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The share market looks set for a strong start as a positive end to the US trading week helps offset the threat of another interest rate rise here tomorrow.
Futures action indicates the S&P/ASX 200 will open 63 points or 0.87 per cent higher after Wall Street broke a run of weekly losses.
Iron ore climbed to an eight-month high. Gold sealed its first weekly gain in five weeks. Oil and most industrial metals also rose. The dollar remained in a holding pattern near 67.5 US cents.
The Reserve Bank meets tomorrow and is expected to increase the cash rate target by another quarter of a percentage point to 3.6 per cent.
Wall Street
US stocks broke a run of weekly losses after robust economic data soothed recession worries. Treasury yields retreated on signs that input costs were cooling.
The S&P 500 rallied 64 points or 1.61 per cent on Friday. The Dow Jones Industrial Average charged up 387 points or 1.17 per cent. The Nasdaq Composite gained 226 points or 1.97 per cent.
A report on services-sector activity helped fuel the rally. The Institute of Supply Management’s February survey showed demand for services remained healthy but input costs were the lowest in more than a year.
The non-manufacturing purchasing managers’ index was broadly steady at 55.1 per cent. Readings above 50 indicate expanding activity. Economists had expected the index to drop to 54 per cent.
New orders were the strongest in 13 months. Employment reached a 14-month high. The prices-paid index, which measures inflationary pressures, eased 2.2 points to 65.6 per cent.
“Investors saw what they wanted in the ISM data, which was basically healthy growth with slowing prices,” David Carter, managing director at JPMorgan Private Bank, said.
Rate-sensitive megacap growth stocks led the advance after the yield on ten-year US treasuries backed off the closely-watched 4 per cent level. Yields eased after Atlanta Federal Reserve President Raphael Bostic said the central bank should stick with 25 basis point rate hikes, rather than a jumbo half-point hike this month.
“The stock market is very sensitive to bond yields at this point and looking for some respite to the recent upward moves in yields,” Yung-Yu Ma, BMO Wealth Management chief investment strategist, told CNBC.
Reports this week on jobs and next week on inflation are expected to determine the size of this month’s rate increase. Fed Governor Christopher Waller said last month’s data challenged his belief the Fed was making progress on bringing down inflation.
“It could be that progress has stalled, or it is possible that the numbers released last month were a blip,” he said.
The S&P 500 broke a three-week losing run with a gain of 1.9 per cent. A 1.75 per cent rise helped the Dow to its first weekly advance in five weeks. The Nasdaq booked a weekly gain of 2.58 per cent.
Australian outlook
The share market showed signs of building a base last week after more than three weeks of falls. Positive leads from Wall Street and commodity markets should help get this week off to a strong start. The S&P/ASX 200 will look to break a four-week losing streak after declining 0.3 per cent last week.
Rate-sensitive growth stocks spearheaded gains in the US. The tech sector jumped 2.14 per cent, consumer discretionary 2.12 per cent and communication services 2.1 per cent.
The highly-geared real estate sector firmed 1.74 per cent as treasury yields backed off a key level. The two sectors with the biggest weighting on the ASX – financials and materials – gained 1.6 and 1.4 per cent, respectively.
Miners outperformed last week as strong Chinese factory data boosted commodity prices. The week’s best returns came from Liontown Resources +19.4 per cent, Ramelius +18.9 per cent and Perseus +12.4 per cent.
The week’s worst all disappointed on earnings. InvoCare slumped 18.6 per cent, Downer EDI 17.2 per cent and Harvey Norman 11.2 per cent.
The dollar seems to have steadied in a trading band between 67 and around 67.8 US cents. The Aussie was this morning off 0.3 per cent at 67.45 US cents.
Besides US leads, the market will also be reacting to weekend events at China’s “Two Sessions” parliamentary meeting. The Chinese government set a GDP growth target of “around 5%” in a report released yesterday, slightly below expectations.
The average forecast among economists polled by CNBC before the announcement was 5.24 per cent. GDP expanded 3 per cent last year as pandemic lockdowns crimped activity.
