The ASX will edge lower this morning, despite the Dow posting its best week of 2024.
ASX 200 futures are down 15 points to 7,765, as of 8:20am AEST.
The ASX200 finished 1.57% higher last week at 7,749 as Wall Street kept its momentum and the Reserve Bank of Australia (RBA) kept rates on hold.
Looking at the sectors, Utilities gained 4.79%, Energy was 4.34% higher, Real Estate made 2.41% and IT climbed 2.40%. In contrast, Consumer Discretionary lagged 0.52%.
“This week's local calendar holds NAB Business Confidence (today), the Federal Budget (Tuesday), Wages data (Wednesday) before the main event - Labour Force data for April on Thursday,” IG Markets analyst Tony Sycamore said.
“Last month (March), the Australian economy lost 6,600 jobs, versus consensus expectations of +7,200 and the unemployment rate ticked up to 3.8% from 3.7%.
"This month (April), the market expects the economy to add 25,000 jobs and the unemployment rate to rise to 3.9%. The rates market is pricing in a ~20% probability of an RBA rate rise before year-end.”
What happened last week
In the US
Last week, the S&P500 and the Nasdaq locked in a third-straight week of gains and the Dow Jones notched up its fourth straight week of gains supported by a robust earnings season and optimism around Fed rate cuts.
For the week, the Dow Jones gained 2.16%, the S&P500 was 1.85% higher, and the Nasdaq added 1.51%.
“On Friday night, the University of Michigan’s Consumer Sentiment index fell to 67.4 in May from 77.2 in April, reaching its lowest level in six months. This decline was accompanied by a rise in inflation expectations for one year ahead to 3.5%, the highest level in six months,” Sycamore said.
“The US Consumer is a key driver of the US economy, accounting for two-thirds of its GDP on average. With signs of labour market cooling emerging sticky inflation and households’ excess savings officially depleted, warning lights are starting to flash for the 'Goldilocks' economy ahead of this week's all-important inflation data.
“Last month (March) saw a third consecutive month of stronger-than-expected readings. Headline inflation rose to 3.5% YoY, up from 3.2% prior, while core inflation remained at 3.8% YoY, above forecasts of 3.7%. This month, the market is expecting headline inflation to ease to 3.4% YoY, while core inflation is expected to fall to 3.6%.”
Europe, commodities and currencies
(source Commsec)
European sharemarkets closed at record highs on Friday. Leading sectoral gains, utilities advanced 1.4%. Minutes from the European Central Bank's April policy meeting showed that policymakers favoured kicking off the monetary policy easing cycle in June.
- The continent-wide FTSEurofirst 300 index rose 0.8% and was up 3.1% for the week.
- In London, the UK FTSE100 index gained 0.6% and ended 3.2% higher for the week.
Anglo American (JO:AGLJ) added 1.4% on Friday on reports that Rio Tinto (ASX:RIO) had considered an offer for the miner. Rio lifted 0.4%. The UK economy exited recession with GDP growth of 0.6% in the first quarter (survey: +0.4%).
Currencies
Currencies were weaker against the US dollar in European and US trade.
- The Euro fell from US$1.0788 to US$1.0760 and was near US$1.0770 at the US close.
- The Aussie dollar slid from US66.21 cents to US65.96 cents and was near US66.00 cents at the US close.
- The Japanese yen eased from 155.52 yen per US dollar to JPY155.88 and was near JPY155.70 at the US close.
Commodities
Global oil prices fell on Friday as the US dollar strengthened and investors worried that higher-for-longer US interest rates could dampen crude demand.
- The Brent crude price fell US$1.09 or 1.3% to US$82.79 a barrel.
- The US Nymex crude price slid US$1.00 or 1.3% to US$78.26 a barrel.
- For the week, Brent lost 0.2%, while the US Nymex rose 0.2%.
Base metal prices were mixed on Friday.
- Copper futures jumped 1.9% on supply worries.
- Aluminium futures fell 0.9%.
- For the week, copper rose 2.6% with aluminium down 1%.
- The gold futures price rose US$34.70 or 1.5% to US$2,375 an ounce on Friday.
- Spot gold was trading near US$2,360 an ounce at the US close.
- Bullion gained the most in five weeks, up 2.9%, as weaker US jobs data reinforced Fed rate cut bets.
- Iron ore futures dipped US3 cents or less than 0.1% to US$116.93 a tonne on Friday, as the uncertain outlook for China's real estate sector dampened investor sentiment. The steel-making ingredient fell 0.9% over the week.
What's next for Australian market?
Wealth Within chief analyst Dale Gillham gives his take on what to expect from the market in the coming days and weeks.
With the All Ordinaries Index rising over 2% by Wednesday last week, the buyers' message is clear: This is still their market. However, on Thursday, the sellers came back to erode around half of the gain of the previous three days.
In the last report, I highlighted that the market was at a critical point, given that neither the buyers nor the sellers had the upper hand, setting the stage for a significant move, either up or down.
While a rise of over 2% this week certainly qualifies as the anticipated decisive move, is it sustainable? It will be interesting to see where the market finishes on Friday as a high close will indicate the market is more bullish, while a low close might indicate we have more downside to come.
What's intriguing is that the odds favour a market downturn rather than an upturn, especially given that May historically tends to be a negative month. Given this, I am still not ruling out a move down to 7,500 points in May, even though it’s less likely given this week's strong move.
What is interesting is that the move up this week pushed the XAO solidly past the key 8,000-point threshold, which had posed a challenge in recent weeks. If the market can close to stay above this level, I believe there's a good chance it could hit new all-time highs by the end of May. That said, we need to be patient and wait for confirmation, as jumping in too early could result in losses.
I suggest those looking to buy take a closer look at the Utilities sector, which had its best week since October 2023 this week, and is the second-leading sector in terms of performance this year.
What about small caps
The S&P/ASX Small Ordinaries finished 0.65% higher on Friday to 3,048.20. Over the five days, it gained 1.54%.
It has been a steady start to the morning on the news front and you can read about the following and more throughout the day.