The ASX is expected to rise today, with futures higher in the early morning. It follows a rally by US stocks on Friday after better-than-expected earnings from Citi and Wells Fargo. US retail sales and consumer confidence data also beat economist expectations.
Essentially, solid earnings from high profile companies, healthy consumer spending data and signs that inflation is slowing helped Wall St rise.
“The market is getting a little bit more convinced that the Fed is probably not going to be delivering a full point rate increase at the end of the month and that we’re getting close to seeing peak Fed tightening get priced into the market,” Oanda senior market analyst Ed Moya said.
All 11 US sectors were green with Financials the best performed ahead of Healthcare and Communication Services which outperformed and Defensives including Utilities and Staples, which underperformed.
Here’s what we saw (source Commsec):
- The Euro rose from lows near US$1.0005 to highs near US$1.0095 and was at US$1.0087 at the US close.
- The Aussie dollar rose from lows near US67.20 cents to highs near US68.00 cents and was near US67.92 cents at the US close.
- The Japanese yen rose from near 139 yen per US dollar to JPY138.42 and was near JPY138.53 at the US close.
- Global oil prices rose by near 2% on Friday after a US official told Reuters that an immediate Saudi oil output boost was not expected.
- The Brent crude price rose by US$2.06 or 2.1% to US$101.16 a barrel.
- The US Nymex crude price rose by US$1.81 or 1.9% to US$97.59 a barrel. Over the week Brent crude fell by 5.5% and Nymex lost 6.9%.
- Base metal prices rose on Friday by up to 6% (lead). But nickel fell by 0.1%. Over the week metals fell by between 1.9% and 10.1% with nickel down the most. But lead rose 1.9%.
- The gold futures price fell by US$2.20 or 0.1% to US$1,703.60 an ounce. Spot gold was trading near US$1,707 an ounce at the US close. Over the week gold fell by US$38.70 an ounce or 2.2%.
- The iron ore futures price fell by US$1.89 or 1.8% to US$103.
Reporting season trends
Equity strategists at Morgan Stanley (NYSE:MS) have reported five key themes they see will drive the August reporting season.
"August result season looms and we look to five key themes that will drive sentiment and risk appetite: (1) consumer spending trends, (2) cost of debt sensitivity, (3) AUD tailwinds, (4) bank sector sentiment and (5) corporate narrative around inflationary pressures," MS strategist Chris Nicol said.
The analysts believe earnings estimates are stale despite valuations adjusting for aggressive monetary policy.
"The still resilient macro data suggest the story is not about beats and misses but rather a recalibrating of outlooks," the analysts added.
"Investors should look to broader influences that will drive what companies are prepared to put on the expectation map."
It could be a tough reporting season for miners, especially with iron ore prices falling below $100 per tonne for the first time this year. Investors have been warned to trim their exposure to the sector.
That will turn around, but not for some time.
According to veteran mining analyst Dr Glyn Lawcock iron ore prices will average a relatively healthy $US110 per tonne in 2023 while coking coal is tipped to average $US200 per tonne.
“We see iron ore prices lifting into the end of 2022 on China stimulus and expectations of a better 2023 given the disappointment of 2022 in China due to lockdowns,” he said.
The mining sector has shielded itself well enough from uncontrollable factors by generally maintaining low debt levels and frugal spending on projects.
“The thing that strikes me most starkly this cycle relative to any other cycle I have been through is we come into this downturn with low [product] inventory and not a lot of projects under construction,” Dr Lawcock said.
“We don’t come into this downturn with as much supply, so I don’t think we exacerbate the downside as much this time, and we are coming into a downturn with good balance sheets.”
US markets
Shares in Citigroup rose 13.2% after its profit beat expectations. Shares in Wells Fargo rose 6.2% after its earnings result.
The S&P Banking index jumped 5.8% - its biggest one-day gain since January 2020. The Dow Jones index rose by 658 points or 2.2%, the S&P 500 index lifted 1.9%. The Nasdaq index added 201 points or 1.8%.
Over the week, the Dow lost 0.2%; the S&P 500 lost 0.9%; and the Nasdaq fell by 1.6%.
European markets
Also enjoyed a strong finish to the week.
Investors were comforted after two of the US Federal Reserve policymakers said they favoured a 75 basis point hike at the next meeting rather than 100bp as some analysts expect.
Italian shares rose 1.8% as investors watched developments in a political crisis. The panEuropean STOXX 600 index rose by 1.8%. The German Dax index gained 2.8% and the UK FTSE index rose by 1.7%.
In London trade, shares of Rio Tinto rose by 0.3%; BHP shares rose 1.8%.