downsize the current pace of interest rate hikes after raising by 50 basis points at its last meeting following a run of 75 bps increases.

“The downshift in inflation means the Fed can downshift rates a second time to just 25 bps at the next decision date on Wednesday,” Chris Rupkey, chief economist at FWDBONDS, said.

A strong start to the year has lifted the Nasdaq Composite 11 per cent, the S&P 500 index 6 per cent and the Dow 2.5 per cent. By comparison, the ASX 200 has gained 6.5 per cent. The Nasdaq is on track for its best start to a year since 2001.

“It’s a nice end to another solid week of what’s shaping up to be a historically strong month,” Ryan Detrick, chief market strategist at Carson Group, told Reuters. “It’s a realization that inflation continues to come down quickly and that is alleviating a lot of worries regarding the economy.”

Tesla had its best week since 2013 after reporting record quarterly revenues. The electric car-maker surged another 11 per cent on Friday to extend its advance for the week beyond 33 per cent.

A mixed session for earnings saw well-received reports from AmEx and Visa offset by disappointments from Intel and Chevron.

“Intel earnings disappointed everyone,” Ed Moya, senior market analyst for the Americas at Oanda, said. “First quarter revenue guidance was terrible.”

Australian outlook

A potentially challenging week looks set for a positive start as a spectacular month for global equities continues. With two sessions left to trade, the ASX 200 is on track for a 6.5 per cent return for January, beating the 6 per cent rise so far for the S&P 500, but behind the Nasdaq’s stunning 11 per cent surge.

Futures action suggests modest gains this session following advances in US sectors most closely affected by higher rates. Megacap tech stocks set the pace on Wall Street.

Also strong was the highly-geared real estate sector, up 0.94 per cent. Industrials firmed 0.35 per cent and financials 0.05 per cent.

BHP and Rio Tinto declined as the US materials sector eased 0.34 per cent. Energy was the biggest drag, falling 1.99 per cent. Also weak were healthcare -0.69 per cent and consumer staples -0.25 per cent.

The tone for the trading week ahead is likely to be set by overseas events, with one in particular looming as a make-or-break moment for this year’s global rally. The US Federal Reserve starts a two-day meeting tomorrow that will almost certainly culminate in another rate hike on Wednesday.

The market has factored in a quarter-point hike and more hawkish talk about the need to keep rates elevated for some time. A surprise half-point hike would likely bring the current global rally in equities to a screeching halt.

Also this week: Chinese manufacturing/services PMIs, US consumer confidence (Tuesday); OPEC+ meeting, US private-sector payrolls, job openings, manufacturing PMI (Wednesday);  European Central Bank rates decision (Thursday); and US jobs report (Friday).

Back home, the domestic calendar includes: retail sales, private sector credit, weekly consumer confidence (Tuesday); manufacturing (Wednesday); and building approvals and business confidence (Thursday).

Another key theme for the week is likely to be earnings from US heavyweights Apple, Amazon, Alphabet (Google) and Meta Platforms (Facebook).

The domestic interim earnings season slowly cranks into gear. Companies reporting this week include: MFF Capital Investments (today); IGO, Centuria Industrial REIT (Tuesday); Australasian Metals (full-year), Credit Corp, Pinnacle Investment Management and Lions Bay Capital (Wednesday); Centuria Office REIT and Energy Resources (Thursday); and VGI Partners Asian Investments and Mayfield Childcare (Friday) (source: First Advisers).

The quarterly reporting season ends tomorrow. Among companies updating the market today are Alcidion, Camplify and Marley Spoon.

Agribusiness Nufarm holds its AGM on Wednesday.

IPOs: the ASX’s current list of upcoming floats and listings is the shortest this writer can recall. There is nothing on the horizon this week. At this stage, the first listing of February is not until the third week. 

The dollar declined 0.64 per cent to 71.03 US cents as the greenback steadied ahead of the Fed meeting.

Commodities

Mining heavyweights BHP and Rio Tinto retreated in overseas trade despite a second day of modest gains in iron ore as trade resumed in Singapore following the Lunar New Year break. Ore fines edged up 0.17 per cent to US$122.70 a tonne.

BHP‘s US-traded depositary receipts sagged 1.91 per cent. The miner’s UK listing fell 1.02 per cent. Rio Tinto lost 0.98 per cent in the US and 1.35 per cent in the UK.

Oil retreated ahead of a meeting this week of the Organization of the Petroleum Exporting Countries and allies, and a looming European Union ban on Russian oil imports. OPEC+ holds a committee meeting on Wednesday. The EU ban on Russian imports starts on Sunday.

Brent crude settled 81 US cents or 0.9 per cent lower at US$86.66 a barrel. The US benchmark, West Texas Intermediate, fell 1.6 per cent to US$79.68, its lowest close in a week.

Gold eased further from a nine-month high earlier in the week. Gold for February delivery settled 60 US cents or less than 0.1 per cent weaker at US$1,929.40 an ounce. The NYSE Arca Gold Bugs Index sank 1.63 per cent.

The yellow metal eked out a weekly gain of less than 0.1 per cent, just enough for a sixth straight weekly advance, the longest run since August 2020.

Industrial metals retreated ahead of the return of Chinese buyers after the week-long Lunar New Year break. Benchmark copper on the London Metal Exchange declined 0.71 per cent to US$9,263.50 a tonne.

Aluminium dropped 0.45 per cent, nickel 1.78 per cent, lead 0.98 per cent, zinc 2.09 per cent and tin 4.41 per cent.

Battery metal miners traded mixed in the US. The Global X Lithium & Battery Tech ETF rallied 1.27 per cent on the New York Stock Exchange to a sixth straight gain. The VanEck Rare Earth/Strategic Metals ETF fell 0.45 per cent to its first loss in seven sessions.

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