A strong start to the trading week is expected as all eyes turn to the Federal budget on Tuesday.
ASX 200 futures are trading 64 points higher, up 0.88%.
The ASX 200 closed 27 points (+0.37%) higher on Friday at 7220, however the Index fell 1.22% in the first week of May, weighed on by the RBA’s surprise rate hike and as US banking concerns. For the week, the Financial sector fell (-3.42%), Communication (-1.43%) and Energy (-1.37%). The Utilities (+2.05%) and Real Estate (+1.36%) Sectors were the only two sectors to close higher.
The local market’s good finish follows a positive finish to a topsy turvy week on Wall St.
US markets rallied on Friday.
IG Markets analyst Tony Sycamore note, “The release of non-farm payrolls on Friday showed the unemployment rate fell to 3.4% in April (vs 3.6% exp) as the US economy added 253,000 new jobs (vs 180,000 expected). Wages growth was strong, rising to 4.4% YoY (vs 4.2% exp). Negating some of the strength downward jobs revisions, which subtracted 149,000 from the prior two months’ job growth estimate - the largest downward revision since 2008.
“A report by JP Morgan that three regional banks are undervalued, combined with talk of a short-selling ban on banks, acted as a circuit breaker on Friday. PacWest and Western Alliance surged by 81.7% and 49.23%, respectively.
“Despite a subdued initial reaction, Apple ended up closing 4.69% higher after its earnings report, while Coinbase added 18.33% after it beat estimates. 85% of companies have reported, and according to FactSet, “S&P500 companies are recording their best performance relative to analyst expectations since Q4 2021.”
Here’s what we saw source (Commsec):
Europe
European markets ended higher on Friday. Energy shares rose 2.7% after crude oil prices firmed. Bank stocks gained 2.9%. HSBC shares added 2.7% after a bid to break-up the bank and spin-out its lucrative Asian business was defeated at its investor meeting. Shares of Adidas soared 8.9% after reporting better than-expected first quarter results.
The continent-wide FTSEurofirst 300 and the UK FTSE 100 indexes both rose by 1%. For the week, the FTSEurofirst 300 dipped by 0.3% with the UK FTSE 100 index down by 0.7%.
US
Wall st advanced on Friday. Apple shares gained 4.7% following the release of upbeat quarterly results, propelled by iPhone sales.
Strong US jobs data pointed to a resilient labour market. Regional US bank shares rebounded from declines tied to the collapse of First Republic Bank (NYSE:FRC). Analysts upgraded a number of lenders they said were oversold. PacWest Bancorp rallied 81.7% and Western Alliance Bancorp jumped 49.2%, while the KBW regional bank index gained 4.7%. The Dow Jones index rose by 547 points or 1.7%, the most since January 6.
The S&P 500 index gained 1.9% and the Nasdaq index added 269 points or 2.3%. But the Dow and the S&P 500 logged their worst week since March. The Dow lost 1.2%, while the S&P 500 dropped 0.8%. And the Nasdaq posted a gain of less than 0.1%.
Currencies
Currencies were mixed against the US dollar in European and US trade. The Euro fell from US$1.1045 to US$1.0968 and was near US$1.1030 at the US close. The Aussie dollar lifted from US67.02 cents to US67.56 cents and was near US67.40 cents at the US close. The Japanese yen rose from 133.91 yen per US dollar to JPY135.09 and was near JPY134.85 at the US close.
Commodities
- Global oil prices jumped by 4% on Friday. Expectations of potential supply cuts at the next meeting of the OPEC+ producer group in June boosted crude sentiment and prices. The Brent crude price rose by US$2.80 or 3.9% to US$75.30 a barrel.
- The US Nymex crude oil price added US$2.78 or 4.1% to US$71.34 a barrel. Brent fell by 5.3% and the Nymex shed 7.1%, down for a third straight week, on demand worries.
- Base metal prices rose on Friday.
- Copper futures gained 0.6% after strong US jobs data brightened the near-term economic outlook.
- Aluminium futures rose by 1.2%. For the week, copper was little changed, but aluminium fell by 1.3%.
- The gold futures price fell by US$30.90 or 1.5% to US$2,024.80 an ounce. Spot gold was trading near US$2,016.50 an ounce at the US close. Gold lifted by 1.3% over the week.
- Iron ore futures fell by US32 cents or 0.3% to US$103.55 a tonne, the lowest level since early December, due to disappointing Chinese steel demand. The steel-making ingredient plunged by 10.8% for the week.