Other targets set out in a report delivered by Premier Li Keqiang included 3 per cent for the consumer price index and 12 million new jobs. Increasing domestic demand was cited as the government’s top economic policy.
Central banks take centre stage both here and in the US this week. The Reserve Bank meets tomorrow and is tipped to raise the cash rate target by 25 basis points to 3.6 per cent. Interbank futures set the odds on that event at 75 per cent – down a tad from 81 per cent last month but still very likely.
Whatever the outcome, Governor Philip Lowe will have a chance to explain the bank’s thinking when he addresses the Australian Financial Review Business Summit next day.
In the US, Federal Reserve Chair Jerome Powell faces a grilling this week in Washington. Powell is due to testify before the Senate Banking Committee on Tuesday and the House Financial Services Committee on Wednesday.
Other potential market-movers in the US include: factory orders (tonight); non-farm employment change, job openings (Wednesday); weekly jobless claims (Thursday); and non-farm payrolls (Friday).
A light domestic economic calendar brings weekly consumer confidence, monthly retail sales and trade data tomorrow.
The upcoming dividend season means a slew of companies trade ex-dividend this week. Among the larger names “going ex” are: QBE, Altium, Bendigo Bank and Ramsay Health Care (today); Sonic Healthcare, Perseus and Qube (Tuesday); Woodside Energy, Brambles and Costa Group (Wednesday); BHP, Rio Tinto, South32 and CSL (Thursday); and Downer EDI, Insignia and WiseTech (Friday).
Myer reports half-year results on Thursday.
IPOs: there are two possible debutants this week, both towards the end of the week. Northstar Energy, pencilled in for Thursday, is a coal seam gas explorer with tenements in Queensland. EverGreen Lithium, a day later, has land next to Core Lithium’s Finniss Project.
Commodities
Iron ore hit an eight-month high on Friday amid signs of increased steel production in China. Operational rates at Chinese steel mills were this month 6.35 per cent higher year-on-year, according to Mysteel data. Portside iron ore inventories declined last week in another sign of improved demand.
The most-traded May iron ore futures on the Dalian Commodity Exchange ended daytime trade 1.04 per cent ahead at 919 yuan (US$133.15) a tonne, the highest close since July 2022.
BHP‘s US-traded depositary receipts rallied 1.29 per cent. The miner’s UK stock firmed 1.75 per cent. Rio Tinto gained 1.95 per cent in the US and 2.09 per cent in the UK.
Oil reversed sharp initial losses after the United Arab Emirates denied tensions with Saudi Arabia might prompt it to leave the Organization of the Petroleum Exporting Countries. Crude prices plunged after The Wall Street Journal reported UAE officials were discussing quitting the cartel. They rebounded after unnamed UAE officials denied the report.
Brent crude traded as low as US$82.51 before settling US$1.08 or 1.3 per cent ahead at US$85.83.
Gold logged its first weekly advance in five weeks as the US dollar trimmed recent gains. The US dollar index declined 0.4 per cent last week. A stronger dollar makes the yellow metal more expensive for buyers using other currencies, and saps demand for alternative stores of wealth.
Gold for April delivery settled US$14.10 or 0.8 per cent ahead at US$1,854.60 an ounce. The most-active contract gained almost 2.1 per cent for the week. The NYSE Arca Gold Bugs Index rallied 1.4 per cent on Friday.
Copper wrapped up its best week since early January with a modest rise as optimism about Chinese demand continued to offset worries about slowing western economies. Benchmark copper on the London Metal Exchange lifted 0.28 per cent to US$8,983.50 a tonne.
Aluminium improved 0.23 per cent, nickel 0.83 per cent, zinc 0.97 per cent and tin 0.73 per cent. Lead dipped 0.28 per cent.
Battery metal miners had their best session since January. The Global X Lithium & Battery Tech ETF climbed 2.65 per cent on the New York Stock Exchange to its strongest close in almost two weeks.
