The ASX is set to open lower this morning, with ASX Futures (SPI 200) implying the ASX 200 will open 7 points lower, down 0.1%.
The outlook for the week is looking a little grim.
Wall St is also set to open lower, with US inflation data due on Wednesday night.
History shows that with inflation data comes a market sell-off. The trend started at the beginning of 2021, when month-on-month inflation prints were above consensus 12 times, and below expectation only once, in August 2021.
In 2022, the S&P 500 has fallen at each inflation print except January. The average fall is -1.04%.
Fed governor Michelle Bowman said last week that "I have seen few, if any, concrete indications that support this expectation, and I will need to see unambiguous evidence of this decline before I incorporate an easing of inflation pressures into my outlook."
Jobs may also continue to affect the market.
US stocks closed mostly lower Friday after a much stronger than expected reading on July employment.
The data reinforced expectations for the Federal Reserve to keep aggressively raising interest rates in its bid to rein in inflation.
“It puts 75 basis points squarely on the table for the Fed in September,” chief investment officer of Plante Moran Financial Advisors Jim Baird said. The jobs report “ups the ante for the Fed and puts them in a position where it should be an easy call for them to continue to tighten.”
Seema Shah, chief global strategist at Principal Global Investors, said of the July US jobs report: “Today's blow out number means that a 75bps hike in September is almost a done deal. Not only is the labour market undoubtedly still tight, but wage growth is uncomfortably strong. The Fed has its work cut out for it to create sufficient slack that could ease price pressures.
“All the jobs lost during the pandemic have now been regained. But while that is positive news, markets will take today's number as a timely reminder that there is significantly more Fed hiking still to come. Rates are going above 4% – today's number should put to bed any doubters.”
The Labor Department reported Friday that the US economy added 528,000 jobs in July, far exceeding the 258,000 consensus estimate. The unemployment rate ticked down to 3.5%, matching the lowest level since the late 1960s, while average hourly earnings climbed 15 cents, or 0.5%, to $32.27.
Some analysts see the data as a positive sign the US economy can withstand rate hikes.
“The economy is clearly firing on all cylinders as this morning’s job report showed growth across all sectors. The release should quiet the bears in the room who have been crying recession in recent days,” Commonwealth Financial Network head of portfolio management Peter Essele said.
“Strong jobs growth and moderating price inflation should help extend the current relief rally through the end of the year,” Essele told MarketWatch.
Here’s what we saw on the markets overall (source Commsec):
- The Euro fell from highs near US$1.0235 to around US$1.0140 and was near US$1.0180 at the US close.
- The Aussie dollar fell from near US69.75 cents and US68.70 cents and was near US69.10 cents at the US close.
- The Japanese yen fell from near 132.88 yen per US dollar to JPY135.50 and was near JPY134.97 at the US close.
- Global oil prices rose around 0.5% on Friday on position squaring but finished sharply lower over the week.
- The strong US jobs data supported oil prices on Friday, but for the remainder of the week investors fretted about the possibility of global recession.
- The Brent crude price rose by US80 cents or 0.8% to US$94.92 a barrel.
- The US Nymex crude price rose by US47 cents or 0.5% to US$89.01 a barrel. Over the week Brent crude fell by 13.7% with Nymex down 9.7%.
- Base metal prices rose by as much as 2.6% on Friday with lead up the most. The exception was tin, down 0.6%. Over the week zinc rose 5.3% and lead rose 2.8% but nickel fell by 6.1%.
- The gold futures price fell by US$15.70 an ounce or 0.9% to US$1,791.20 an ounce. Spot gold was trading near US$1,774 an ounce at the US close. Over the week gold rose by US$9.40 or 0.5%.
- The iron ore futures rose by US$2.61 or 2.5% to US$109.11 a tonne. Over the week iron ore fell by US$6.37 or 5.5%.
Australian market
It’s full on this week for companies’ earnings, which will give a little insight into how the Reserve Bank’s interest rate rises are affecting the economy.
The major banks including Commonwealth Bank of Australia (ASX:CBA) and National Australia Bank Ltd, Suncorp Group Ltd, Insurance Australia Group Ltd, AMP Ltd, Telstra Corporation Ltd (ASX:TLS) and Woodside Group Ltd are set to report financial results this week, interspersed with a flurry of business and consumer confidence surveys.
We’ll see what the market makes of these in combination with the release of US data.
There had been talk among investors that central banks would switch to cutting interest rates as early as the first half of 2023, but due to job numbers being more than double expectations and returning payrolls to pre-pandemic levels, this is unlikely.
What's next for the Australian stock market?
Wealth Within founder and chief analyst Dale Gillham said: “The rise on the All Ordinaries Index has slowed, as the market was just in the green last week, which is understandable given that the second half of July was very bullish rising over 5%. As I mentioned last week, the strong move up in July is a very good sign that the bullish run will continue, however, markets don’t just rise up, they move up in stairs.
“Last week there has been some indecision and weakness in the market, with the lower close on Friday I expect the market will fall for one or two weeks to create the next step for the move up I am expecting towards the end of the year. That said, I will continue to recommend you be cautious, because as we have seen several times in the last few years, the market can move in either direction very quickly. One thing I am certain of is that a down move now will either confirm whether the low of 6,581 on June 20 is the bottom of the bearish run this year.
“Remember, we are in reporting season and while I believe we will see some good results, you need to expect the unexpected, which means the market or stocks you are looking at may be volatile for a short period of time."
US markets
US sharemarkets were mixed on Friday. Technology stocks fell after the strong jobs reported suggested that the aggressive rate hiking campaign by the Federal Reserve will continue.
Shares in Tesla fell 6.6%. Shares in Lyft surged almost 17% after the ride hailing firm posted record quarterly earnings and raised profit targets. The Dow Jones index rose by 77 points or 0.2%. The S&P 500 index fell by 0.2% and the Nasdaq index fell by 63 points or 0.5%. Over the week the Dow fell 0.1%; the S&P 500 rose 0.4%; and the Nasdaq gained 2.2%.
European markets
Were lower on Friday as investors weighed up strong US jobs growth and mixed earnings results. Miners rose 1.1% and oil stocks rose 0.6%. Shares in Lufthansa rose 4% after ground staff reached a pay deal. The pan-European STOXX 600 index fell by 0.8%. The German Dax index lost 0.7% and the UK FTSE index fell by 0.1%. In London trade, shares of Rio Tinto rose by 2.0% while BHP shares rose by 1.9%.