All eyes on the budget
The Federal government is set to implement a $14.6 billion cost of living support plan over the next6 four years and claims that it will not affect inflation.
While increased welfare payments for the unemployed and single parents could add to inflation, Treasurer Jim Chalmers says it will be offset by support measures directly targeting areas that drive CPI.
This includes $3 billion in state and federal funding for one-off energy bill discounts as high as $500 each. The discounts will target 5.5 million low-income households and a million small businesses.
Cheaper prescription drugs will also be available under a $1.2 billion package.
“We’ve designed and calibrated this budget so that it takes pressure off the cost of living rather than adds to it,” Dr Chalmers said.
“Our aim throughout, whether it’s our cost-of-living package or our broader investments in energy and in other ways to grow the economy with low inflation, is to make sure that this budget is part of the solution to high inflation and cost-of-living pressures, not adding to the problem.
“This will be a budget in the best Labor tradition: help for the vulnerable with cost-of-living pressures, an eye on the future, and responsible economic management.”
Finance Minister Katy Gallagher maintained the rhetoric.
"You will see an improvement in the budget bottom line," Gallagher told ABC News Breakfast on Monday. "Where we can provide sensible and affordable cost of living relief and we've talked about that package – we will. We've been very mindful of that. But we've got a whole range of other pressures on the budget that we're juggling as well."
Gallagher said the government has delivered a significant cost of living package that is mindful of the inflation landscape.
"It's a significant package, not just in scale but in the reach we're trying to have with it," she said.
"But I think what it shows is that that really has been front and centre of our thinking as we finalise the budget, how to provide that sensible and affordable cost of living relief against, you know, an environment of high inflation."
The government has reprioritised spending to bring in the package.
"It's been around how do we look at the existing money we have flowing through the budget and how do we reprioritise that into, you know, current pressures, or future needs," she said. "I think that's very good fiscal discipline."
Three things to watch for the week ahead
Josh Gilbert, Market Analyst at eToro, shares his three things to watch in Australia in the coming days.
1. Consumer Confidence - Aussies set to be pessimistic as RBA delivers more pain
Last month, Australian Consumer Confidence surged by 9.4% to the highest level since June 2022 as the RBA left interest rates on hold. However, that confidence might be short-lived as the RBA increased its cash rate last week by another 25bps to 3.85%. This rate hike will squeeze household budgets even further, with retail sales already showing that consumers are spending less, which is the RBA’s aim.
However, this hike will undoubtedly leave Aussies feeling more pessimistic. A saving grace for the index may be the increase in Australian house prices in April for the second month in a row, which may provide some relief to homeowners. Looking ahead it seems that the RBA is now done with its hiking cycle, with rate cuts to occur in the second d half of the year, which should help to increase consumer confidence significantly.
2. US Inflation - Still the most important number in markets
Last week, the Federal Reserve handed down what looks set to be a final 25bps hike in its largest hiking cycle for decades. With inflation moving in the right direction and now falling faster thanks to the banking issues in the US, the central bank appeared to soften its tone on interest rates but reiterated that it would take time for inflation to return to target. Last month, data showed that headline inflation cooled to 5% whilst core CPI increased to 5.6%. Looking ahead to April’s reading, headline inflation is expected to fall again, but only slightly to 4.9%, with core inflation expected to stay unchanged at 5.6%. The main takeaway from this week’s reading will be if inflation remains high with further evidence of sticky core inflation, then there is still work to do to bring inflation back to target. US Inflation is driving recession risks and the Fed, so another sharp decline in inflation will bring some further relief to investors.
3. Chinese Inflation - An outlier to the rest of the world
It’s been a difficult period for Chinese equities since the 2023 peak in February, with the ‘reopening’ trade losing some steam and HSI Tech falling 21%. But as other global economies fight against soaring inflation, China is doing quite the opposite. Chinese CPI rose by 0.7% in March but fell from 1% in February, compared to 6.3% in Australia, 5% in the US and 10.1% in the UK.
Prices in China are falling, and the People's Bank of China are providing plenty of fiscal stimulus and cutting interest rates in order to boost the economy. The worry for the Chinese economy is now deflation; if goods and services continue to fall, consumers will delay spending, therefore increasing economic problems.
However, for now, the economy is recovering, with pent-up demand driving 10% retail sales growth and a sharp recovery in GDP of 4.5%. China is set to be the only major economy to grow more this year than last. Next week’s inflation print will be a key reading on what’s ahead for China, with expectations for inflation to decline once again.